An addendum to my calculations is that I’m in my mid-50s, I’ve taken the conservative view that I will probably never see a state pension, that they’ll means test it between now and when I reach my late 60s. I have no real idea whether they will, but as it’s out of my control I’ve budgeted for the worst case.
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YW! I can also add that working with an advisor will give you peace of mind. Even though you CAN figure this stuff out on your own, it’s nice to work with someone who does not have the obvious emotional attachment to your money and well-being that you do. Thus, physicians often do not treat themselves 
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Mid-50’s here too! Yikes, I hadn’t considered a means tested state pension - Really? Can they impose this?
G
I don’t know, but it is the one element of my finances I have no control over at all. So my pensions are all index-linked, my investments are in managed funds I review twice a year with my IFA and in fixed-rate accounts with banks covered by the FSCS guarantee, so as much as possible I have control over that income. The state pension is in the end under control of the incumbent government, so I have taken the view that anything could happen in the 11 years between now and my state pension, so assume I don’t see it, and if I do it’s a lovely bonus.
Regards state pensions, it’s possible they might be means tested, but that’s becoming a bit political.
Do you have a company pension scheme and if so is it a defined benefits scheme, or some sort of defined contribution scheme ?
USS Don…It’s a complicated hybrid which I can get my head round for short periods of time then forget and have to remind myself how it works all over again!
G
Of course, it could be done through a change in the law. But whichever Government chose to do it would probably never get elected again.
If you look online the standard advice is that a couple needs £26,000 a year cash for a comfortable retirement and £42,000 for a ‘luxury’ one. The additional amount reflects one long haul holiday per year and a new car every five years.
We have been through all this after my little blip three years ago, and more recently when Mrs HH retired at 55. So much depends on where you are willing to compromise: a Naim or Rolex habit is not really compatible with a more modest income.
Our pensions are occupational and index linked. We have a bit of savings but I’ve never really worked out how much savings is ‘needed’. I guess if the income is sufficient the amount of savings can be lower. This is actually one of the most interesting questions that’s been asked on here for ages, and has huge impacts on what may be thirty years of your life. But nobody can/will actually say ‘we live on £X and are able to do Y.
The best change we made was to swap two cars for one and buy a tiny caravan. We can go to Provence as part of the early summer ‘grey wave’ and camp for €20 a night.
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The general rule is that if you have a defined benefit index linked occupational scheme you would be a fool to take the pot elsewhere. Your pensions people will be able to give clear estimates based on various retirement dates. If you take it earlier it will be subject to an actuarial abatement. My wife’s pension was abated by 40% but then she gets it 12 years early. You don’t actually get less cash over time but it needs due consideration.
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These figures are helpful HH, thanks. We’ve always pooled our finances as one income and are looking at retiral income the same way.
G
It’d be worth checking whether the USS has a pension modelling tool. My employer’s pension scheme had an online portal on which one could model benefits based on different retirement dates, I made heavy use of that when planning my leaving date and the experiment in affordability I described above. (I had models for all retirement dates from June 2019:to June 2020.)
It does Eoink but one need a degree in pensions to understand all the elements! @anon4489532 already mentioned ‘actuarial adjustment’ which my pensions officer explained to me at the time…When I then went on to try and explain it to my wife it was a masterclass in misinformation!
G
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This is another area where an IFA can be very useful as suggested by Bart, if you have a good one they can translate from arcane terms to “what it means to you”.
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Something not mentioned yet, but very important, is the tax liabilities of your income, whether salary now, or pension later.
Best advise so far is to get good professional advise, as this will also help maximise tax benefits “pre retirement” and guide you for pension payments to minimise tax liabilities “post pension”
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Graeme, you need to be careful with the advice here. Public sector and private schemes are very different. For the USS I’m pretty sure you’d get all the advice you need from work, as it’s simply a case of modelling dates. Where you may need advice is on how best to invest any lump sum, taking account of your risk appetite. We have about £3,000 invested in funds, wrapped in an ISA. But even though it’s spread it can zoom up and down. It’s just a bit of fun. But if it was £300,000 and our security depended on it it would be much more nerve wracking. So, being really boring our savings are almost exclusively in National Savings Guaranteed Growth Bonds and Premium Bonds. The former are now closed to new investments as Government doesn’t need more money, or can get it cheaper. Premium Bonds are great fun though and every month there is a chance of getting that million. But of course unless you reinvest it’s value diminishes.
The actuarial reduction is really simple. Say you have built up a pot that based on current service would be worth £20,000 at age 67, or whatever the scheme’s retirement age is. If you take it at 66 it would be reduced by 3% or whatever. But if you took it at 55 it would be reduced by about 40%, with a sliding scale between. This is the LGPS but the USS will have a similar scale. You then need to know what proportion of your salary you accrue each year. If you earn £45,000 and the scheme gives 1/45th each year then your pension increases by £1,000 per year. So it’s easy to work out the future pension. If you work another 12 years it grows by £12,000. Then you just apply the abatement. Add a bit on, take a bit off. This is actually one of the few things I understand!!
I understood that bit!
Seriously, thanks HH. That’s good sound advice. Part of the inheritance was invested in Premium Bonds which regularly brought in four £25 cheques every month. We might put it back to those after the estate is disbursed.
G
Everybody is different - income, expenditure, pension pot, health, dependents, attitude to financial risk…and many more too numerous to mention. All these things need serious consideration at an early stage to determine the optimum route for future investment, pension contributions and outgoings. I have paid into a USS pension scheme for more than 40 years. While this scheme has worked well for me, the best thing I ever did was to get some expert advice from a truly independent advisor. I wish I had done this at 47 rather than 57!
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On the investment into pensions, don’t forget that you have an annual allowance (£40k, or less for high earners) and that you can go back for 3 (I think) tax years and top up to the 40k figure for those also. Any contributions you make are net of tax
If the USS doesn’t let you make AVCs I’m sure there are plenty of pension providers who would; but as always it’s worth getting advice on this.
I would imagine this would be a fairly good use of some of your inheritance since you’ll effectively inflate it with tax rebates and can then pull it out when you retire as part of the 25% tax free lump sum. But again… get advice on this!
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Thanks Stephen. I will get advice but my thinking is to use what would have been our monthly mortgage payment and now redirect this to my pension.
G
Without wishing to be offensive, is this, as we say in the UK, a wind up, on £2.5k per head per month travel will be limited?
That sort of income figure would put you easily in the top 5% of pensioners in the UK.
Assuming no mortgage and no debt, what are you going to spend £5k plus net a month on, Statement?
Most people in Europe rent their homes, so they have to continue paying rent into retirement.