From next Dec until the day I retire we will only have about £350 to invest per month - that is around 25% of what we are currently putting away. I intend to continue to pay £50 in to my LGPS AVC (this can't be taken until I take my my pension which I intend to do at 63 but it can all be taken as part of the tax free lump sum so I think it's worth it) and also continue paying £45 into my CIS FSAVC until such time as I transfer it into my SIPP (not sure when this will be yet). The rest will go into my SIPP.
By the time we both have our defined benefit and state pensions in payment, along with our rental income, we will be up to around £37,000 which is more than enough to maintain our current standard of living. So it is only the years between when I retire and when I get my LGPS pension at 63 that I need to worry about. I have estimated that the minimum income I require each year to take the household total up to the £28,500 we need (with £32,000 being a more comfortable target) is £12,500 until 2018 when my husband draws state pension and £6,800 from then till I draw my LGPS. The sooner I have enough to cover this, the sooner I can retire. But, of course, the sooner I retire, the more I need to cover.
The equation's quite tricky but after some deliberation I've come up with the following conclusions/key facts:
- The earliest date I can hope to stop working is March 2016. This may happen if the offer of voluntary redundancy/early retirement materialises next year.
- I could only really take this up if my redundancy pay would be around £20,000 (as expected) and/or my pension would become payable immediately as part of the deal.
- Without the help of redundancy payments I would need around £80,000 saved in my personal pensions to leave at this date. The bottom line is that we do already have this in our combined funds, but our overall plan includes leaving our S&S ISA capital alone in case we need it for care fees etc so I'm avoiding bringing that and our £20,000 cash emergency fund into the equation. (Although I am allowing myself to figure 3% dividends from the ISA as being available to top up our income).
- Currently my personal pension stands at £24,600 and I am paying a total of £845 per month into it (made up to £1,057 by HMRC). By March 2016 this can only be expected to have grown to about £40,000 which won't be enough no matter how I cook the books.
- By March 2017 (the date at which I would realistically like to retire) my personal pension should have increased to around £45,000 (given the reduction in contributions in a year's time). At this point I will need £67,500. So I am short by £22,500 before I figure in ISA dividends. Taking those into account at around £2,000 per year, I am still £10,500 short. (I need £55,500 in total).
- If I reduce my ISA payment from £300 to £100 per month I could increase my monthly payment into my personal pension for the next 12 months to £1,045 (£1,300 after tax credit). In addition to the reduced contributions (£250/£300 per month) for the remaining 16 months to March 2017 I should have £48,000 which still leaves me £7,500 short.
- I need to reduce spending enough to be able to up my pension payments to around £1400 per month for the next 12 months or I need to be prepared to reduce our emergency fund to £10,000, or a combination of both to cover the shortfall.
- Save at least £1045 per month in my SIPP/FSAVC
- Save £100 per month in my ISA
- Look at spending very carefully - try to cut back by at least £100 per month to allocate for boosting pension even further.
- Cross fingers and hope the markets don't dive :-)