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Minimum Amount To Retire

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Warning: Boring pension maths, just my usual going on about salary sacrifice and EMTR.

My effective marginal tax rate is 63% (EMTR includes all benefits, NI, income tax) using salary sacrifice via employer, putting £37 net into pension gets a fund of £100.

At age 55, take out £25.

So far, £12 of contributions has resulted in a fund of £75.

Then withdraw 4% per year. It takes 4 years to withdraw £12.

So at age 59, £0 of contributions has resulted in a fund of £63. That can then be withdrawn over time as pension at basic rate and without NI.

Although it appears that it is free money, it's just making use of the pension laws to keep more of what I earn now. Much of the income I give up now in the 40% income tax band gets back to me at 0%, the rest at basic rate.

(Everything assumes zero fund charges and investment gain/losses)

Lessons:

1. You and your employer pay National Insurance on your earnings now but you do not pay this on pensions. Delaying that income via salary means you can get out of this (double) tax.

2. Income give up now at your EMTR can be recovered later at basic rate or better.

3. Work out your EMTR!!

(I'm also looking at the viability of living outside the UK for 5 years post retirement to pull out the whole fund tax free under the new flexible drawdown scheme).

Just to clarify, as I am due to lose £24.50 child benefit per additional £100 earned what does that make my EMTR?

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Boredom?

I qualified for pension credit September 2012 and am in an idle rut. Worst part is I'm not that bothered about being in a rut. Being on pension credit means there is no financial gain to me from doing any kind of paid work. If someone repays a debt to me owed from before I retired, I'm supposed to declare that and have them lower my pension credit by said amount. I'm hoping I snap out of it once I qualify for pension proper and get a little earner going. Not really for the money, that's just a way of keeping score.

Financially I'm fine, my e-cig is way cheaper than tobacco and I can drink as much as I like for a tenner a week as I homebrew. One weeks income pays all the direct debits and my day to day spending comes to half my income including a cafe breakfast most mornings. I'm saving a weeks income a month without even trying.

Do you mean in 2012 you qualified for state pension but "pension proper" is an occupational scheme that is still to kick in?

Whhooaaaaa... watch those savings don't mount up too much, where they can be seen, if you are on PC.

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The only index rental income is linked to is wage inflation. That is, and has been for quite some time, well below the inflation in food and energy bills - the disproportionately large part of most pensioners spending.

I fail to see how rents will increase anywhere but the separate country of London - where wages, or at least bonuses, seem, for now, to be increasing.

Yes, in my area thay would buy 3, 3 bed houses at £700 pm each.

Even allowing for agency fees, repairs and voids you are going to easily clear £1k a month, effectively index linked and with you capital preserved.

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The only index rental income is linked to is wage inflation.

Rental income is not indexed to wage inflation either. As other essential living costs (food, utlities, transport to work) increase as a share of wages, less will be available to pay for rent.

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There is an annuity calculator here:

http://www.find.co.uk/pensions/annuities_centre/annuities-calculator

£500k

age 55 = £25,424 or inc RPI £14,084

age 60 = £28,124 or inc RPI £16,724

age 65 = £31,784 or inc RPI £20,384

I haven't worked in UK for 20 years so only know a little about the rules, but is it correct if you have UK private pension you need to buy an annuity by law with the lump sum. To my thinking that would be outrageous if it is true. A total rip off and you would need to be a mug to buy one giving up your capital for measly return.

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Just to clarify, as I am due to lose £24.50 child benefit per additional £100 earned what does that make my EMTR?

As far as I know, you should only lose £10 child benefit per £100 once your income is £50K+ (and get nothing at £60K).

So your EMTR is probably well over 60% (40% income tax, 12% employer NI, 2% employee NI, 10% child benefit withdrawal). If you have student loans, that adds another 9%.

(NI figures are from memory but are in the right ballpark)

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I haven't worked in UK for 20 years so only know a little about the rules, but is it correct if you have UK private pension you need to buy an annuity by law with the lump sum. To my thinking that would be outrageous if it is true. A total rip off and you would need to be a mug to buy one giving up your capital for measly return.

You can do income drawdown up to 75. This is where you take some capital out of the fund but its all still in your name. Rate of withdrawal is equivalent to an annuity.

If you can get to a £20K guaranteed income (includes any state pensions), then you can take the lot out in one go at your marginal rate. It's hard to believe but true. They call it flexible drawdown.

Even if you paid in as a 40% tax payer and collected as a 40% taxpayer, you just dodged employer/employee National Insurance if done through a salary sacrifice scheme.

Edit : The 25% tax-free lump sum effectively reduces the 40% tax rate to 30%.

Edited by VeryMeanReversion

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Rental income is not indexed to wage inflation either. As other essential living costs (food, utlities, transport to work) increase as a share of wages, less will be available to pay for rent.

Many tenants pay their rent from Housing Benefit

Rents will carry on rising in line with the government's willingness to increase the Housing Benefit element of the budget.

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Boredom?

I qualified for pension credit September 2012 and am in an idle rut. Worst part is I'm not that bothered about being in a rut. Being on pension credit means there is no financial gain to me from doing any kind of paid work. If someone repays a debt to me owed from before I retired, I'm supposed to declare that and have them lower my pension credit by said amount. I'm hoping I snap out of it once I qualify for pension proper and get a little earner going. Not really for the money, that's just a way of keeping score.

Financially I'm fine, my e-cig is way cheaper than tobacco and I can drink as much as I like for a tenner a week as I homebrew. One weeks income pays all the direct debits and my day to day spending comes to half my income including a cafe breakfast most mornings. I'm saving a weeks income a month without even trying.

Don't forget that if you are on Pension Credit you should have a large reduction in your council tax.

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You can do income drawdown up to 75. This is where you take some capital out of the fund but its all still in your name. Rate of withdrawal is equivalent to an annuity.

If you can get to a £20K guaranteed income (includes any state pensions), then you can take the lot out in one go at your marginal rate. It's hard to believe but true. They call it flexible drawdown.

Even if you paid in as a 40% tax payer and collected as a 40% taxpayer, you just dodged employer/employee National Insurance if done through a salary sacrifice scheme.

Edit : The 25% tax-free lump sum effectively reduces the 40% tax rate to 30%.

I am no expert.....but if your pension income is below £10k what benefit would their be having a tax free lump sum instead of index linked at the max income no lump sum.......if healthy fit with plenty of life left in you hopefully for many years to come? ;)

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I am no expert.....but if your pension income is below £10k what benefit would their be having a tax free lump sum instead of index linked at the max income no lump sum.......if healthy fit with plenty of life left in you hopefully for many years to come? ;)

Tax free. Invest it somewhere if you prefer the income to the lump.

Bear in mind the £10k personal allowance is mostly - for some wholly - absorbed by the state pension as soon as you reach the magic age.

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I haven't worked in UK for 20 years so only know a little about the rules, but is it correct if you have UK private pension you need to buy an annuity by law with the lump sum.

No longer true. Even if you're not confusing the aggregated pension fund with the tax-free lump sum.

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Tax free. Invest it somewhere if you prefer the income to the lump.

Bear in mind the £10k personal allowance is mostly - for some wholly - absorbed by the state pension as soon as you reach the magic age.

....sure, but the state retirement age is fast becoming a figment of the imagination something that is becoming that far away from reality, something many people will never reach and if they do it will hardly be worth the effort.....50 or 55 as it is now to 66 or 70 still gives 15 to twenty years at compounded inflation covered interest growth...for example could a btl match that ? ;)

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Many tenants pay their rent from Housing Benefit

Rents will carry on rising in line with the government's willingness to increase the Housing Benefit element of the budget.

Housing benefit is only one source of the money that goes towards private rents. The other sources of rent money (especially wages) will also affect the level of rents, as will the supply of rental property.

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Many tenants pay their rent from Housing Benefit

Rents will carry on rising in line with the government's willingness to increase the Housing Benefit element of the budget.

Why is there so much in the press recently about landlords not wanting housing benefit tenants then?

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Don't forget that if you are on Pension Credit you should have a large reduction in your council tax.

Even if a Pensioner doesn't qualify for Pension Credit, they could still qualify for Council Tax Reduction, as a low earner.

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What is the minimum amount of money in the bank to retire is 500k pounds enough to live modestly assuming that and state pension.

I would think that in my case, a total sum of about £200 would be enough. The first week would be like having a week off work. The second week would be alien to me. I think by the end of week three, I would have died of boredom.

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I would think that in my case, a total sum of about £200 would be enough. The first week would be like having a week off work. The second week would be alien to me. I think by the end of week three, I would have died of boredom.

You really need to get some hobbies and interests outside of work....

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You really need to get some hobbies and interests outside of work....

laugh.gif that's very true. Far too much negative thinking these last 30 years or so!

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I would think that in my case, a total sum of about £200 would be enough. The first week would be like having a week off work. The second week would be alien to me. I think by the end of week three, I would have died of boredom

Im going to be in this position very shortly (14 days time in fact) i have loads of things lined up, will be alternating road cycling, weightlifting, running in rolling 3 day blocks,

allweather horseracing in evenings, visit freinds etc

might even do a big jigsaw lol

Edited by workingpoor

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I took early retirement last year at age 50 with a net monthly pension of circa £2k per month.

I didn't really have a plan for retirement and I don't think I used the time wisely, mainly tootling around cafes and bars and generally just hanging around. A bit lonely at times as most people of my age are still working and the people you bump into during the day are quite a bit older.

Anyhow, recently went back into full time employment and feel life is more purposeful again.

My thoughts are about retiring again in say 2/3 years time but with a proper plan, possibly renting abroad for a few years (maybe the Canary Islands).

Also, looking at putting max salary into a flexible drawdown pension. As stated above, save 40% + NI going in and pay 20% tax coming out. Drawing out the maximum I can but just staying below the 40% tax barrier.

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Do you mean in 2012 you qualified for state pension but "pension proper" is an occupational scheme that is still to kick in?

Whhooaaaaa... watch those savings don't mount up too much, where they can be seen, if you are on PC.

The current pension rules break the sex discrimination act, hence pension credit taking up the slack. ie. With enough NI contributions, women my age are eligible for a pension, or maybe means tested pension credit if not enough contributions. Men my age may be eligible for means tested pension credit but not pension proper. I qualify for pension proper on my 65th birthday unless they move the goalposts again.

Just because I'm accidentally saving, it doesn't mean I don't splash out once in a while. :) Of course me splashing out might be basic lifestyle to others, these things are relative.

I really can't understand the fuss about 'poor pensioners'. I feel like I've been lied to forever as they are throwing money at me. £147 a week, full HB, 100% council tax rebate, no bedroom tax, £200 winter fuel allowance, £10 Christmas bonus and a new one, £135 (iirc) a year off my leccy bill. Oh and free local bus travel anywhere in England. Downside is that I'm handcuffed into not earning anything unless I accept a lower standard of living or (very unlikely) wangle a £20+k job.

No complaints overall, apart from a couple of years early on pen pushing, I've worked long hours in all my jobs and have done my share of paying other peoples pensions.

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The current pension rules break the sex discrimination act, hence pension credit taking up the slack. ie. With enough NI contributions, women my age are eligible for a pension, or maybe means tested pension credit if not enough contributions. Men my age may be eligible for means tested pension credit but not pension proper. I qualify for pension proper on my 65th birthday unless they move the goalposts again.

Just because I'm accidentally saving, it doesn't mean I don't splash out once in a while. :) Of course me splashing out might be basic lifestyle to others, these things are relative.

I really can't understand the fuss about 'poor pensioners'. I feel like I've been lied to forever as they are throwing money at me. £147 a week, full HB, 100% council tax rebate, no bedroom tax, £200 winter fuel allowance, £10 Christmas bonus and a new one, £135 (iirc) a year off my leccy bill. Oh and free local bus travel anywhere in England. Downside is that I'm handcuffed into not earning anything unless I accept a lower standard of living or (very unlikely) wangle a £20+k job.

No complaints overall, apart from a couple of years early on pen pushing, I've worked long hours in all my jobs and have done my share of paying other peoples pensions.

I assumed that Pension Credit kicked in at state pension age but after reading your post found this:

Can I claim Pension Credit?

The minimum age to qualify for Guarantee Credit is gradually rising from age 60 to 66. It is currently 61 years and six months. The current minimum age for Savings Credit is 65.

Pension Credit is means-tested so your income and savings are taken into account when it is worked out.

http://www.ageuk.org.uk/money-matters/claiming-benefits/pension-credit/

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That ageuk site is out of date. A woman I know who is 62 on June 6th doesn't get her pension until September 6th. My ex turns 62 in March and gets her pension then.

This site gives an overview:

http://www.adviceguide.org.uk/england/benefits_e/benefits_older_people_ew/benefits_for_people_over_sixty.htm#h_state_pension_age

State pension age for women

If you were born before 6 April 1950, your state pension age is 60.

If you were born on or after 6 April 1950 but before 6 December 1953, your state pension age will be somewhere between 60 and 65, depending on your date of birth.

If you were born on or after 6 December 1953 but before 6 April 1978, your state pension age will be somewhere between 65 and 68 depending on your date of birth.

If you were born on or after 6 April 1978, your state pension age will be 68.

You can work out the exact date of your state pension age by using the state pension age calculator on the GOV.UK website. Go to: www.gov.uk.

State pension age for men

If you were born before 6 December 1953, your state pension age is 65.

If you were born on or after 6 December 1953 but before 6 April 1978, your state pension age will be somewhere between 65 and 68 depending on your date of birth.

If you were born on or after 6 April 1978, your state pension age will be 68.

You can work out the exact date of your state pension age by using the state pension age calculator on the GOV.UK website. Go to: www.gov.uk.

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I'm 42 and 'semi-retired', in that I downsized abroad and work three days a week online for a UK employer. I also had the good fortune to marry a lady who owns her (small) flat outright.

My current plan is to retire (as an employee) by 67, when the combination of my private and state pensions will kick in. I also may benefit from an inheritance. All these combined should give a reasonable quality of life in retirement.

However, I am aware that chickens should never be counted before they hatch, and 2 or even all 3 of the above may not happen, pluse there's always the possibility of divorce, illness etc so I am also spending time building up passive income through my own online business, which I hope to bring up to a minimum wage level (based on lower living costs abroad) in the next 5 years or so. When I retire from being an employee I hope to keep this business going to keep my mind occupied in retirement.

Spare money is spent buying physical gold or items that will maintain or increase in value, or which will help me save money (such as tools and books) or which will improve physical health and wellbeing.

I also consider frugal living/moneysaving to be a job, and try to cut living expenses as much as possible while retaining a good quality of life. (This is actually a lot easier than most people think).

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