I want to retire at 58 – can my savings bridge the gap until I get my pension?

In our Pensions Crisis Coach series, we aim to help ease your retirement worries. Are you concerned you’re not saving enough for your later years? Do you want to know if you have enough to retire or don’t know how to find your lost pensions? Email us at money@theipaper.com. We’ll seek to get you on the right track with help from some of the best financial experts and advisers in the business. Robert writes…I’m 56 and want to retire in two years. When retired I want to spend more time doing my hobbies which are all low or no cost – walking, art, swimming, reading. I have no real concerns except for when I must pay for big ticket unseen costs like a new roof or replacing the car. Currently none of these are on the horizon and I hope there would be enough in my funds for this when needed. I just want to maintain my current standard of living. Do I have enough? Shorts Alina Khan, the i Paper’s money coach reporter responds… to be able to ascertain if you can retire in two years we need to have a clearer picture of your finances. After some back and forth you told me by then you should have £130,000 in a Stock and Shares ISA and £80,000 in a Prudential retirement fund plus £30,000 in cash savings. That’s £240,000 that you can access now if you want to, as private pensions can be accessed from age 55, and ISAs can be drawn from at any time. You also have two ‘defined benefit’ (DB) pensions. These guarantee an annual income for life, rather than being a savings pot – and they’re very sought after. You will get one at the age of 67 that will pay you £18,000 a year as well as a £10,000 lump sum, while the second will pay you £3,000 a year with a £4,000 lump sum once you turn 65. You own your home, have paid off the mortgage and you have no dependents, and you also mentioned you will also be in receipt of a full state pension once you turn 67. Of course, given you want to retire at 58, well before you receive your state pension and DB pensions, you will need a plan to bridge the gap in the meantime. The good news is, I spoke to an expert who thinks your plan is broadly do-able. Jennifer Crichton, associate planning director at wealth manager, Killik & CoChrichton said: “I have run a basic cashflow for you based on the details you’ve provided and using standard assumptions for growth and inflation. “This confirms you can retire within two years and meet your basic spending needs and some higher unexpected expenses like a new roof, though you may not have sufficient liquidity for significant care costs later in life without utilising equity within your property.” Let’s break down your plan bit by bit, and tackle the figure you’re using to cover so-called big ticket costs first. Crichton says that your £30,000 is a “great cash reserve” for emergencies like this. “Your next task is to shop around for a good interest rate for this, but make sure the money remains accessible. This is your rainy-day fund,” she says. The best easy-access accounts – which can be accessed at no notice and for no charge – pay well over 4 per cent. How to load your savings and pension Chrichton suggested increasing your cash pot to £36,000 by the time you retire, which would be two years of your expenditure requirements, give you have told me you spend around £18,000 a year. The money in your ISA and Prudential fund is invested, so can go up or down, while your cash savings can only go up – though the returns won’t generally be as strong. Chrichton says if you have two years of money stashed in cash, and your retirement unluckily coincides with your investments dropping in value “you can use your cash to meet your spending and hold off on withdrawing money from the markets until they recover. This protects you from having to sell when the market is low and getting less value from your ISA and pension.” Beyond this, if you work and make excess income in the next few years, Crichton says you could put the excess in your ISA – you can put £20,000 in these each tax year – or your pension, where you will get tax relief. She says you will want to look at where the money is invested too, to ensure you’re giving it the best chance to grow. “You still want some riskier growth assets, such as equity-based investments, to help grow your pot over the long term and protect it against inflation. That said, you should balance this with some lower risk assets to reduce the volatility in your pot’s value.” She warned that your pension provider may choose to ‘lifestyle’ your fund, which is where they move money to less risky assets as you approach retirement, but you should check this aligns with your needs. Bridging the gap between 58 and your state pension age In terms of bridging the gap between when you retire and when you start to receive your pensions, you will need to plan how you are going to draw from your savings over these years. “Your ISA offers tax-free withdrawals, however, ISAs can also be a great pot to draw from later in retirement for care and other costs. Your Prudential pension has the option of drawing 25 per cent tax-free whilst the remaining 75 per cent will be taxable at your marginal rate,” Chrichton explained. She suggested withdrawing from the taxable side of your Prudential pension before your other pensions kick in, as even on the taxable part of the pension, any income of less than £12,570 in a tax year attracts a zero rate of income tax. Chrichton added: “You will also need to take some tax-free cash from the Prudential scheme initially to be able to draw a taxable amount. This could further help to meet your shortfall in these years.” Although you won’t be able to take them for a while, you should also have a look at the rules with regards to your DB pension. If you want, you may be able to take them earlier, for a lower amount, and if you don’t want the tax-free cash, you may be able to swap some of the tax-free cash for a bigger annual figure. Chrichton recommended speaking to a regulated financial adviser who can talk through this with you and provide you with more detailed recommendations.