Taking Pension at 55

[freespeech]

Hi,

I know that if I take my NRA60 benefits at 55 I will likely lose 5% per year....so 25%. With this in mind is the example below sound?

Let's assume my NRA60 pension was £16k.......if I take it at 55 it would be £16k x 75% or £12k.

So in the 5 years between 55 and 60 I would receive 5 x £12k or £60k. As the difference in the two age points is £4k per year and I would have received £60k before age 60 it would take a further 15 years for me to be "worse off". Does that make sense?

Additionally, if I left the business I would also get the pension supplement for the additional five years so if that is included it would take even longer than 15 years to be worse off. Given my retirement age is 67 it does seem sensible to retire at 55 as I would only be 12 years away from the state pension so this would be received three years before I was worse off.

Any thoughts?

[RobertT]

Going by your £12k/£16k figures, the break even age, in terms of basic pension income would be 75. At that point both options would mean receiving at total of £240k in income, not including inflationary increases.
Factoring in inflation, the supplement and a reduced lump sum if you take one, that age will obviously vary.

According to this calculator(https://www.ons.gov.uk/peoplepopulation ... 2019-06-07" onclick="window.open(this.href);return false;), the average life expectancy of a 60 year old UK male for example is currently 85, so if you live to that age you're likely to receive £40k more by taking your pension at 60 instead of 55.
But you could obviously live for a longer or shorter time – that's something that most people don't really know the answer to!

In practice there's any number of scenarios because everyone is different and what's right for one person isn't necessarily going to be right for someone else. Some might be willing and be able to afford to retire at 55 with a 25% reduction in their NRA60, while others will have no choice but to work up to state pension age and beyond.
My advice would be to do your homework as thoroughly as possible, factoring in all options including the effect your choices have on your state pension entitlement, income tax, your family after your death, etc.

[mrcurve]

Would you lose 5 years of pay increases, I would suggest it would be a lot harder to increase your income at 75 when you might need it, than at 55, and would you be paying more tax with the wage and pension income.

[RobertT]

Would you lose 5 years of pay increases, I would suggest it would be a lot harder to increase your income at 75 when you might need it, than at 55, and would you be paying more tax with the wage and pension income.

If you're still working for RM you'll still get any pay increases applied, if you're not, you obviously won't. And your pension will be based on the figures when you take it!

I would agree that it's much easier to top up your income if you need to, when you're younger. For that reason I have no intention of taking any of my RM pension early, as I want to make sure I have decent a guaranteed income for when I'm less able to do something about it.

If you're still working and claiming your pension, more of your income will be taxable, but unless you earn over £50k it will still be at the basic 20% rate.
NIC's are not payable on pension income.

[heapsy]

Another thing to consider is running out of cash. Many people don't put much away apart from their pension contributions. A lower pension also means a lower lump sum. Depending on when you actually retire, this could mean running out of cash savings earlier than thought. My main concern when people think about taking their pension early is what if you don't work as long as you thought? What happens if you become sick or injured at work? The idea of carrying on working and drawing your pension along side then goes out of the window. As RoberT has already said, with the tax taken off and reduced payment, it actually takes longer to break even. Smaller pensions mean smaller increases in monetary terms. What happens if the pension increases don't cover your cost of living after you retire? We have a few in our office who took part of their pension early. Knowing them as I do, I know that some of them at least, WILL struggle when they retire, as that is all they have. For me, taking a pension early is risky. Tbh, I think too many people see the big figures on the statement and think they'll never get their money out unless they take it early. It doesn't work like that. As RoberT has said previously, pensions are for when you retire. Not when you are still working. Another way of looking at it is this. Forget your weekly wages, could you live on the reduced pension on its own? If not, then why would you put yourself in that position?

[NorthernBoy]

The general advice is to wait until 60 if you can before drawing your pension, However everyone’s circumstances are different and there is no right or wrong answer.

A 55 year male living now has an average life expectancy of 84 and a 1 in 4 chance of getting to 92. People should look at their health at 55 and make a guess on how they think they compare to ‘average’ and how long they think they will live for. Clearly not an exact science but it should help your planning.

Other factors such as other income, mortgages, debts etc come into play and how long you plan on working for etc.

[Steve_claret]

Additionally, if I left the business I would also get the pension supplement for the additional five years so if that is included it would take even longer than 15 years to be worse off. Given my retirement age is 67 it does seem sensible to retire at 55 as I would only be 12 years away from the state pension so this would be received three years before I was worse off.

Any thoughts?

If you retire at 55 you probably won't get a full state pension. Have you checked yours? I would suggest that you do before making any decisions based on state pension as we were contracted out of the higher state pension until April 2016. I have recently checked my state pension forecast and my estimate is only £154.43 per week even though it states that I have paid a full NI record for 43 years. I would have to work for another 4 years to qualify for the full state pension which is currently £175.20 and this is most definitely not in my plans. So it's quite a big drop when trying to survive off a lower RM pension due to taking it 5 years early.

[stephen500]

Additionally, if I left the business I would also get the pension supplement for the additional five years so if that is included it would take even longer than 15 years to be worse off. Given my retirement age is 67 it does seem sensible to retire at 55 as I would only be 12 years away from the state pension so this would be received three years before I was worse off.

Any thoughts?

If you retire at 55 you probably won't get a full state pension. Have you checked yours? I would suggest that you do before making any decisions based on state pension as we were contracted out of the higher state pension until April 2016. I have recently checked my state pension forecast and my estimate is only £154.43 per week even though it states that I have paid a full NI record for 43 years. I would have to work for another 4 years to qualify for the full state pension which is currently £175.20 and this is most definitely not in my plans. So it's quite a big drop when trying to survive off a lower RM pension due to taking it 5 years early.

I am retiring from RM at 59 years and 10 months and don't plan to work again, so I won't be paying Nat ins.
Currently I have reached £151.80 out of a possible £175.20 (if I carried on working and paid a full stamp, or made it up in contributions)
In reality, I don't plan either and my state pension will increase (as I am contracted back in) by £4.74 till Apr 20 and another £3.95 till Dec 20, bringing it up to £160.49.
No one ever told us about contracting out and it would have been a huge shock with a much smaller state pension.
As we contracted in again, at least I have recovered some of the losses.
Robert T once told me what was the cost of making up lost stamps/years.
Perhaps Robert could tell you. You could then decide whether to make your stamp up.

state pension.jpg

[TheStrangler]

Very interesting reading peoples thoughts on early retirement.
My workings out...(ball park sums)

Retire @58 (9 years till state pension).
9 years wages (after tax) = 180k
Never done overtime!
Target savings (personal savings + maximum pension lump sum) = 100k
Annual rm pension = 8k
Bearing in mind I'm actually saving around 40% of my income.

I'm lucky in that I don't have dependants or a mortgage and don't go on holidays abroad (sounds pretty boring I know!).
I've looked at my outgoings over past years and they average at 14k a year and 2k of that goes on petrol for work alone!
I'm sure some people would use such savings on cars, holidays etc but for me personally I think not having to work any longer is far more appealing!
I've seen plenty work in their 60s and not make it out the other side so hopefully I can have some enjoyment before my time comes.
If I did make pension age I'd be on around 15k a year and seeming as some pensioners are on little over half that I don't think that's too bad.

[RobertT]

Additionally, if I left the business I would also get the pension supplement for the additional five years so if that is included it would take even longer than 15 years to be worse off. Given my retirement age is 67 it does seem sensible to retire at 55 as I would only be 12 years away from the state pension so this would be received three years before I was worse off.

Any thoughts?

If you retire at 55 you probably won't get a full state pension. Have you checked yours? I would suggest that you do before making any decisions based on state pension as we were contracted out of the higher state pension until April 2016. I have recently checked my state pension forecast and my estimate is only £154.43 per week even though it states that I have paid a full NI record for 43 years. I would have to work for another 4 years to qualify for the full state pension which is currently £175.20 and this is most definitely not in my plans. So it's quite a big drop when trying to survive off a lower RM pension due to taking it 5 years early.

I am retiring from RM at 59 years and 10 months and don't plan to work again, so I won't be paying Nat ins.
Currently I have reached £151.80 out of a possible £175.20 (if I carried on working and paid a full stamp, or made it up in contributions)
In reality, I don't plan either and my state pension will increase (as I am contracted back in) by £4.74 till Apr 20 and another £3.95 till Dec 20, bringing it up to £160.49.
No one ever told us about contracting out and it would have been a huge shock with a much smaller state pension.
As we contracted in again, at least I have recovered some of the losses.
Robert T once told me what was the cost of making up lost stamps/years.
Perhaps Robert could tell you. You could then decide whether to make your stamp up.

state pension.jpg

I think you'll probably find you'll get a bit more than you think, but not much more!

Your entitlement will have gone up by 3.9% this month – I'm not sure from your screenshot whether that's included, but if you've logged in this tax year, I assume it is?

Plus you'll have another 1/35th of the full rate added on for the 2019/20 tax year, so another £5.
And as long as you earn at least £6,240 in 2020/21 then you should earn another full qualifying year, giving you another £5.
So I make that a total, give or take a few pence, of £161.80.

A lot of people don't understand contracting out of the second state pension!
In practice it meant that your employers pension will be giving you at least as much as you would have got had you not contracted out.
So although many think they're being short changed, nobody should be worse off than they would have been under the old(pre 2016) state pension rules. And anybody who's earned state pension from 2016 will be actually be better off compared to the old system.

The cost of buying missing NI credits for 2019/20 was £15 for each week, or £780 for the whole year, which would give you an extra £5 per week state pension. Meaning a 3 year wait to get your money back, although factoring in inflation it's likely to be less.

The cost for 2020/21 is a bit higher at £15.30, but the cost of for previous years is lower. For most people buying missing NI credits is a good long term investment.

[RobertT]

Very interesting reading peoples thoughts on early retirement.
My workings out...(ball park sums)

Retire @58 (9 years till state pension).
9 years wages (after tax) = 180k
Never done overtime!
Target savings (personal savings + maximum pension lump sum) = 100k
Annual rm pension = 8k
Bearing in mind I'm actually saving around 40% of my income.

I'm lucky in that I don't have dependants or a mortgage and don't go on holidays abroad (sounds pretty boring I know!).
I've looked at my outgoings over past years and they average at 14k a year and 2k of that goes on petrol for work alone!
I'm sure some people would use such savings on cars, holidays etc but for me personally I think not having to work any longer is far more appealing!
I've seen plenty work in their 60s and not make it out the other side so hopefully I can have some enjoyment before my time comes.
If I did make pension age I'd be on around 15k a year and seeming as some pensioners are on little over half that I don't think that's too bad.

Everyone is different and a decent income for one, might not be enough for someone else, but my advice would be to not only look at what you've spent over the last few years, but also estimate what you're likely to spend going forward – the two amounts won't necessarily match!

For example:

You'll have lots of time to kill, what are you going to do with it and will it cost you money.

If you're in the house more often in retirement your utility bills may well go up. Many households are currently experiencing that because they're on Coronavirus lockdown.

[TheStrangler]

Very interesting reading peoples thoughts on early retirement.
My workings out...(ball park sums)

Retire @58 (9 years till state pension).
9 years wages (after tax) = 180k
Never done overtime!
Target savings (personal savings + maximum pension lump sum) = 100k
Annual rm pension = 8k
Bearing in mind I'm actually saving around 40% of my income.

I'm lucky in that I don't have dependants or a mortgage and don't go on holidays abroad (sounds pretty boring I know!).
I've looked at my outgoings over past years and they average at 14k a year and 2k of that goes on petrol for work alone!
I'm sure some people would use such savings on cars, holidays etc but for me personally I think not having to work any longer is far more appealing!
I've seen plenty work in their 60s and not make it out the other side so hopefully I can have some enjoyment before my time comes.
If I did make pension age I'd be on around 15k a year and seeming as some pensioners are on little over half that I don't think that's too bad.

Everyone is different and a decent income for one, might not be enough for someone else, but my advice would be to not only look at what you've spent over the last few years, but also estimate what you're likely to spend going forward – the two amounts won't necessarily match!

For example:

You'll have lots of time to kill, what are you going to do with it and will it cost you money.

If you're in the house more often in retirement your utility bills may well go up. Many households are currently experiencing that because they're on Coronavirus lockdown.

Thanks Robert yes that's sound advice.
I've spent less on recent years than the past probably due to changing lifestyle etc and of course no mortgage.
I've tried to factor that into bills for example I've doubled what I currently spend on my electricity.
Even though the bills will in the main come from my monthly pension, which is at least to some degree compensated for by annual increase depending on inflation etc
Things like broadband and mobile haven't increased much if any over the years though if you're one of those people that likes to pay £50 a month for the latest phone on contract then that's a big expense.
The corona virus will make the increase in household bills interesting although as we currently work it's still not going to be the same as in full retirement.
When I joined Royal mail and found out you could retire at 60 that was always my goal but then that was 25 years ago!
So when they allowed you to take it from 55 it's been something I've looked at regularly!

[FAB]

RobertT . So once your earnings reach at least £6240 in a year you would get another year added to your State Pension? Even if you reached that halfway through a year or less. I am down for needing 3 more years from 2020/21. But the final year would only give me about 60p a week. So in reality it's more like 2 years. So if once I achieved £6240 I could them leave and that would just leave one full year left. To potentially buy a later date unless I did further work later on which would cover it. Am I right in thinking this ? Cheers!

[Thailand1]

Great post as always.....Got to be one of the most informative subjects....Thx to Robert T & others.

[RobertT]

RobertT . So once your earnings reach at least £6240 in a year you would get another year added to your State Pension? Even if you reached that halfway through a year or less. I am down for needing 3 more years from 2020/21. But the final year would only give me about 60p a week. So in reality it's more like 2 years. So if once I achieved £6240 I could them leave and that would just leave one full year left. To potentially buy a later date unless I did further work later on which would cover it. Am I right in thinking this ? Cheers!

Yes, as long as you earn that amount during a tax year, you'll earn a qualifying year. The amount is what's known as the Lower Earnings Limit and generally goes up each year.

The LEL for 2020/21 is £120 per week / £6,240 per year. Not to be confused with RM's version - that's different!!!!

Any earnings below that are not counted for National Insurance purposes. Anything between the LEL and the Primary Threshold of £183 per week / £9,516 per year are counted, but you don't actually pay NIC's until you earn more than that amount.