Planning must be pot-on
The sums must add up if you are thinking of making provisions for an early retirement
Q I WAS recently made redundant and have about £35,000 in a savings account earning next to nothing.
I have a pension pot of £150,000 and £25,000 in other investments.
I don’t have a mortgage and have secured another job, with less pay.
I was wondering if I should put some of my savings into my pension pot. I am 59, married with a son at college and have very little debt. Kenny Hamilton
A THIS is a great question that has so many possible answers, none of them right or wrong.
Before I answer it in detail, I would want to ask you so many more questions. I’ll talk you through these now and my reasons for asking them so if you want a more detailed answer, you can write to me again with the rest of the information. It will also give other readers a better idea of the sort of information I need before being fully able to answer your questions. I’m presuming from the fact you have taken another job that you are not ready to retire quite yet. That should be the first thing I would want to know more about. How long do you intend to work for? And, associated with that, I would want to know more about your wife’s situation.
Does she still work? Does she have a pension from her employer? Is she self-employed?
Are you going to spend all of the money that you both earn? Or will you be able to use some to add to your savings?
Once I know when you and your wife would like to retire, it would be good to have an idea of how much money you think you will spend every year, and whether you have any large one-off payments that you will have to make. A lot of people like to repay their mortgage when they stop work.
Although that doesn’t apply to you because you don’t have a mortgage, there may be other things that you will have to spend money on.
If you have a company car, for example, you will have to give that up when you retire.
If it has to be replaced, that could eat into your pension money.
You and your family might want to splash out on a big holiday and again that might use up a bit of cash.
It would be good to know where the rest of your savings are held. Are
they in an ISA? If so, is it cash or stocks and shares? Or are they in a savings account? If so, what rate of interest are you getting? Is your money tied up? If so, for how long?
Once we know how much you will want as an income every year, the next stage is to look at the assets you have and what they can provide for you.
At the moment, you have £150,000 in a pension and £60,000 in savings.
Add to that any pension your wife has and also check out what pensions you are both likely to receive from the state, and when you will receive them. You can see that we can now start to build up a picture of the income you can receive from your various pots of money, and when you are likely to receive them.
The thing you have to do is fill in any gaps.
Remember that between now and retirement, you might be able to add other savings from excess income if you have any.
This will be added to the cash you have available when you retire.
In terms of your specific question about putting money into your pension, you would first of all have to check whether you are able to or not, and that would depend on your income and how much you have already paid into pensions in the last few years.
I don’t have enough information to answer that at the moment.
If you can then it probably makes sense to do so.
You are like to qualify for tax relief on any money that goes into your pension.
The investment in the pension will probably grow pretty much tax-free, and you should be able to take up to 25 per cent of your fund as tax-free lump sum, which all sounds better than what you are currently doing with it.