The Daily Telegraph - Money

‘ How do I generate a £40k retirement salary?’

Getting your finances roadworthy as retirement approaches can be an uphill task, this reader is finding. By Will Kirkman

- Simon Overend, below, would like to spend more time cycling in the Lake District

The run-up to retirement can be a confusing time financiall­y, especially for those with multiple pension and investment pots. Organising your money into the most efficient structure can seem a mammoth task and taking the wrong turning at this point can affect your finances for years to come.

This is especially the case for those exploring whether to wind down their working hours and achieve a better work-life balance, with more time for things such as walking and cycling, before retiring completely.

Simon Overend, 58, and his wife, Fiona, 54, from Keswick, Cumbria, are looking for the best way to reorganise their investment­s to maintain their current income of around £40,000 a year, while potentiall­y reducing working hours in the run-up to full retirement.

Next year Mr Overend could receive a defined benefit pension of £15,000 a year from Yorkshire Bank, his previous employer, plus a tax-free lump sum of £100,000. Mrs Overend, who works part-time and earns around £5,000 a year, is entitled to a teacher’s pension of around £5,000 a year from 2027. Both will be entitled to the full state pension, currently around £ 9,300 a year, in 2029 and 2033 respective­ly.

Mr Overend has a Hargreaves Lansdown Sipp valued ed at £100,000, £15,000 in a stocks and nd shares Isa and an Aviva “stakeholde­r” er” pension valued at £75,000 in three ree Aviva Stewardshi­p funds. He would uld ideally like to take the so- called natural ural yield on his investment­s to preserve ve his capital for as long as possible. He e is also considerin­g moving his stakeholde­r eholder plan into his Sipp.

The couple are likely kely to need to support their r two sons through further ther education in the next t 10 years, but they have no other plans for signifiifi­cant spending.

Daniel Hough

A financial planner at Brewin Dolphin, the wealth manager If Mr Overend reduces ces his hours he expects to o earn £15,000 a year, which doesn’t leave much scope for or pension contributi­ons. His Sipp could be topped up with his Hargreaves Lansdown Isa, depending on his overall cash position.

His £ 100,000 tax- free lump sum from his workplace pension should be enough to top up cash reserves sufficient­ly. Not only could it provide Isa subscripti­ons of up to £20,000 for him and his wife for more than two tax years but it could provide an annual yield of 5pc based on recent stocks and shares Isa returns with a medium level of risk, which would be a £5,000 boost to income.

Alternativ­ely, it could be used to withdraw lump sums to assist with his sons’ journeys through further education.

Moving his stakeholde­r pension to his Sipp is a good idea – it would create a £175,000 pot for growth – and he could do it partially now. However, he needs to bear in mind that he can’t do a full transfer, as this would leave nowhere for his work contributi­ons to be paid.

While it would be nice to have two separate plans for flexibilit­y, it can also lead to administra­tive headaches – so I wouldn’t recommend keeping them separate.

Dennis Hall A chartered financial planner at Yellowtail Financial Planning

Mr and Mrs Overend’s plans appear reasonable. However, life expectancy data suggest that they’ll live to their mid-80s, with wit a chance at least one of them will su survive into their 90s. Decisions made today need to be robust enough to su survive for 30 years or more. Their objec objective is to maintain current income leve levels through to retirement and beyo beyond, but this plan will be compr compromise­d when one of them dies and there is a loss of state pe pension. The widow’s pens sion from Mr Overend’s scheme is also likely to be half the pension payable while he is alive. The biggest enemy is likely to be inflation. While the state pensions are protected by the triple lock, Mr Overend’s work pension is likely t to have capped inflation increases. Over time, the real value of that income c could fall. With this in mind, there mig might be a need for Mr Overend to stay working full-time for a couple more years and boost the couple’s pensions with his surplus income.

I have some concerns about Mr Overend’s plan to rely on natural yield to supplement income. Dividends can be unreliable, particular­ly in times of economic stress.

Over the past decade the big investment success stories have been from growth sectors and not higher-yielding or “value” stocks.

This brings me to the Fidelity Special Values investment trust, in which Mr Overend is invested. This has been a mediocre performer except in the past year. Over the past five and 10 years, it has returned about the same as a global equity tracker fund, but with higher volatility.

While I am a fan of global share trackers, you may prefer a hands- on conviction manager. Three trusts or funds that are worth considerin­g are the Lindsell Train investment trust, the Smithson investment trust from Fundsmith and Keith Ashworth-Lord’s UK Buffettolo­gy fund.

Alistair Cunningham

A director at Wingate Financial Planning The couple are on track to cover their income needs from guaranteed sources, such as defined benefit pensions and the state pension, but not until 2033.

I have concerns with Mr Overend’s strategy to invest and try to live off the natural yield. As their joint guaranteed income will increase and cover them for life, it’s potentiall­y sensible to spend their savings now as part of a managed plan. It’s overly restrictiv­e to invest only for yield as it rules out investment­s that generate little yield

Mr Overend mentions taking his taxfree lump sum of £100,000, but I query whether this is the best strategy. Most defined benefit pensions offer a lump sum, but it comes at the cost of a lower guaranteed income. Given that this guaranteed income is likely to increase with inflation, continue for the entirety of Mr Overend’s life and be taxed only at the basic rate of 20pc, it may not be the best decision.

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