Author Topic: Advice for a 60 year old  (Read 464 times)

ruffles

  • 5 O'Clock Shadow
  • *
  • Posts: 13
Advice for a 60 year old
« on: September 12, 2018, 04:41:19 AM »
Hi all,

A family member has noticed that I am a bit more on the ball with my finances than most, and has asked for my advice. The trouble is I'm no expert, and don't want to point him in the wrong direction.

Here are the details:


  • He's 60 years old, in good health and thoroughly enjoys his well paid management job in the building and construction industry. Unless his health unexpectedly declines he would like to work until he is 66.
  • He's been contributing into a company pension for his entire career, albeit only a minimal amount. He admitted he has no idea how much his company pension is worth so will find out. He will also be eligible for full state pension when he reaches 66.
  • He's always lived close to his means, but he's enjoyed eating well and travelling the world, instead of buying expensive German cars and useless gadgets.
  • Has no debts and a paid off mortgage, and doesn't intend to sell up or downsize.
  • He has around 25k in savings which he is happy to put aside for retirement, and also wants to cut down on the expensive holidays so that he can save a significant amount each year for his retirement.

He understands that investing has its risks, but doesnt like the fact that his 25k makes very little interest in his savings account. He would like to know what the best thing is that he can do with his 25k, and any subsequent money that he can save between now and when he retires.

My immediate thoughts were to open a SIPP and buy Vanguard LifeStrategy, until he reaches his annual allowance. Then put the rest in a S&S ISA, again in Vanguard LifeStrategy. I use LS80 myself, but I'm considerably younger, so would LS40 be more appropriate given how close he is to retirement? Also, am I correct in saying that any money he puts into a SIPP can be accessed immediately because he is over 56 years of age? So in theory could he put all of his money in tomorrow, get his tax relief and then start withdrawing (not that he wants to do that)?

Apologies for the long post and the questions. I'm more than comfortable spending every spare penny I have on LS80 but am a bit reluctant to suggest anything similar to someone else!



SpreadsheetMan

  • Stubble
  • **
  • Posts: 130
Re: Advice for a 60 year old
« Reply #1 on: September 12, 2018, 04:53:34 AM »
Absolute priority is to find out what the pension is worth. That will feed into all planning and inform all decisions.

Next is to find out how much he needs to live on at a basic level.

Once that is known the rest can be worked out.

PhilB

  • Bristles
  • ***
  • Posts: 408
Re: Advice for a 60 year old
« Reply #2 on: September 14, 2018, 03:49:18 AM »
As Spreadsheet man says, the pension is the important thing here.  He currently has a 'well paid management job'.  In the future he'll have state pension, his works pension and that 25k.  If that 25k isn't an immaterial amount compared to his pension then the technical term for his situation is 'stuffed' unless he makes some drastic changes. 
Once you do have the full picture you can almost certainly tell him to use the 25k to fund increased pension contributions.

What he definitely shouldn't do is withdraw anything at all beyond the TFLS from any pension he has as that would trigger the reduced annual allowance and limit his future pension contributions to 4k pa.
« Last Edit: September 14, 2018, 03:51:37 AM by PhilB »

SpreadsheetMan

  • Stubble
  • **
  • Posts: 130
Re: Advice for a 60 year old
« Reply #3 on: September 14, 2018, 04:53:21 AM »
....If that 25k isn't an immaterial amount compared to his pension then the technical term for his situation is 'stuffed' unless he makes some drastic changes. 
.....
It's an interesting exercise thinking what could be done if a person woke up 6 years from retirement and realised they were in serious trouble.

First thing - absolutely stop spending money on anything but the barest essentials. No holidays, eating out, new cars, clothes, hobbies etc.

Then I don't think you could practically do better than pump the maximum 40k pa into a SIPP (actually 32k pre-relief) to get the 20% tax relief. That would give 240K invested after 6 years that could support 8k-ish pa draw. Anything left should go into ISAs then cash savings if there is anything left after the 20k isa allowance.

I think a house downsize into something cheap to run and maintain would be essential to keep the ongoing costs down, but that can wait a bit as it won't make that much difference in the 6 years.

That would give SP plus 8k-ish, say 16.5k pa. That would be do-able if you lived cheaply - small car, minimal holidays/travel, occasional pub meals out. It's a bit over minimum wage, but with a paid-off house that is doable.

On the less rosy side age 60+building&construction+brexit = high redundancy risk. It's going to be squeaky trousers time trying to make it through to 66 in full employment.

Fingers crossed the occupational pension comes good!

PhilB

  • Bristles
  • ***
  • Posts: 408
Re: Advice for a 60 year old
« Reply #4 on: September 14, 2018, 06:29:08 AM »
....If that 25k isn't an immaterial amount compared to his pension then the technical term for his situation is 'stuffed' unless he makes some drastic changes. 
.....
It's an interesting exercise thinking what could be done if a person woke up 6 years from retirement and realised they were in serious trouble.

First thing - absolutely stop spending money on anything but the barest essentials. No holidays, eating out, new cars, clothes, hobbies etc.

Then I don't think you could practically do better than pump the maximum 40k pa into a SIPP (actually 32k pre-relief) to get the 20% tax relief. That would give 240K invested after 6 years that could support 8k-ish pa draw. Anything left should go into ISAs then cash savings if there is anything left after the 20k isa allowance.

I think a house downsize into something cheap to run and maintain would be essential to keep the ongoing costs down, but that can wait a bit as it won't make that much difference in the 6 years.

That would give SP plus 8k-ish, say 16.5k pa. That would be do-able if you lived cheaply - small car, minimal holidays/travel, occasional pub meals out. It's a bit over minimum wage, but with a paid-off house that is doable.

On the less rosy side age 60+building&construction+brexit = high redundancy risk. It's going to be squeaky trousers time trying to make it through to 66 in full employment.

Fingers crossed the occupational pension comes good!
I wouldn't go quite as far as to say stop all non-essential spending.  A better route might be to work out what retirement income you could hope to achieve and start living on that budget immediately.  Put as much as possible into pensions, including that 25k, using carry forward allowance from previous three years.
I would definitely recommend someone in this position look at deferring their state pension to give them a higher level of guaranteed income.  It's not as good value as it used to be, but still way better than a commercial annuity.  I would then get them to divide their pension money into two pots.  A very low risk one to be used as bridging funding until their deferred SP came into payment, and a long term drawdown pot for what's left.