Situation
I’m married and over 55, my wife is currently under 55. We plan to retire early, but we will only have a single digit number of years to cover before state pensions commence. We have a mixture of defined contribution pensions, and modest final salary pensions between us. We have no debts of any kind. When the state and final salary pensions kick in, we’ll have enough of an income. The majority of my pension is in SIPP type DC investments, and I plan to finish a few years before my wife (I’m older). Because my wife’s pension provision is almost entirely final salary (and we don’t want to take them early), we’ll both live off my SIPP by draw-down for a few years.
My plan
How does this sound, to maximise income during our early years:
Let’s assume that my SIPP is £500k, and I draw the full tax-free 25%, so £125k.
We re-invest this into a (eg Vanguard Lifestrategy) SIPP for my wife over maybe 3 years, so it gains 20% from income tax credit and becomes worth £150k. A £25k gain at the cost of £87.5k income tax relief (my wife can take 25% of the £150k tax-free!).
But then, when we’re both FIRE’d and before state and final salary pensions start, my wife will have her new SIPP to draw-down (she’ll be over 55 by then). So instead of just my £12k annual income tax allowance, we’ll have £24k income tax allowance between us. If we drew-down £24k per year, this would equate to a tax saving of £2.4k/year (versus just me drawing down). I realise that this equates to a 5% withdrawal rate (on the initial £500k), but it would only be for a few years.
Does this sound like a plan, are there any unforeseen issues and does it sound legitimate?! Seems like a no-brainer.
From age 66. We’ll have full state pensions x2, modest final salary pensions and the balance of the SIPP’s, although these will all be staged due to our age differences.