Hi guys, I'm a 40 year old, aiming for early retirement, and was wondering when the best time would be to take my work pensions.
It's complicated by the fact that my work's pension scheme is split into two parts. The pension scheme was originally a final salary scheme, however that was stopped in 2015, and from then we were enrolled on a new career average revalued earnings scheme - so I'll eventually have 2 work pensions, plus I'll also receive the UK state pension at age 67, about £6000/year.
Key points:
- The final salary pension can be taken penalty free from age 60, and the new career average pension can be taken penalty free from age 67.
- The earliest I can draw the final salary pension is from age 50, however there are penalties for each year before 60.
- The earliest I can draw the career average pension is from age 55, however there are penalties for each year before 67.
-The final salary pension is easy to calculate, and if I draw it at age 60 I'll get £9284 (plus inflation) per year, plus a lump sum x3 yearly value, so about £27,000 lump sum. I can take the pension earlier, but for each early year there is a penalty:
Age 59: 8819.8 (-5%)
Age 58: 8355.6 (-10%)
Age 57: 7984.24 (-14%)
Age 56: 7612.88 (-18%)
Age 55: 7334.36 (-21%)
Age 54: 6963 (-25%)
Age 53: 6684.48 (-28%)
Age 52: 6405.96 (-31%)
Age 51: 6127.44 (-34%)
Age 50: 5848.92 (-37%)
- It is more difficult to estimate how much will be available in the career average pension, as it depends on how many more years I will be working and thus contributing into it, but for each year I work I'll receive around £750/year (and is increased 1.5% above inflation each year). By the time I'm 50 that is approximately £10,000 per year (if I draw it penalty free at 67).
- The penalties for the career average pension are:
Age 66: (-5%)
Age 65: (-10%)
Age 64: (-14%)
Age 63: (-18%)
Age 62: (-21%)
Age 61: (-25%)
Age 60: (-28%)
Age 59: (-31%)
Age 58: (-34%)
Age 57: (-37%)
Age 56: (-40%)
Age 55: (-43%)
So my main question is, if I retire at say 50, is it best to take the pensions as soon as I'm able (at age 50, and 55), or would it be more beneficial to live off my 'stash until I can take those pensions penalty free (at age 60, and 67)?
And an additional questions would be, how would I calculate how much 'stash I'd need to keep me going until the pensions kick in, as the 4% rule wouldn't apply as there would be a lot more cash coming down the road.
Apologies for my long rambling post, and thanks in advance for any advice received.