Ask a planner answers: when can we retire?

Tuesday, June 7, 2016

The question, from Joseph Benjamin, aged 59

I am aged 59, my wife is aged 53. I will be 60 years of age in February. I currently work as a Probation officer earning a salary of £38k per annum, my wife works short contracts as an HR consultant earning £60 a year. We have two buy to let properties in the UK, both mortgaged and valued over £800k. Our residential property is valued over £500k with a mortgage of £300k. We have a buy to let in the USA which should provide around $14k a year profit. I have a civil service pension paying about a £100 a month an two smaller pensions with the Post office and the probation service which I could take when I am 60. My wife has her pension in a SIPP. The question is, how and when can we plan to retire?  

The answer, from Martin Bamford CFPTM, Informed Choice 

In our experience, those who enjoy the most financially secure retirements have multiple streams of retirement income. It’s good to see that you will have income in retirement from three buy to let properties and a number of pension funds.

There are a couple of things I suggest you do which should help you to understand when you can afford to retire. The first is to look at your household budget and adjust this for life in retirement; what expenditure will you no longer have and what additional expenditure might you face in later life. It’s important to keep in mind that the typical pattern of expenditure will often change during a retirement, with the early years often more expensive to fund as you could be more active, typically lower spending in your ‘golden years’ and then very often the cost of care to fund in later retirement.

The second thing is to get a really good understanding of the various sources of income you have listed, when they will start being paid and whether they will go up in value each year, in line with price inflation. Because we are all living so much longer in retirement, price inflation can erode the buying power of a fixed income over time. You should request a forecast of retirement income from each pension provider and also request a State Pension forecast, as this is a valuable source of income in retirement which is inflation-linked.

Looking at your circumstances, three things immediately leap off the page at me that I think you need to carefully consider. You have a large mortgage on your main residential property. There’s nothing wrong with entering retirement with a mortgage still to pay, but you need to have a plan to repay this and ensure it remains affordable. There is a six year gap between your age and the age of your wife. You should form a plan for retirement together, possibly matching the time at which you both stop or reduce the hours you work. Finally, the $14,000 a year income from your US property will fluctuate in retirement as a result of currency exchange rates. This could make planning for your expenditure in retirement a little more challenging.

Whenever I see people approaching retirement with a portfolio of buy to let properties, I ask them about their exit strategy from these investments, as few want to remain an active landlord in their 70s or 80s.

I hope this is useful and gives you both some food for thought as you start on the retirement planning journey. As well as the financial considerations, I guess the really big question you need to answer is, what does retirement look like for you? The Financial Plan can then flow from what you want out of retirement, making sure you have the resources to support a meaningful and fulfilled time in the ‘third act’ of your life.

Martin Bamford CFPTM
Informed Choice