Can I retire at 62 with 200k?

Sue Richardson*, 51, lives in Manchester and draws up legal contracts for a finance company. She hopes to retire in 5 years time and has been planning for early retirement since tu

Can I retire at 62 with 200k?

Sue Richardson*, 51, lives in Manchester and draws up legal contracts for a finance company. She hopes to retire in 5 years time and has been planning for early retirement since turning 44.

Richardson enjoys her work but was inspired by other peoples stories of early retirement and now documents her own journey at

Richardson, who lives alone and has no dependents, is aiming for an average income of £20,000 a year in retirement. She will receive a final salary pension of around £11,000 a year from her mid-sixties and is also on track to receive the full state pension at the age of 67, which is currently around £9,110 a year.

Funding retirement

Combined, these will provide her with an income of £20,000 a year that will rise each year with inflation.

But if she wants to retire a decade before this, she will be relying on private pension and Isa savings to see her through. Richardson has accrued savings of £200,000 and is aiming for a pot of £350,000-£400,000 to fund her initial retirement.

Just over half of her current savings are in Isas, with the rest in a self-invested personal pension (Sipp).

Around 90 per cent of her savings are invested, with the rest sitting in cash. She describes herself as having a medium attitude to risk when it comes to her investments. Most of the money is in passive investment funds, which simply track stock market indices, although some is in investment trusts. These pay dividends of around £200 a month, which Richardson reinvests.

This will change as I get closer to retirement, as I wont want so much money tied up in investments, she says. In March all my investments went down and I was worried Id messed up my early retirement plan. At one stage my savings were down £20,000. But in the past six months it has all come back up again.

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Looking to the future

Richardson is currently renting. She owns a one-bed flat, which is let to tenants, and has 10 years left on the mortgage.

She doesnt plan on living in this flat, and is expecting to rent for the rest of her life unless she can sell the flat and take out a mortgage to buy a new place. If she does rent, she is expecting to pay around £600-£800 a month.

Im not counting the rental income from my flat towards my retirement income. There is a possibility I might sell it to buy a home to live in. I probably have around £60,000 worth of equity in the flat, which should be more than enough for a decent deposit. I am looking into getting a mortgage but Im not sure what options are open to me.

Richardson, who says she is in good health, plans to lead a retirement thats not extravagant. She plans to take up arts and crafts, learn different languages and spend time volunteering  perhaps doing litter picking or helping out at the local library.

She would like to do some travelling and to visit family in Hong Kong more frequently. I dont use a financial adviser, I do everything myself, she says. Sometimes I look at my spreadsheet and think what if Ive got it wrong?. But if that happens and I run out of money in retirement, Id go back to work. That would be the worst of it, and it wouldnt be the end of the world. I may speak to a financial planner at some point.

*Surname has been changed

Is Sue on track and can she get a mortgage?What the experts say:

Kay Ingram, a chartered financial planner at LEBC Group

The risk Sue will take if she retires at age 56 is that she will run out of money later in her life. As a healthy 51-year-old she may live another 40-50 years. The £20,000 per year she expects from her occupational and state pensions are taxable and would give a net income currently of £18,500 per year.

A financial planner could provide a cash flow forecast to look at the likely scenarios she faces and stress test her plans against unforeseen circumstances like a big drop in her savings, higher inflation than expected or increased costs due to rent increases or care needs in later life.

Financial planner Kay Ingram says Sue will need to take risk with her longer term savings or inflation will erode their value (Photo: Brian Lloyd Duckett)

Financial planner Kay Ingram says Sue will need to take risk with her longer term savings or inflation will erode their value (Photo: Brian Lloyd Duckett)

Sue indicates that she may wish to take less risk with her savings once she retires. While this may be appropriate for themoneyshe needs to fill the gap between 56 and 67,she will still need to take risk with herlonger termsavings or inflation will erode their value.

Herstate pension forecast is suspiciously the same as the maximumstate pension under the scheme started in 2016. But most of her pension was built up before 2016. The basic pension under that scheme is £134 per week or £6,968 ayearand if Sue started paying national insurance at age17she may have earned this.

However, if her workplace scheme was contracted out of thestate pension scheme, she will face a deduction from this part of herstate pension. Additionally, if she was contracted in there could be a second slice of earnings-related pension due.

From 2016 every year she pays national insurance(NI)will earn 1/35th of the newstate pension, currently worth £260 per year. She needs to query herstate forecast, many have been issued in error, and consider whether working a bit longer or paying in voluntary NI contributions would enable her to build up morestate pension.

At 56, she can draw down on her Isato fill the gap between then and when her pensions start. Her Isawill pay a tax-free income. Her Sippwill be able to pay out 25per centof the fund tax free but any withdrawals over this will be taxable. As she anticipates possibly returning to work later, she should avoid withdrawing any taxable income from her Sipp.This would reduce the amount she could save in her pension to no more than £4,000 per year.

Paying rent at £800 per month while owning a buy to let is not ideal.Based on her current annual salary of £33,000 a year, she could get a mortgage of up to £190,000 repayable over 20 years and with interest rates low this would be within her £800 budget. Having security of tenure in later life will be important and more cost effective than renting which on average costs around a third more than paying a mortgage.

She could also consider converting this to a lifetime mortgage when she stops working where the interest rolls up and becomes a debt on the property as she has no dependents to provide for.

Ian Futcher, financial adviser at Quilter Financial Advisers

Retiring in your mid 50s is an ambitious goal and it is important to make careful choices and be realistic about what is achievable. If things dont go to plan the Sue plans to return to work, but this may be difficult if she reaches her mid to late 60s and needs extra income.

Taking stock of your financial situation and being objective and honest about what you can achieve is quite challenging, and people often miss things that an expert might spot.

In Sues case she is in the envious position of having a defined benefit (DB) pension. These are increasinglyrareand it is great news that she has that income security. Along with the state pension, she is satisfied that it will provide a decent income from her mid-60s.

To bridge the gap for around a decade from her planned retirement date until her mid-60s, Sue will need to generate income from employment or savings. If she can grow her savings to £350,000 then drawing down at a rate of 5.7 per cent a year would generate £20,000.

At this rate of withdrawal, the capital would be expected to deplete in around 17 years. Although exactly how long the money lasts will depend on market movements in the future, it should last until her state pension and DB income start to generate income.

Sue would like to do some travelling in retirement (Photo: Getty)

Sue would like to do some travelling in retirement (Photo: Getty)

But growing Sues savings from their present value to £350,000-£400,000 will not be easy. Firstly, it makes sense to use pensions notIsas, to benefit from the tax relief at source which will allow for quicker compound growth

In any case it is unlikely Sue will reach her goal of £350,000-£400,000 without making substantial additional contributions over the next five years. Her options are likely to involve either contributing a bit more, reducing her pension income expectations, or working a little longer. Perhaps a mix of all three.

Sue also needs to step back and consider the implications of investing only in tracker funds. As the name suggests, these track the market, so they wont offer any downside protection if stock prices drop. If she had been planning to retire in March or April this year, for example, her investments would have been dropping just as she needed them, potentially throwing her plans off course.

This is where it is worth considering a multi-asset approach to give you wider diversification in your holdings, more likely to be in line with your attitude to riskand makingyou less susceptible to volatility in the markets. It is normally wise to de-risk in the approach to retirement, by diversifying into lower risk assets.

Getting a mortgage over the age of 50 is difficult, but not impossible. Lenders tend to impose an age limit, which means the term would only be around 10-15 years, pushing up monthly repayments. Most people prefer to buy at a younger age and own their property outright by the time they retire.

If Sue does decide it is better to purchase a property, rather than rent in retirement, then she should speak to a mortgage broker given the specialist nature of the lending decision.

Jon Bone, lead mortgage adviser atonline mortgage brokerTrussle:

There are certainly a lot of options available to Sue. She could apply for a mortgage using her current income, apply with her investment income, or wait until shes in receipt of her final salary and state pensions. It will depend on when Sue decides to buy a home and if she will retire in five years time.

If not, Sue could buy a new home using her currentannualincome, andmay be able to borrow around £160,000.

Using investments and private pensions to fund a mortgage is likely to be the most challenging option. Lenders usually prefer to see the money being drawn from the investments before the mortgage application to be able to accept it as suitable income. Alternatively, some lenders will look at the overall savings pot for affordability.

The final option is to wait until shes receiving both pensions. Buying a home later in life is becoming easier than it used to be, but its worth bearing in mind that the market could change by the time Sue retires.

In todays market, if Sue was receiving guaranteed income from her pensions, many lenders would be comfortable considering a longer-term mortgage. This should keep Sues monthly mortgage payments down.

In this instance, Sue will be relying on the income from her pensions, which is about £20,000a year, so she may be able to borrow between £80,000-£90,000.

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