Should I take voluntary redundancy and retire early?

A question about : Should I take voluntary redundancy and retire early?

Hi, I'd appreciate some opinions and any advice people may have on my wife and my situation please.

We both work for the same company who are restructuring, which will mean redundancies. We both have the opportunity to apply for voluntary redundancy.

I am 57, and have 36 years service, my wife will be 55 later this year and has 30 years service, and we are in a final salary pension, which it has been announced will be closing this year.

We've calculated that after deductions our redundancy package will be around 110k, and we need around 26k a year to live on.
We don't intend drawing the pension until we are 60, as the reduction will be too great, but we think we can live comfortably on the redundancy money until our pensions of around 16k kick in.

It seems too good to be true!

So my questions are, is it too good to be true, what should I look out for, and where's the best place for the money that is safe, will earn a bit of interest, and we can withdraw regular amounts?
I'd appreciate your thoughts please.
Thank you

Best answers:

• Are the pensions 16k each or combined? Assuming 16k each:
  So year one when you are 57 she is 55, you spend Ј26k of the pot.
  Year two when you are 58 she is 56, you spend Ј26k of the pot
  Year three when you are 59 she is 57, you spend Ј26k of the pot
  Year four when you are 60 she is 58, you spend Ј10k of the pot (because you get Ј16k pension and need 26k to live on
  Year five when you are 61 she is 59, you spend Ј10k of the pot (because you get Ј16k pension and need 26k to live on
  Year six when you are 62 she is 60, you get Ј32k of pension and don't need to use savings to live on.
  So all told it looks like you are using up Ј26k + Ј26k + Ј26k + Ј10k + Ј10K = 98k, call it Ј100k. And you would have a cash pot of Ј110k? Sounds like, barring emergencies or unforseen circumstances, you will make it through without needing to take another job - if you are willing to blow all the redundancy cash and not have it as a nest egg to support you between the ages of 62 and perhaps 102 or however long you last.
  If however the pensions are not Ј16k each but Ј16k combined, you would run out of cash before you got the second pension kicking in and so would have to revise down your lifestyle accordingly.
  That also assumes the Ј26k annual spending requirement does not increase due to inflation at all. In reality, it might, while you can't really guarantee you could invest the money to produce a return equalling inflation, because you can't take investment risk, because you need to spend it over the course of the next 5 years. You would have to just put it in the highest paying account you could find (e.g. the various promotional current accounts at different banks) and hope that the return on what you hadn't spend, kept pace with your personal levels of inflation.
  As you get older and become inactive and retired, you generally find your annual expenses drop down. But at your age, you may also find that if you need Ј26k a year to live on now, if you had an extra 80 hours spare per week plus saved commuting time, you would actually be spending more money in new leisure pursuits, particularly if you got a nice big windfall and bought a new car and some nice holidays etc.
  So, you may not necessarily make it all the way with the lifestyle you want, if you are stopping work several years early. But a sizeable chunk of money paid over as a lump sum for not going to work at the company for the next few years sounds like a great deal! I expect I would take it, because it's more than they're offering you to continue working there, and some of the money is tax free - cashing out a 30+yr redundancy settlement is a serious windfall. What's not to like? Apart from it being perhaps very difficult to get a job elsewhere if the money doesn't last.
  I would consider working a year or so elsewhere (perhaps part time) if I really didn't have an income coming in and was burning through Ј26k a year, because being unemployed and hoping the savings will last is not exactly ideal at that time of life. Whether you take the plunge and actually retire versus take the cash and carry on working elsewhere, may depend on what your finances currently look like (house? savings? invesments?). But I don't think anyone would say you were mad to take the free money if the pension is still decent after leaving the company 'early'.
• Don't forget the tax on redundancy in excess of Ј30,000.
  Would you wish to consider additional pension payments?
  https://www.moneyadviceservice.org.u...undancy-payout
  Do you use your stocks and shares ISA allowances?
  For cash deposits, consider using interest paying current accounts.
  
  I sole each and one joint TSB, one sole and one joint each Nationwide Flex direct, one sole and one joint each Lloyds Club, one sole each and one joint Santander 123....etc
  Get state pension statements for future planning.
  https://www.gov.uk/government/news/m...sion-statement
• As you are using the money almost immediately and using much of it in the first few years I dont see that you are going to make a significant enough investment/savings return to make much difference to the maths.
  - Are the pensions Ј16K each making Ј32K in total?
  - Are you living comfortably on Ј26K /year now?
  Assuming the answers to both are YES:
  - 2 years at Ј26k until you are 60 = Ј52K
  - 2 further years at Ј10K until your wife is 60 = Ј20K
  Even after adding a bit extra to cover inflation it looks OK and you will be rolling in money when you get your state pensions.
• Thanks for that Bowlhead, very considered and comprehensive!
  The Pensions are 16k each, plus we'll have the SP when we reach 66.
  We do have savings, and will have some shares released when we leave, but we aim to leave that as a bit of a safety net, I must admit I hadn't considered inflation in my calculations, we've all become a bit complacent about it, but I'm old enough to remember the 70's!
  One of the drivers behind the wish for early retirement is location, we currently live in Bedfordshire, but only because of work, our families are all in the SouthWest, including ageing parents, and grandchildren who we don't spend enough time with. We have set aside some savings to pay for the house move, probably to the North Dorset area.
• Xylophone - I have taken the Tax into consideration when doing my calculations, the 110k is net of tax & NI.
  One more question, my wife is a 40% tax payer, but after the 30k tax free allowance is taken off, the redundancy payment is less than 40k, it will be in the next tax year and will be the only earnings next year so she will pay tax at 20%, is that correct?
  We have a few shares fromSAYE schemes in an iSA, but most of the allowance is taken up with cash isa, but I will consider putting some of the redundancy into share isa's
• - Are the pensions Ј16K each making Ј32K in total?
  - Are you living comfortably on Ј26K /year now
  16k each, so 32k total
  Spending more than that now, but 6k a year on fuel for getting to work alone, plus wear and tear on 2 cars.
  The 26k is what we believe we need using the calculator on this website.
• One small thing.
  If you can, take a week off & try being without any reason to get up, get dressed, leave the house?
  A colleague of ours had a week off in January, and while he is still taking the package, he is actively looking for another job to move onto.
  Not having a job to go to "didn't suit him". Like my grandfather who "was not of a retiring disposition" & died within a year of finishing work.
  Hoping you (and OH) are altogether better prepared for each other full time, and that it's wonderful!
• Given that you've both got SRP to look forward to at 66, it wouldn't be a financial crime to start one or both of the final salary pensions early. Living off the lump sum means that your personal allowances against income tax will be largely unused after the first year of retirement until you start your FS pensions. So consider starting one or both FS pensions in the second year of retirement, and preserving more lump sum for later in life. That would also let you make big pension contributions next tax year to personal pensions of some sort, since the taxable parts of your lump sums will count as earnings for that purpose. That's a grand way to avoid heaps of income tax, letting you both use those as tax shelters, and exploiting their wonderful new flexibility from age 55 onwards.
  It's worth a bit of thought.
  P.S. Will your wife accumulate the 35 years of NICs required for the full new-style SRP? It's worth finding out, because if not she could look for some light self-employment in retirement, and pay the self-employed "stamp" which is cheap - a bit more than Ј2 per week.
• Are there ways of later taking on less stressful work without interfering with the pension (just to fill time and earn a bit extra). If your current work is in any way stressful, I'd be very tempted to look into this as a serious option. My DW just did what you're suggesting and it's working very well indeed.
• You're both 55 or close to it so you should look to route as much of your savings as possible through a personal pension. Subject to either the limit of the earned income in the tax year(s) or the 40k annual contribution allowance and any unused allowance over the last three years that can be carried forward. Even if all is at basic rate this produces a tax gain of a little over 6% on the money. If the actual redundancy happens in the new tax year you have the potential of two years of earned income that can be routed through pensions.
  The pension freedoms that start from 6 April 2015 let you get at all of the money at any time from then on, using flexi-access drawdown, 25% tax free, the rest added to taxable income when taken. Drawing the taxable portion out of these pensions will take care of using your personal allowances, getting you an additional 20% tax gain on that portion of the money. Since you'll be using the personal allowances that largely eliminates any reason to commence one or more of the defined benefit pensions early just for this reason.
  You might consider getting and using 0% for purchases credit cards for spending to maximise the amount that you can pay into the pensions.
• Will your wife have savings/investment income in addition to the redundancy payment she will receive at the beginning of the new tax year? Will there be any earned income at all?
• Make sure as much as possible of the taxable redundancy money gets reinvested into a pension.
• Thanks Jamesd, That's very interesting!
  Being in a FS scheme for so long, I've not paid much attention to private pension rules. Redundancy wouldn't be until mid April, so could we pay our redundancy money into a personal pension and make regular withdrawals?
  Would you advise consulting a professional?
• If you are going to do it best done before 5th April. Take Ј30k each tax free lump sum for redundancy. Then put as much as possible into a private pension for each of you, subject to the Ј40k limit and what pension payment allowance you have left on that. If you have any left you can use previous years allowance, you won't get tax relief but you won't pay any tax on it either for this part. If you've calculated your Ј110k based on paying tax there could be a fair bit more than Ј110k using this route.
  As you are both at or close to 55 from next year you can draw down Ј14k a year each, pay Ј800 tax, and have slightly over Ј26k net to spend (adjust figures if you need Ј26k gross).
• P.S. Will your wife accumulate the 35 years of NICs required for the full new-style SRP? It's worth finding out, because if not she could look for some light self-employment in retirement, and pay the self-employed "stamp" which is cheap - a bit more than Ј2 per week.[/QUOTE]
  Thanks Kidsmugsy, yes she will have the full 35 years.
• Personal pensions are a must in your case, to shelter your redundancy over 60K from tax. You can then save enough on tax while withdrawing, to leave some over for an emergency savings fund.
  I would use as much of your current cash savings as you need to use up all your 40K annual allowance over your redundancy (if there is any left incl past years), esp your wife who is a higher rate tax payer.
  Otherwise what I have to say is congrats, life is looking pretty sweet.
• We have already paid 5k & 7k respectively into our pensions in this tax year, including AVC's - I assume this will come out of the 40k allowance?
  Also, Income Tax will automatically be deducted from the redundancy money through PAYE - will I have to claim that back from the tax man?