Retirement - Lump Sum/income Balance

[taichiperson]

Hi all - I've posted a question about retirement before, but here's another one, whether you have already retired or are thinking of it. Would you go for a larger lump sum and smaller income, or vice versa? Mr Tai thinks the lump sum is better, as he intends to go back to part time or casual work after he has had a break from a stressful job.

[fiction-factory]

I would not consider taking more than the 25% tax free lump sum part

[fiction-factory]

Life expectancy is a factor- a small reduction in annual pension may not seem much but when you multiply it by 25 years and allow for the foregone widow's pension as well it can add up. It depends also on whether you need the lump sum- if not then it will generate only low interest and this interest may be taxed

[ubasses]

You would probably benefit from talking to a Financial Adviser who would look at your overall position. Is it DBS or DCS. Have you had several quotes from the the Pension Scheme so you know how much increase in pension you would receive by taking less lump sum.
There is so much to consider, by taking larger pension and adding earnings he could be paying 20% tax on the income where the lump sum would be tax free apart from interest earned on it. As FF says the longer you live the better it would be taking higher pension as you would eventually get more money and any annual increases based on inflation may be higher than interest rates. Also higher widows pension if anything happens.
So much has to be based on the unknown. I was in the position of receiving redundancy and put some of that in my pension calculating that after 12 years I would be in profit. That is next year so hopefully will have paid off.

[DocHH]

Everyone's circumstances are different, there is no one answer that will fit all! You need to decide based on your own circumstances. VIZ Do you need a lump sum now, or would income be better, do you want that income to increase etc. Get examples of all the options from the pension provider, then get busy with an Excel spreadsheet! If you opt for an increasing pension compared to a static one, you will find that the increasing one is much lower at the start and takes around 12 years to get to the same starting point as a static one! Then calculate how much money you have not received in that period! Similarly do the calculations for with and without spouse pension!

[ukbod2015]

I took a slightly larger lump sum and, having done the sums, I would have to live in excess of 20 years more to be out of pocket.

[horselady]

I took the lump sum then went back to a part-time job.

[Peter Pedant]

ah ... UKbod must have an NHS pension - the cross over point is 19 y

so you can do a sum

and calculate how many years you have to live to get more in sum than the enlarged lump sum - take into account the tax - the lump sum is untaxed and the pension is taxed

Mine was 19 y

no brainer really - but thx for raising it

[taichiperson]

Thanks all, lots to consider, I see. The widow's pension is fixed whatever he chooses, and we'll be below the tax threshold anyway. He'll take some time off before going for part time/casual work, while I'll carry on (I'm self employed) as long as I can; my job is not one I'm thinking of retiring from unless I'm physically or financially unable to. He's more or less decided on a moderate lump sum - not the maximum or minimum (I'm not comfortable talking actual figures).

[Graham-W]

My calculations gave me a gain if I took no lump sum and lived for over 11 years. I made the choice 8 years ago, chose all income, and am feeling fine at the moment. Oh! By the way. My pension goes up in line with inflation. The lump sum only gains interest.