Early retirement options

Take a look at this reply which I got to a post I made about a similar problem.

DG

Bitstring , from the wonderful person Chris Malcolm said

Personally I'd go for options 2 and 2. Your tax position is probably the key variable - no point in using the money for an 'income generating investment' if you are just going to be taxed on the income, and then have to pay mortgage interest (with no tax relief) out of what is left.

If you already have oodles of cash then options 1 & then 2 might be worth a look, but having 30k cash sat in a nice boring bank account (e.g. with Ing Direct, or whoever) gives most people a warm feeling not matched by an extra 4k/year pension.

Other interesting questions - what is you attitude to risk, what other assets/investments do you have, what dependants do you have, what's your health like, and what do you think future inflation is going to do?

The money coming out the pension scheme is taxable. If it comes out in later years, it may be at a lower tax rate.

The income is taxable. The tax free lump sum is not, last time I looked.

"GSV Three Minds in a Can" wrote

Any TFLS will *always* be free of tax. No tax will *ever* be levied on a TFLS. Ever. :-)

Bitstring , from the wonderful person Tim said

Do not believe everything that politicians tell you. Or IFAs either, for that matter.

Even if one dies and the lump sum is inclded in the estate?

"GSV Three Minds in a Can" wrote

No politician (nor IFA) could say anything to make me think otherwise. Whatever a politician or IFA says, no TFLS will ever be taxed (think about it!). :-)

"Chris Game" wrote

Ah, but then it wouldn't be "a TFLS" anymore - it would be "part of the estate". ;-)

Bitstring , from the wonderful person Tim said

I thought about it ¾fore= I wrote it. You obviously trust politicians way too much. I assure you that taxing a 'tax-free lump sum' is well within their scope

"GSV Three Minds in a Can" wrote

Well, you obviously didn't think about it hard enough! ;-)

Let me explain....

"GSV Three Minds in a Can" wrote

You cannot infer anything about my trust of politicians from my statement of fact above.

"GSV Three Minds in a Can" wrote

Oh no it is not! It is *impossible* for a 'tax-free lump sum' to be taxed.

You see, the crux of my argument lies in the letter 'F' in TFLS. Pension schemes often pay out a *LS* on retirement, and currently that is not taxed - hence it becomes a *TFLS*.

If the tax rules were ever changed so that these LS's become taxed, then they would be just that - 'LS's and **not** 'TFLS's!!!

Bitstring , from the wonderful person Tim said

Like I said, you trust politicians way too much. You probably still think Road Fund license funds roads, or that Stamp Duty has something to do with stamps.

Tim wrote on Wed, 11 Aug 2004

I don't think GSV was ever unaware of what you have in mind; he seems a quite sophisticated sort.

Did you know, btw, that contribution-based JSA (as opposed to the income-based variety) is subject to deductions proportional to one's occupational pension? ;) (Heavens, this may even be on-topic.)

I disagree. You can be sold a pension now, which is described as having a TFLS feature. Politicians can, in principle, change the rules between now and when you retire, abolishing the TF status of the LS.

Thus the "TFLS" will be taxed.

"Ronald Raygun" wrote

No pension I have ever seen describes them as tax-free. They may say "under current law/rules, the lump sum will be tax-free" - but never that it "will be" a "tax-free LS" (without any qualification as to application).

"Ronald Raygun" wrote

Of course they could. I've never said they couldn't. But then everyone would have a TLS (taxed lump sum). They wouldn't have a TFLS!!

"Ronald Raygun" wrote

Ooooh no, it won't be. It simply won't exist!

--------------------- Altogether now, :- "A ****LS**** can be taxed, but not a ****TFls****."

IIRC, originally, no pensions had any TFLS. Legislation was enacted to assist impoverished civil servants returning from the Raj (country rather than restaurant) to buy somewhere to live. :)

Doug Ramage

Qualification Shmolification. We all know what the fine print says, it is nonetheless usually paraphrased by everyone as TFLS.

Indeed. Therefore the TFLS would become transmuted into a TLS through the process of being taxed. Look. All there is is a LS. When it's actually paid, it is either taxed or not. If at the time of starting the pension it is expected that it will not be, it is proper and correct to refer to it as a TFLS. If meanwhile legislation is enacted which removes that expectation, there is nothing linguistically wrong with referring to that removal as "taxing the TFLS".

"Ronald Raygun" wrote

... which is what it is, currently.

"Ronald Raygun" wrote

Totally agree.

"Ronald Raygun" wrote

At that time, perhaps. But only that it "might be" tax-free.

"Ronald Raygun" wrote

My contention is that there is simply a LS (as you stated earlier). If it is not taxed when paid, then it *becomes* a TFLS (at the time it is paid). If, on the other hand, it (the LS) *is* taxed when paid, then it was never a TFLS - whether or not you *thought* you were going to receive a TFLS (when you started the pension).

That's one way of looking at it, and it's not incorrect enough to mark you down. It's correct in a limited technical sense.

This, then, is where the mistake in your thinking lies.

By virtue of the expectation at start-time that the LS would not be taxed at pay-out time, it has already been linguistically correct to call it a TFLS, even though strictly it's paraphrasing. In that sense it "becomes" a TFLS right from the start, and if it turns out to be taxed at the end after all, then to say it's never really been a TFLS is simply wrong. It has been one because it has been called one, and because it has been expected that it would in fact not be taxed.

It's a bit like mini cash ISAs which pay tax free interest. They could in principle bring in a law tomorrow which removes the tax benefit from ISAs, and then we'd see people's tax-free interest taxed.

What we call things is often defined more by our expectations than by what will actually happen once the fat lady has sung.

Hell, there might not even be an LS the way things are going, but, living as ever in hope, we still expect that there will be, and so we call it that, even though we've not got it yet.