Living off pension drawdown

Barney

This is a minefield ....I think I will just retire at 67...lol

RandallFlagg

Barney said:

This is a minefield ....I think I will just retire at 67...lol

My cousin's husband died the other week age 56 and a chap I was working with late last year on a project died age 66...

Strat_a_tat_tat

RandallFlagg said:

Ok, but the balance of your drawdown pot remains invested so what's a sensible rate of investment return on the pot balance through the life of the drawdown?

Depends on a few things... are you happy not to leave any cash for kids when you and your partner die (that's a big question and it can have major implications)... will you keep all your drawdown pot invested... if so, invested in what? 

People tend to move their investments into less risky assets (and move more into cash) when they get near to retirement... and many tend to become even more cautious as retirement proceeds. It's natural to think that way... especially if one considers that some stock market corrections can take the market 10 years to recover from.

Some people can think very 'black and white'... ie they're happy with lots of risk when they're a long way from retirement... and then don't want to accept any risk at all when they retire. Not sure that's the best approach (if there is such a thing as a best approach... and if there is such a thing, I'll only know what it is in hindsight!). I guess I'd be thinking of striking some kind of balance. To my mind (and I'm not an expert on these things), I think it may be overcautious to move everything to safe havens... just because one considers one has limited time to wait for a post crash recovery. If I live for 20 years after retirement... and I'm unlucky enough to suffer a market crash on day one of retirement... I'd still have a good few years left for the market to recover. On the other hand, if on day two of retirement I'm having to sell investments to generate drawdown income... I'd be selling those investments at a low price, because the market has crashed.  That would hurt... as once those assets have been sold, they wouldn't be able to enjoy the subsequent recovery when the market rises. So... at or near retirement, I'd probably be thinking in terms of having some ready cash and low risk investments to cover my drawdown needs for a defined period... so those won't be damaged too much if there is a crash... then the rest could stay invested, as I could afford to wait a bit for a hoped for recovery.  This means part of my assets won't be invested in high yielding vehicles.... so that's why I wouldn't assume 5% growth after retirement (as not all assets will be in suitable investments that could generate that sort of return).

Does that make sense?

Barney

RandallFlagg said:

Barney said:

This is a minefield ....I think I will just retire at 67...lol

My cousin's husband dies the other week age 56 and a chap I was working with late last year on a project died age 66...

Aye...it certainly makes you think...

Strat_a_tat_tat

Barney said:

RandallFlagg said:

Barney said:

This is a minefield ....I think I will just retire at 67...lol

My cousin's husband dies the other week age 56 and a chap I was working with late last year on a project died age 66...

Aye...it certainly makes you think...

Yeah... that's the great unknown that completely blows everybody's spread sheet planning out of the water!

On the other hand, if one is married or in a long term relationship... there's additional concerns.

For those in a partnership, it can be worth asking... 'What if I was told I had 6 months to live?  Am I happy that I'd be able to leave my partner with enough cash to live to a decent-ish standard?'



Jeeezzzz... all this pension stuff gets a bit heavy doesn't it!  :-) 

Barney

Strat_a_tat_tat said:

Barney said:

RandallFlagg said:

Barney said:

This is a minefield ....I think I will just retire at 67...lol

My cousin's husband dies the other week age 56 and a chap I was working with late last year on a project died age 66...

Aye...it certainly makes you think...

Yeah... that's the great unknown that completely blows everybody's spread sheet planning out of the water!

On the other hand, if one is married or in a long term relationship... there's additional concerns.

For those in a partnership, it can be worth asking... 'What if I was told I had 6 months to live?  Am I happy that I'd be able to leave my partner with enough cash to live to a decent-ish standard?'



Jeeezzzz... all this pension stuff gets a bit heavy doesn't it!  :-) 

Well iv just been on that goverment link and it says I have paid 36 years in up to now and will get £171 on retirement but to carry on paying it for other things ...which is a surprise really ...probably buy a loaf of bread in 10 years..lol..

Strat_a_tat_tat

Barney said:

Well iv just been on that goverment link and it says I have paid 36 years in up to now and will get £171 on retirement but to carry on paying it for other things ...which is a surprise really ...probably buy a loaf of bread in 10 years..lol..

Sounds good.
I think one needs 35 years full contributions (without contracting out) to get the full state pension (under the new scheme).  And don't worry about inflation leaving you with just a loaf of bread... the value they quote you today is today's value... so it should increase (unless the govt does any more tinkering!).  At the moment, there's a 'triple lock' on how the state pension rises.... so the minimum it increases is 2.5% pa (but that could change at some point if the govt chooses).

Barney

Strat_a_tat_tat said:

Barney said:

Well iv just been on that goverment link and it says I have paid 36 years in up to now and will get £171 on retirement but to carry on paying it for other things ...which is a surprise really ...probably buy a loaf of bread in 10 years..lol..

Sounds good.
I think one needs 35 years full contributions (without contracting out) to get the full state pension (under the new scheme).  And don't worry about inflation leaving you with just a loaf of bread... the value they quote you today is today's value... so it should increase (unless the govt does any more tinkering!).  At the moment, there's a 'triple lock' on how the state pension rises.... so the minimum it increases is 2.5% pa (but that could change at some point if the govt chooses).

 Yeah..better than I thought to be honest ..it makes me think about using part of my pension pot to top up part time work until then ...using the drawdown.. it's not that I don't like my job... it's just I could do with more time to do things I want to do rather than that time be took up by work 

spark240

Strat_a_tat_tat said:

Barney said:

RandallFlagg said:

Barney said:

This is a minefield ....I think I will just retire at 67...lol

My cousin's husband dies the other week age 56 and a chap I was working with late last year on a project died age 66...

Aye...it certainly makes you think...

Yeah... that's the great unknown that completely blows everybody's spread sheet planning out of the water!

On the other hand, if one is married or in a long term relationship... there's additional concerns.

For those in a partnership, it can be worth asking... 'What if I was told I had 6 months to live?  Am I happy that I'd be able to leave my partner with enough cash to live to a decent-ish standard?'



Jeeezzzz... all this pension stuff gets a bit heavy doesn't it!  :-) 

Ah.....but does your partner think the same way?.....I bet my other half doesn’t give monkeys how much I’d be left with if she popped off...

RandallFlagg

Strat_a_tat_tat said:

RandallFlagg said:

Ok, but the balance of your drawdown pot remains invested so what's a sensible rate of investment return on the pot balance through the life of the drawdown?

Depends on a few things... are you happy not to leave any cash for kids when you and your partner die (that's a big question and it can have major implications)... will you keep all your drawdown pot invested... if so, invested in what? 

People tend to move their investments into less risky assets (and move more into cash) when they get near to retirement... and many tend to become even more cautious as retirement proceeds. It's natural to think that way... especially if one considers that some stock market corrections can take the market 10 years to recover from.

Some people can think very 'black and white'... ie they're happy with lots of risk when they're a long way from retirement... and then don't want to accept any risk at all when they retire. Not sure that's the best approach (if there is such a thing as a best approach... and if there is such a thing, I'll only know what it is in hindsight!). I guess I'd be thinking of striking some kind of balance. To my mind (and I'm not an expert on these things), I think it may be overcautious to move everything to safe havens... just because one considers one has limited time to wait for a post crash recovery. If I live for 20 years after retirement... and I'm unlucky enough to suffer a market crash on day one of retirement... I'd still have a good few years left for the market to recover. On the other hand, if on day two of retirement I'm having to sell investments to generate drawdown income... I'd be selling those investments at a low price, because the market has crashed.  That would hurt... as once those assets have been sold, they wouldn't be able to enjoy the subsequent recovery when the market rises. So... at or near retirement, I'd probably be thinking in terms of having some ready cash and low risk investments to cover my drawdown needs for a defined period... so those won't be damaged too much if there is a crash... then the rest could stay invested, as I could afford to wait a bit for a hoped for recovery.  This means part of my assets won't be invested in high yielding vehicles.... so that's why I wouldn't assume 5% growth after retirement (as not all assets will be in suitable investments that could generate that sort of return).

Does that make sense?

Yes, makes sense. Lots to consider.

FastEddie

Jalapeno said:

Gordon Brown fucked the private pension industry right royally, meaning DC pension funds' could no longer make big profits, and hence deliver decent pensions. GB wanted as many people to rely on state pensions as he could muster to create a dependent electorate. We're all living with that now ...

The lump sum whilst fair, did mean that there were some horror stories of people's life savings being trashed.

His shot was the first.
Other limits are the total, £1,030,000. GP's are retiring early because of this causing a shortage. Others are hit as well.
The scrapping of the higher rate of tax relief is another. 100% of income or £40k whichever is the max, that's all you can put in.
It's not effecting the majority but it does stop people saving which has an impact.

I said earlier that Pension Wise or the Pensions Advisory Service are Gov services. Both give good guidance on the options. 

The best way to maximise pension planning is to get your charges as low as possible. Pay IFA's a fixed fee is you can and do not give them an annual % of your fund. They are not fund managers. I speak from the industry.

Barney

FastEddie said:

Jalapeno said:

Gordon Brown fucked the private pension industry right royally, meaning DC pension funds' could no longer make big profits, and hence deliver decent pensions. GB wanted as many people to rely on state pensions as he could muster to create a dependent electorate. We're all living with that now ...

The lump sum whilst fair, did mean that there were some horror stories of people's life savings being trashed.

His shot was the first.
Other limits are the total, £1,030,000. GP's are retiring early because of this causing a shortage. Others are hit as well.
The scrapping of the higher rate of tax relief is another. 100% of income or £40k whichever is the max, that's all you can put in.
It's not effecting the majority but it does stop people saving which has an impact.

I said earlier that Pension Wise or the Pensions Advisory Service are Gov services. Both give good guidance on the options. 

The best way to maximise pension planning is to get your charges as low as possible. Pay IFA's a fixed fee is you can and do not give them an annual % of your fund. They are not fund managers. I speak from the industry.

I pay 1% to an advisor when I got 2 pensions tranfered ...is this the same thing ...he takes 1% a year but said the other 2 pensions that I got transferred were taking any ways so I was saving money ?

Musicwolf

Picking up on the 'expected returns'.  I analysed one of my ISA funds and, over the last 10 years it has achieved a little over 7%, however, that includes 2009/10 which was almost 24% as it bounced back from the crash.   A far more realistic figure is just over 5% (I run my simulations at 5.2% growth / 2% inflation).

Strat_a_tat_tat

Musicwolf said:

Picking up on the 'expected returns'.  I analysed one of my ISA funds and, over the last 10 years it has achieved a little over 7%, however, that includes 2009/10 which was almost 24% as it bounced back from the crash.   A far more realistic figure is just over 5% (I run my simulations at 5.2% growth / 2% inflation).

Yes... the recovery from the 2008 crash really flatters the 10 yr figures.

RandallFlagg

Musicwolf said:

Picking up on the 'expected returns'.  I analysed one of my ISA funds and, over the last 10 years it has achieved a little over 7%, however, that includes 2009/10 which was almost 24% as it bounced back from the crash.   A far more realistic figure is just over 5% (I run my simulations at 5.2% growth / 2% inflation).

5.2% plus 2% inflation? or 5.2% including the 2% inflation?

Musicwolf

the funds are expected to rise 5.2% total, living costs rise by 2%.  So funds will grow at 3.2% above inflation.

RandallFlagg

Musicwolf said:

the funds are expected to rise 5.2% total, living costs rise by 2%.  So funds will grow at 3.2% above inflation.

OK, I'm using 5% total annual escalation as a forecast

sw67

I have a good pot as I started my pension at 20 - I plan on starting drawdown at 60 in 8 years time and will be happy if the fund lasts 15 years. I have watched too many mates and family die or become too ill to enjoy their retirement so not worried about a fund lasting into my 80s 

grungebob

One of the biggest advantages of drawdown rather than buying annuity’s is the pot is transferable to loved ones or anyone of your choosing. Annuity stops when you die. 

ToneControl

you can keep normally adding to your fund until you "crystallise it"
this normally means taking a lump sum, beginning draw down or taking cash from it
after that you can't add much into it anymore

IIRC
You basically need to decide on one of:

1. annuity (way too expensive now)
2. drawdown and 25% tax free
3. all lump sums whenever you like, each one 25% tax free

I think your drawdown amount is only limited by the cash you have in the fund.
They want you to take not much more every year than the average growth
I think 6% or 7% is normal

For some, a big cash tax free sum now is very useful
others may like to take the cash whenever they like

Both ways you pay income tax, so if you took it all out on day one, you'd pay tax on 75% of the total. If your fund was £400k, you'd get £100k tax free, then a taxed £300k, so probably £130k-£140k tax on that