Living off pension drawdown

RandallFlagg

I have 2 pensions a preserved Defined Benefit and a current Defined Contribution that I pay into along with my employer's 11% contributions.

I am looking to take the lump sum and start drawing the preserved DB pension at 55 and use the lump sum to do some house renovations, but continue working in my current job as long as I can hack it and load up the DC pension with extra contributions.

Once I've had enough I will either retire completely and start drawing down on the DC pension or get a lower paid/more enjoyable job and take less drawdown or keep it preserved.

I have just under 3 years until I'm 55 so will be getting as much advice I can and eventually reluctantly pay for some professional advice in a year or so.

EricTheWeary

This Discussion has become very technical - I just don't want to have to go to work in the morning!

I was thinking that if I took my LGPS pension from next year it would be worth about £12k per annum. But there would be no tax, NI or pension to pay out of that so I would get all the money. Unless I'm missing something? So although gross it's a big drop in income net it isn't actually as bad. I feel there's a catch I'm missing? 

Strat_a_tat_tat

EricTheWeary said:

This Discussion has become very technical - I just don't want to have to go to work in the morning!

Have you thought of just working the night shift?

Musicwolf

RandallFlagg said:

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

You may well turn out to be correct, I like to err on the side of caution.  If I can make the numbers work for me at the pessimistic end of the scale then I'm pretty confident that I'll come up with a way of disposing of any money that is left over.  Failing that, my wife will.

Strat_a_tat_tat

ToneControl said:

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

Nowadays, I think most advisers would say 6-7% is too high.  Although it depends on health, life expectancy, age, whether the investor wants to leave money to loved ones etc.

Many advisers are suggesting 3.5% drawdown at age 65 (or I think 3% if starting at age 55)

EricTheWeary

Strat_a_tat_tat said:

EricTheWeary said:

This Discussion has become very technical - I just don't want to have to go to work in the morning!

Have you thought of just working the night shift?

Wis-Lol!

Although one of the things I was thinking of doing was trying to get some relief care work which would probably end up being mostly nights. I could say I currently work with adults with learning disabilities and autism but actually I mostly work at a computer and occasionally see adults with learning disabilities and autism in order to generate more work on the computer. So actually seeing more of real people seems quite appealling. 

Edit: even if they are mostly sleeping real people.

ThePrettyDamned

This is really interesting. I'm young and building my pot (I'm lucky and have a quite generous scheme at work with aviva).

Growth in the last year was tiny on my pot, but you're making me wonder whether I should switch. Currently I'm on an annuity plan - perhaps I should switch to drawdown. 

LoFi

EricTheWeary said:

This Discussion has become very technical - I just don't want to have to go to work in the morning!

I was thinking that if I took my LGPS pension from next year it would be worth about £12k per annum. But there would be no tax, NI or pension to pay out of that so I would get all the money. Unless I'm missing something? So although gross it's a big drop in income net it isn't actually as bad. I feel there's a catch I'm missing? 

If that's your only income, it'll be tax-free, as it's under the Personal Allowance (of £12.5K pa). However, in a later post, you mention doing some relief care work. If this would be paid, you'd pay income tax on anything over £12.5K pa.

So, for example, if your pension is £12K/year and you earn £5K/year from your care work, you'd pay 20% tax on £4.5K/year = £900/year.

Put simply, aside from the ability to remove a tax-free lump sum, pension income (whether from an annuity or through draw-down) is treated as normal income for the purposes of tax.

LoFi

ThePrettyDamned said:

This is really interesting. I'm young and building my pot (I'm lucky and have a quite generous scheme at work with aviva).

Growth in the last year was tiny on my pot, but you're making me wonder whether I should switch. Currently I'm on an annuity plan - perhaps I should switch to drawdown. 

I could be wrong (stranger things have happened), but Annuity vs. Drawdown is a decision you make at retirement - up until that point, it's simply a pot of investments that has a value.

You may be thinking of the pension illustrations you get every year, which will say "You can expect a lump sum of £X plus an income of £X", normally for three different growth assumptions. These illustrations *are* based on an buying an annuity at retirement, but that doesn't mean you're on an "Annuity plan".

spark240

Without getting too personnel...Im interested what the average pot might need to be to even consider jacking work at 55-60 ?

I understand that you need circa £200k pot to get around £10k per year...what you think?

Im a little shy of that myself ;-)

EricTheWeary

LoFi said:

EricTheWeary said:

This Discussion has become very technical - I just don't want to have to go to work in the morning!

I was thinking that if I took my LGPS pension from next year it would be worth about £12k per annum. But there would be no tax, NI or pension to pay out of that so I would get all the money. Unless I'm missing something? So although gross it's a big drop in income net it isn't actually as bad. I feel there's a catch I'm missing? 

If that's your only income, it'll be tax-free, as it's under the Personal Allowance (of £12.5K pa). However, in a later post, you mention doing some relief care work. If this would be paid, you'd pay income tax on anything over £12.5K pa.

So, for example, if your pension is £12K/year and you earn £5K/year from your care work, you'd pay 20% tax on £4.5K/year = £900/year.

Put simply, aside from the ability to remove a tax-free lump sum, pension income (whether from an annuity or through draw-down) is treated as normal income for the purposes of tax.

Just came home to a bank statement - not sure how far £1000 per month will go until the kids move out at least! 

In reality we’d also have MrsTheWeary having a similar ( actually  slightly better) pot plus lump sums in the building society for rainy days. I guess one of the unknown is how many rainy days. However, having seen my in laws and now my mother lose almost everything they have to pay for care there doesn’t seem any point in trying to hang onto it for too long. 

LoFi

spark240 said:

Without getting too personnel...Im interested what the average pot might need to be to even consider jacking work at 55-60 ?

I understand that you need circa £200k pot to get around £10k per year...what you think?

Im a little shy of that myself ;-)

People on this thread are suggesting a "safe" draw-down level at 60- 65 of 3.5%,  whereas you're talking about 5% at 55-60, so much higher risk.

As an aside, some people ignore the likely fact that you'll need far more income in your early years of retirement (when you're still active) to the later ones.

RandallFlagg

spark240 said:

Without getting too personnel...Im interested what the average pot might need to be to even consider jacking work at 55-60 ?

I understand that you need circa £200k pot to get around £10k per year...what you think?

Im a little shy of that myself ;-)

It's a tricky one to determine. Start by trying to work out how much you need to cover living expenses, will you have a mortgage? loans, etc. Work out a typical months expenses covering all utility bills, council tax, Sky TV, phones, internet shopping, a tank of fuel every month for the car etc etc. Let's say that's £1,000 a month, so that's £12K a year, double that to give you £1,000 a month spare. so that's £24K. Will you want holidays? Will you want a new car every 3-5 years? MOT, servicing, house repairs, will you have savings?

When the state pension kicks in for you and your wife if you have one, the amount you need from private pensions can reduce if you are on a drawdown.

Build a spreadsheet and plot out the costs and the income and tweak it to see how far it can stretch. If you're no good at spreadsheets then consider professional advice. Google and research this question, there is plenty of pension planning tools out there, they are a little crude but will give you a basic idea.

ToneControl

ThePrettyDamned said:

This is really interesting. I'm young and building my pot (I'm lucky and have a quite generous scheme at work with aviva).

Growth in the last year was tiny on my pot, but you're making me wonder whether I should switch. Currently I'm on an annuity plan - perhaps I should switch to drawdown. 

If it's defined contributions then your final selection is when you retire, you don't need to worry about annuities yet, it's something you might choose to buy at retirement age 

ToneControl

this calculator works well:

https://www.fidelity.co.uk/retirement/calculators/pension-drawdown-tool

tone1

I know we all need to plan for retirement,  but I think rushing to retire with spreadsheets and working out everything to the last penny just seems like tempting fate, and sucking the life out of it...It’s sometimes good to take a lesser paid job to give you a reason and a purpose and keep you interesting... My Parents retired at 50....Nuff said.  

PolarityMan

Is the safe draw down amount basically trying to keep your fund at a constant value so you only dream off the profits?

If so wouldn't it make more sense to draw down based on a mount that gradually whittled down your portfolio?

RandallFlagg

tone1 said:

I know we all need to plan for retirement,  but I think rushing to retire with spreadsheets and working out everything to the last penny just seems like tempting fate, and sucking the life out of it...It’s sometimes good to take a lesser paid job to give you a reason and a purpose and keep you interesting... My Parents retired at 50....Nuff said.  

Each to their own, at 52 I feel weary after over 30 years working full time, Currently, I am in a well paid Management job that can be stressful and is a 1 hours commute so 10 hours driving to/from work a week and it's starting to grate after 15 years. I'm not running on this treadmill until I'm 67, no way. I will use their money to get the mortgage finished and the load up the pension and my savings and then be on my way, somewhere between 55 and 60 unless there are any surprises.

When I talk about retirement, it's retiring from this job, there is nothing to stop me taking a part time job to top up the pension once I do drop out.

RandallFlagg

PolarityMan said:

Is the safe draw down amount basically trying to keep your fund at a constant value so you only dream off the profits?

If so wouldn't it make more sense to draw down based on a mount that gradually whittled down your portfolio?

I plan to draw down the fund growth amount plus some of the original equity so the pot will diminish over time. The kids will get the house and what's left of any savings, the pension is for me and the wife.

ToneControl

PolarityMan said:

Is the safe draw down amount basically trying to keep your fund at a constant value so you only dream off the profits?

If so wouldn't it make more sense to draw down based on a mount that gradually whittled down your portfolio?

have a look at the calculator to see the curve you get as you take more than the growth, agreed that it would be daft to keep the fund level constant