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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?
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! :-)
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).
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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.
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Yes... the recovery from the 2008 crash really flatters the 10 yr figures.
5.2% plus 2% inflation? or 5.2% including the 2% inflation?
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
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:
- annuity (way too expensive now)
- drawdown and 25% tax free
- 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