Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • GSP
    • By GSP 29th Dec 17, 10:26 AM
    • 162Posts
    • 34Thanks
    GSP
    £780k pot how much would you drawdown each year
    • #1
    • 29th Dec 17, 10:26 AM
    £780k pot how much would you drawdown each year 29th Dec 17 at 10:26 AM
    Hi,
    I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA.

    She has given up work and we intend to have some good holidays though keeping an eye on the fund.
    I have been reading posts regarding safe withdrawal rates etc. Some posters are cautious, but some say enjoy what you can.

    I will be having reviews with my IFA but with differing opinions out there be interesting to know how much people would withdraw each year. Excluding shopping, all regular household bills are less than £500 a month, no loans or mortgage.

    Thanks
Page 2
    • kidmugsy
    • By kidmugsy 29th Dec 17, 7:47 PM
    • 9,975 Posts
    • 6,732 Thanks
    kidmugsy
    I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA. She has given up work Excluding shopping, all regular household bills are less than £500 a month, no loans or mortgage.
    Originally posted by GSP
    Your position changes in about five years time when your wife's pension becomes available. Until then you could take about £40k p.a. in TFLS and about £12k p.a. in taxable but untaxed income. I'll bet that's far more than you expect to spend, so take out less of the TFLS than £40k. Or perhaps take it but don't spend all of it, putting the surplus into ISAs or even (why not?) into pensions. In five years time your wife can take about £40k TFLS and, again, about £12k p.a. taxable but untaxed. So jointly you'll be getting £24k p.a. plus however much TFLS you want, all without paying income tax. Sounds comfortable. You'll still have lots of money to let you bridge the gap until your State Retirement Pensions begin.

    If you die before 75 and have completed the relevant form, your wife can inherit your unused pension tax-free. (And vice versa, come to that.) You should balance up the chances of that versus the chances of (i) future basic rate of income tax exceeding 20%, or reduction in the Personal Allowance, and (ii) punitive attacks on pension holders e.g. by means testing of SRP.
    Free the dunston one next time too.
    • Hal17
    • By Hal17 29th Dec 17, 7:54 PM
    • 87 Posts
    • 39 Thanks
    Hal17
    [QUOTE=You need to be careful about following a strategy of only "drawing what you need to live on" as suggested by some posters as if the pension pot continues to grow you might find yourself with a tax liability when the pension pot is revalued at age 75.[/QUOTE]

    Could someone please explain what is meant by the comment above, regarding the tax liability when the pot is revalued at 75?

    I was thinking of possibly using some of my Drawdown fund as part of my estate planning in the future, so am now confused.
    • bostonerimus
    • By bostonerimus 29th Dec 17, 8:01 PM
    • 1,402 Posts
    • 819 Thanks
    bostonerimus
    Could someone please explain what is meant by the comment above, regarding the tax liability when the pot is revalued at 75?

    I was thinking of possibly using some of my Drawdown fund as part of my estate planning in the future, so am now confused.
    Originally posted by Hal17
    The idea is that you use slightly larger withdrawals over the years than your strict income requirements to fill up a lower tax band than the one you'll be in later on when your pension is assessed. If you do this you should put excess money into an ISA.
    Last edited by bostonerimus; 29-12-2017 at 8:25 PM.
    Misanthrope in search of similar for mutual loathing
    • zagfles
    • By zagfles 29th Dec 17, 9:33 PM
    • 12,562 Posts
    • 10,660 Thanks
    zagfles
    Could someone please explain what is meant by the comment above, regarding the tax liability when the pot is revalued at 75?

    I was thinking of possibly using some of my Drawdown fund as part of my estate planning in the future, so am now confused.
    Originally posted by Hal17
    Lifetime Allowance. There's an LTA test at age 75 on any uncrystallised funds and also on any increase in value of any crystallised funds.

    The basic rate band issue mentioned above is another thing to consider but it has nothing specifically to do with age 75.
    • k6chris
    • By k6chris 29th Dec 17, 10:53 PM
    • 188 Posts
    • 332 Thanks
    k6chris
    I would draw around £30k a year, which would be taken from the natural yield of the investments.
    Originally posted by Drp8713
    What is meant by the term ďnatural yield ď? Is this simply dividend payments or dividend+growth? How do you arrive at this £30k figure?? Thanks
    EatingSoup
    • davieg11
    • By davieg11 29th Dec 17, 11:11 PM
    • 264 Posts
    • 154 Thanks
    davieg11
    I'm now 2 years into drawdown. I started out with a pension pot (after 25% tax fee) of £705K. Initially I started drawing £27K/annum (£2,250/month) which was my estimated natural yield at the time, however many of my funds, particularly Global Equity funds, have done much better than expected (partially due to Brexit & the £) and as a result my pot now stands at £814K. As a result I increased my annual drawdown amount to £30K (£2,500/month) which again should be covered by the natural yield as stated by other posters and also keep me within basic rate tax limits.

    You need to be careful about following a strategy of only "drawing what you need to live on" as suggested by some posters as if the pension pot continues to grow you might find yourself with a tax liability when the pension pot is revalued at age 75.
    Originally posted by Fermion
    I would stick to your £27k/annum or less if you can in case another crash comes which could potentially reduce your pot from £814k to £400k unless you have £60k/£70k in savings from your TFLS to tide you over until it recovers!
    • Drp8713
    • By Drp8713 30th Dec 17, 6:12 AM
    • 762 Posts
    • 632 Thanks
    Drp8713
    What is meant by the term ďnatural yield ď? Is this simply dividend payments or dividend+growth? How do you arrive at this £30k figure?? Thanks
    Originally posted by k6chris
    Just the dividends, for example Murray International yields 3.86% (£30,108 on £780k), City of London yields 3.92% (£30,576 on £780k).

    You could easily build a globally diversified Investmemt Trust portfolio that would get you a sustainable £30k from £780k.
    • michaels
    • By michaels 30th Dec 17, 10:25 AM
    • 20,141 Posts
    • 92,817 Thanks
    michaels
    Just the dividends, for example Murray International yields 3.86% (£30,108 on £780k), City of London yields 3.92% (£30,576 on £780k).

    You could easily build a globally diversified Investmemt Trust portfolio that would get you a sustainable £30k from £780k.
    Originally posted by Drp8713
    Unless you aloow for inflation then you are effectively living off the capital even if it doesn't appear so in nominal terms. (Although this is not a problem as long as you have factored it in, no pockets in shrouds and all that)
    Cool heads and compromise
    • Chickereeeee
    • By Chickereeeee 30th Dec 17, 11:09 AM
    • 425 Posts
    • 262 Thanks
    Chickereeeee
    Withdraw as much as you can up to basic rate tax limit and move surplus into ISAs for you and spouse. Once you hit SPA, your pension will use up much of your tax free personal allowance, and so you may find you are unable to to deplete your pension without paying HRT.

    Once in ISA, save and increase capital or draw income without tax consequences.

    (Don't confuse maximum recommended drawdown rate from pension with drawdown rate from total savings!)


    C
    • k6chris
    • By k6chris 30th Dec 17, 1:34 PM
    • 188 Posts
    • 332 Thanks
    k6chris
    Unless you aloow for inflation then you are effectively living off the capital even if it doesn't appear so in nominal terms. (Although this is not a problem as long as you have factored it in, no pockets in shrouds and all that)
    Originally posted by michaels
    Is it reasonable to assume that if you live of the natural yield (ie dividends) that expected growth in the underlying assets will grow over time to cover inflation? I presume that depends on the yield of the assets, ie high yielding are likely to grow less, so may not cover inflation?? It's a simple model if it did / could work that way!
    EatingSoup
    • GSP
    • By GSP 31st Dec 17, 11:57 AM
    • 162 Posts
    • 34 Thanks
    GSP
    Knew from the knowledge here there would be some great advice and the differing way people see things.

    Given me more food for thought! Moving money into ISA's, running the pot down before SPA kicks in etc.

    I have a diversified portfolio with a fair proportion as cash (rightly or wrongly) to cover crashes.

    I need to look into areas I haven't looked at before. Just getting the transfer out and drawdown started was quite a job. I need to be having conversations, researching what to do best as I go on.
    • pip895
    • By pip895 31st Dec 17, 12:16 PM
    • 490 Posts
    • 279 Thanks
    pip895
    I think in your situation I might be tempted to up the withdrawals to ~£40k until SP kicks in in 12 years - a bit above the natural yield but still pretty sustainable. Out of this I would definitely pay the Ni contributions for you both and put £2880/annum into OH's pension. With any remainder I would go on some of those nice holidays you are keen on.

    If the stock market takes a tumble you might want to cut back on withdrawals for a few years but ending up having to tighten your belt significantly, is probably less likely than ending up at age 75 bumping up against the LTA and not having the health to really enjoy your money.
    • atush
    • By atush 31st Dec 17, 1:12 PM
    • 16,456 Posts
    • 10,200 Thanks
    atush
    Is it reasonable to assume that if you live of the natural yield (ie dividends) that expected growth in the underlying assets will grow over time to cover inflation? I presume that depends on the yield of the assets, ie high yielding are likely to grow less, so may not cover inflation?? It's a simple model if it did / could work that way!
    Originally posted by k6chris
    Plus a lot of ITs have a rcord of increasing dividends yearly- which can cover inflation.
    • bostonerimus
    • By bostonerimus 31st Dec 17, 1:41 PM
    • 1,402 Posts
    • 819 Thanks
    bostonerimus
    Just the dividends, for example Murray International yields 3.86% (£30,108 on £780k), City of London yields 3.92% (£30,576 on £780k).

    You could easily build a globally diversified Investmemt Trust portfolio that would get you a sustainable £30k from £780k.
    Originally posted by Drp8713
    You need to account for inflation which is why it's also important to have growth in a retirement portfolio as well as dividends.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 31st Dec 17, 1:43 PM
    • 1,402 Posts
    • 819 Thanks
    bostonerimus
    Plus a lot of ITs have a rcord of increasing dividends yearly- which can cover inflation.
    Originally posted by atush
    Have you done the maths to see how many ITs would keep up with inflation?
    Misanthrope in search of similar for mutual loathing
    • goRt
    • By goRt 31st Dec 17, 1:44 PM
    • 242 Posts
    • 146 Thanks
    goRt
    Could someone please explain what is meant by the comment above, regarding the tax liability when the pot is revalued at 75?

    I was thinking of possibly using some of my Drawdown fund as part of my estate planning in the future, so am now confused.
    Originally posted by Hal17
    My take on this LTA issue at 75 is (using simplified numbers):
    1. 30k per year out of the fund * 20 years = 600k
    2. LTA increase from the current 1m (well just over) at 2% increase pa for 20 years = ~1.5m
    Remove 1 from 2 = 900k left, OP has ~800k fund value.

    So not much room for investment gains and the LTA test at 75 is bust.
    There's an article somewhere on the interweb which clearly advises crystallisation of the full fund ASAP (you can store the PCLS in ISAs over time and probably invest in the same funds as within your SIPP)

    My strategy is to withdraw [tax-free allowance and basic rate allowance each year (which you pay ~7k tax on)] less any other taxable income as my biggest issue is the age 75 LTA test (I'm FP14 so my allowance is 1.5m). I spend less than is withdrawn (~30k spend on holidays, etc) and put the remainder into ISAs

    The LTA and associated tests are the biggest single disincentive to pension savings.
    • Fermion
    • By Fermion 31st Dec 17, 1:51 PM
    • 75 Posts
    • 29 Thanks
    Fermion
    I have a diversified portfolio with a fair proportion as cash (rightly or wrongly) to cover crashes.
    I only keep about 3% max of my pot as cash, sufficient to cover about 10 months of monthly drawdown payments. The danger of keeping much more than this as cash is that it's not delivering any yield given that interest rates are so low.

    There is an interesting article on the HL web site about "Timing the Market" and "Time in the Market" which makes a lot of sense if you are only taking the natural yield in drawdown and in particular do not have to sell funds to cover monthly drawdown
    http://www.hl.co.uk/news/investment-times/2014/09/peter-hargreaves-why-i-never-try-to-time-the-market
    • atush
    • By atush 31st Dec 17, 4:04 PM
    • 16,456 Posts
    • 10,200 Thanks
    atush
    Have you done the maths to see how many ITs would keep up with inflation?
    Originally posted by bostonerimus
    No maths required. Just choose ones with a dividend annual increase you estimate to beat inflation (ie 2-5%- many are around 3-4%).

    You of course need to look at longer running ITs and ones that are income based over accumultation.

    I trust that isnt out f your wheel house
    • Thrugelmir
    • By Thrugelmir 31st Dec 17, 4:29 PM
    • 56,690 Posts
    • 50,064 Thanks
    Thrugelmir
    You need to account for inflation which is why it's also important to have growth in a retirement portfolio as well as dividends.
    Originally posted by bostonerimus
    Then you'll know from the long term studies that the majority of growth comes from income reinvestment. Perhaps why equity investments haven't been relied on in the past to provide the foundation of retirement income.
    ďOpportunities come infrequently. When it rains gold, put out the bucket, not the thimbleĒ
    ― Warren Buffett
  • jamesd
    Isn't it worth moving the tfls as quickly as possible (given annual isa allowance) from the pension wrapper to an isa wrapper?
    Originally posted by michaels
    Depends on objectives but personally I'll be looking to move from pension to ISA as fast as my basic rate band combined with VCT buying allows. That's in part to get more P2P investing flexibility and part for flexibility in general. That'll be the wrong choice for a lot of people.

    For the current question there seems to be substantial risk of a lifetime allowance charge at 75 and that suggests to me that drawing at least as fast as money can be moved into ISAs looks likely to be a good move. There seems to be ample money available to use VCT buying to effectively eliminate the tax cost with interesting investments.
    Last edited by jamesd; 31-12-2017 at 8:00 PM.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,428Posts Today

10,135Users online

Martin's Twitter
  • RT @clq: @MartinSLewis You hit that one right out of the park. It might be the Tweet of the Century. I don't think anyone can do any Batter?

  • You've run-out of puns. That's a bit of a googly, maybe I can help break your duck, though it is s sticky wicket, t? https://t.co/nJT51NpXfO

  • RT @richlaing: @MartinSLewis Obviously spot poll but interested in the fact that 9% would opt out of donation. Interested to hear reasons w?

  • Follow Martin