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    • cogito
    • By cogito 17th May 17, 9:19 AM
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    cogito
    How much to draw from SIPPS
    • #1
    • 17th May 17, 9:19 AM
    How much to draw from SIPPS 17th May 17 at 9:19 AM
    I'm 68, my wife 57 and both retired. I receive pensions of around £10000pa and my wife will eventually receive basic state pension.

    We have £420,000 in our SIPPS and are 100% invested in the stock market. We also have around £60000 in ISAs and no debt.

    I asked my IFA how much we could reasonably draw from our SIPPs without running out of money and he suggested 4%.

    That would mean we could take around nearly £16000pa from my wife's SIPP including tax free cash giving us a total income of £26,000 on which we pay no tax. This is more than enough for us as we don't have an expensive lifestyle. We could top this up by taking income from ISAs but I regard our ISAs as rainy day money and prefer not to touch them.

    My question is, would it be safe to take a bit more from our SIPPs so we can indulge our passion for travelling a bit more while we can. I'm assuming that as we get older our income requirement would reduce as we get older and can do less for ourselves so taking a bit more now wouldn't be unreasonable.
Page 1
    • dunstonh
    • By dunstonh 17th May 17, 9:57 AM
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    dunstonh
    • #2
    • 17th May 17, 9:57 AM
    • #2
    • 17th May 17, 9:57 AM
    My question is, would it be safe to take a bit more from our SIPPs so we can indulge our passion for travelling a bit more while we can.
    It will depend on your investments within the pension and whether they can sustain it. Or whether you dont mind capital erosion or what your future withdrawal plans are.

    Your IFA should be able to answer that.

    I'm assuming that as we get older our income requirement would reduce as we get older and can do less for ourselves so taking a bit more now wouldn't be unreasonable.
    Generally, that is the case for consumer spending. However, health can mean you spend more on care.

    Plus, it is vital you remember inflation. Spending power is around 65% after 10 years. (i.e. £100k would have the spending power of £65k in 10 years time). Your wife is likely to outlive you and be here for another 30 or so years. If you draw too much and leave insufficient for inflation, then you could over erode the pension later on and run out.

    Ask your IFA.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Linton
    • By Linton 17th May 17, 11:22 AM
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    Linton
    • #3
    • 17th May 17, 11:22 AM
    • #3
    • 17th May 17, 11:22 AM
    The figure of 4% is in the right sort of ball park. I would use 3.5% of the initial pot increasing with inflation. If you are flexible in the amount you drawdown, taking significantly less in the bad economic times, then you could increase the % to perhaps 5-6%. However any such prediction is based on the assumption that the world economy in the next 40 years will be similar on average to the past 100 years. It could be very different. So it is probably unwise to drawdown and spend too much in the early years. You should to re-assess the situation every year.

    However, from what you say is it reasonable to assume your drawdown requirements will approximately halve when your wife receives her State Pension? On those grounds it could be a safe choice to allocate up to say 20% of the £420K to extra spending during the next 10 years, still leaving you with more than your needs afterwards. It would be taxed, so give you approx £6K net extra per year.

    Other thoughts:
    - I assume your ISA is completely in cash. If so perhaps you could reduce it a bit over time. Or you could set up an S&S ISA so you could keep any drawdown you didnt spend invested in the stock market.
    - I assume you are taking your State Pension. In that case it could well be worth deferring for a year or two, Perhaps use some money from your cash pile. Since you reached SP Age before April 2016 for each year you defer your annual SP for the rest of your life increases by 10.4% simple interest, not compounded. The Extra SP is passed to your wife on your demise.
    Last edited by Linton; 17-05-2017 at 11:28 AM.
    • atush
    • By atush 17th May 17, 12:56 PM
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    atush
    • #4
    • 17th May 17, 12:56 PM
    • #4
    • 17th May 17, 12:56 PM
    I am a bit worried (if you wont touch Isas) thst you are 100% invested in your Sipp as you intend to draw down.

    It is wise to have (either by taking out the entire 25%TFLS or switching to cash internally) to have at least a year or more income in cash ( I intend to have at least 3).

    Otherwise, during a market correction/crash you will be liquidating assets that have fallen greatly therefore cementing a loss.

    So if doing a DD that will include 25% tfls annually, you may find yourself more exposed to markets than you like.

    Another option is to stop reinvesting income/dividends within your Sipp if currently doing so, and have these build up in a cash acct to provide your income.
    • cogito
    • By cogito 17th May 17, 2:04 PM
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    cogito
    • #5
    • 17th May 17, 2:04 PM
    • #5
    • 17th May 17, 2:04 PM
    I am a bit worried (if you wont touch Isas) thst you are 100% invested in your Sipp as you intend to draw down.

    It is wise to have (either by taking out the entire 25%TFLS or switching to cash internally) to have at least a year or more income in cash ( I intend to have at least 3).

    Otherwise, during a market correction/crash you will be liquidating assets that have fallen greatly therefore cementing a loss.

    So if doing a DD that will include 25% tfls annually, you may find yourself more exposed to markets than you like.

    Another option is to stop reinvesting income/dividends within your Sipp if currently doing so, and have these build up in a cash acct to provide your income.
    Originally posted by atush
    Yes, I'd forgotten the point about having some cash on hand. When making my OP, I'd overlooked that I took some gains off the table earlier this year and am holding about £25000 in cash in our SIPPs now. I intend to maintain this level of cash as protection against a market correction. It's not earning anything but a market crash would cost me more.
    • atush
    • By atush 17th May 17, 2:11 PM
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    atush
    • #6
    • 17th May 17, 2:11 PM
    • #6
    • 17th May 17, 2:11 PM
    Well you could take it out as part of a TFLS, and invest it where you get at least some piddling interest?
    • cogito
    • By cogito 17th May 17, 4:40 PM
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    cogito
    • #7
    • 17th May 17, 4:40 PM
    Royal London Investment Grade Short Dated Credit Fund
    • #7
    • 17th May 17, 4:40 PM
    Post deleted
    Last edited by cogito; 17-05-2017 at 4:44 PM.
    • bostonerimus
    • By bostonerimus 17th May 17, 10:09 PM
    • 509 Posts
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    bostonerimus
    • #8
    • 17th May 17, 10:09 PM
    • #8
    • 17th May 17, 10:09 PM
    A couple aged 68 and 57 will have a joint life expectancy into the 90s so you should be planning for at least 30 years.....probably 35 or 40 to be really safe. The 4% rule is for US historical market returns, and gives a 95% probability of having your money last for at least 30 years with a 60/40 asset allocation. In the UK it might be better to use 3.5% and if you think you will need 40 years you might be down to 3%.. Do a budget and see how low you can comfortably go. If you need to spend a bit more early on remember that that will compound down the years and you should try to limit expenses at some point to compensate.
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