Pensions Planning: The NUMBER

Yankee24

Currently 54 and 56 and both working full time.  No mortgage and kids are independent and we have passed on some inheritance already to them.  We have £1.4m split in sipps and isas.   Plus a final salary in payment of £27k per year.   800k however is a pension that I inherited from my father, so I want to disregard that and use that for the kids and their families.  It is a yearly payment, so it’s a nice chunk to help smooth the path and have holidays etc  

We were going to stop this year, however, my husband made a great observation… what is working stopping us from doing?  The answer is nothing. We work hybrid, he loves his job, I’m ok with mine.  We travel a lot.   I am a magistrate.  He plays cricket.  If I was commuting full time, it would be different.  So, we’re in for another 3 years….  My goal is to downsize and up price and move back into london.  We miss it.  The shires were great to raise kids, but I’m done with late trains  home after the theatre, Labradors and golf

Benny130

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

PJM_62

Depends on many variables.
How old you are.
DB pensions or just DC.
Health conditions.

Benny130

PJM_62 said:

Depends on many variables.
How old you are.
DB pensions or just DC.
Health conditions.

Would be great if people could confirm the big number as well as the smaller one!

michaels

Benny130 said:

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

For a DC pot, assume a 3.5% SWR for a 30 year retirement is a rule of thumb

Benny130

michaels said:

Benny130 said:

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

For a DC pot, assume a 3.5% SWR for a 30 year retirement is a rule of thumb

can you give me an example with numbers so i can work out what DC and SWR are!? 

michaels

Benny130 said:

michaels said:

Benny130 said:

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

For a DC pot, assume a 3.5% SWR for a 30 year retirement is a rule of thumb

can you give me an example with numbers so i can work out what DC and SWR are!? 

Suppose you are retiring at age 66 and you plan your pension on being able to draw £30k per annum (your 'little' number) from your defined contribution (DC = sipp, money pot) pension increasing by inflation for at least 30 years then you need a big enough pension pot such that 30k is 3.5% of the pot - ie 30/0.035 = £857k ('big' number).  The 3.5% is referred to as a safe withdrawal rate.  It is based on what has happened historically so it does not actually prove that this rate will be safe in future.

If you want to retire for more or fewer years then the rate will be a bit higher or lower.

Of course it is unlikely that you will want to draw the same (inflation adjusted) amount every year - if you retire before state pension age then you will want to withdraw more in the early years to 'fill the gap' until you get state pension, Similarly for DB pension.

Benny130

michaels said:

Benny130 said:

michaels said:

Benny130 said:

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

For a DC pot, assume a 3.5% SWR for a 30 year retirement is a rule of thumb

can you give me an example with numbers so i can work out what DC and SWR are!? 

Suppose you are retiring at age 66 and you plan your pension on being able to draw £30k per annum (your 'little' number) from your defined contribution (DC = sipp, money pot) pension increasing by inflation for at least 30 years then you need a big enough pension pot such that 30k is 3.5% of the pot - ie 30/0.035 = £857k ('big' number).  The 3.5% is referred to as a safe withdrawal rate.  It is based on what has happened historically so it does not actually prove that this rate will be safe in future.

If you want to retire for more or fewer years then the rate will be a bit higher or lower.

Of course it is unlikely that you will want to draw the same (inflation adjusted) amount every year - if you retire before state pension age then you will want to withdraw more in the early years to 'fill the gap' until you get state pension, Similarly for DB pension.

Oh dear.... how depressing 

Anonymous101

Benny130 said:

michaels said:

Benny130 said:

michaels said:

Benny130 said:

Vry helpful getting an insight into peoples "number", but what is the big number that brings this about. So for 30,35,40k incomes what does the BIG "number" need to be? 

For a DC pot, assume a 3.5% SWR for a 30 year retirement is a rule of thumb

can you give me an example with numbers so i can work out what DC and SWR are!? 

Suppose you are retiring at age 66 and you plan your pension on being able to draw £30k per annum (your 'little' number) from your defined contribution (DC = sipp, money pot) pension increasing by inflation for at least 30 years then you need a big enough pension pot such that 30k is 3.5% of the pot - ie 30/0.035 = £857k ('big' number).  The 3.5% is referred to as a safe withdrawal rate.  It is based on what has happened historically so it does not actually prove that this rate will be safe in future.

If you want to retire for more or fewer years then the rate will be a bit higher or lower.

Of course it is unlikely that you will want to draw the same (inflation adjusted) amount every year - if you retire before state pension age then you will want to withdraw more in the early years to 'fill the gap' until you get state pension, Similarly for DB pension.

Oh dear.... how depressing 

It can be daunting. Make sure you understand your numbers well and the questions you are asking though. For example, would the £30k include the state pension? So if you need £30k spends, £10k may already be provided via the state pension. If the £30k is for a couple and therefore you have 2 state pensions then you may only need £10k p.a. from the pension pot. Which all of a sudden can reduce your large number to a more manageable £250-£300k.

Pat38493

Another quick and dirty way to get a very rough estimate is to decide how long you think you will live and when you will stop working.  Then just add up the amounts you think you will need each year - e.g. 20K for 10 years then 10K for another 20 years.  

If you just add up all those numbers it gives you an absolute value.  This method assumes that the return on your investments during retirement, will exactly cancel out inflation over the whole period, so it's far from exact but it gives a very rough idea about it.