Pensions Planning: The NUMBER

SouthCoastBoy

cfw1994 said:

SouthCoastBoy said:

I have come to the conclusion I most probably won't use all my money, which I'm very happy about. It means I don't really need to budget for one off capital expenditure items. I know it is a fortunate position but I've worked and saved hard for a very long time.

So much so I'm paying for 6 of us to go to australia next Christmas I'm budgeting 25 to 30k 

£5K+ each?
How long is that for?

We are considering a trip Down Under sometime next winter.  hHaven’t properly looked into it, & we do have a fair number of friends and family to abuse the hospitality of, but I need to research a  lot more on the costs we might incur.   

No idea on the best (but reasonably priced 😉) ways of getting there.  We will have no time limitations, so a 1-2 month trip would be good to enjoy.

I'm going in Nov returning in Jan. The other 5 are travelling over mid Dec until early Jan so flights will be expensive. We will also be doing some internal flights. The 5k each is for everything eg. Barrier reef, white water rafting, Cape tribulation etc. Plus accommodation and food. The 5k each is a guesstimate at the moment as flights only go up to mid Dec at moment. In 2017 we went for 3 weeks and for 4 of us it cost around 12 to 14k.

2 of us went in feb 2022 for two weeks which was obviously a lot less. We only stayed in sydney, reckon that was about 5 or 6k all in

DT2001

LL_USS said:

DT2001 said:

Our children have, so far, shown a willingness to budget carefully. I do not think a gift will disincentive and hope it will just give them a good base on which to build. The other alternative is the possibility of paying IHT at a higher marginal rate with the loss of RNBR. 

A loan would be inside your estate but it could be reduced annually/biannually or whenever to remove from your assets(PET) whilst potentially being linked to whatever target you want 

Thank you @DT2001. The chance is my kids won't seem to stay in the same city so I am thinking of selling my house to raise the money, after both of them have left (I will move back to my flat where we lived before). When we sell the family house then gift/ loan money, residential nil rate band does not apply to this capital (unless I gift the house first then let them sell - but this is not as straightfoward because I don't give away the whole value of the house as I maintain a part of the capital as loans). I will need to survive 7 years for the gifts to be exempted from calculation for IHT.

Could you please explain a bit more about "reducing annually/ biannally/ whenever" (is it by gifting more or you mean by the kids paying back a part of the loan), and "remove from assets" and "linked to whatever target". I could have missed something important here.

Sorry my comments are unclear.
As I understand it, if you sold your house and loaned some of the proceeds to your children then those funds remain in your estate. I was suggesting that if you provide loans you could, say after a couple of years, cancel/write off part of the loan (the amount written off/gifted then starts the PET clock on that amount). Originally I considered that if my children had saved X in a year I would gift the same or a multiple thereof - incentivising a savings habit. The same rules apply to each of them. Another advantage from my perspective was that it was a gradual reduction in assets hopefully in line with a reducing income requirement but not set in stone if there was a sequence of poor returns early. The inclusion of DC pension funds from 2027 in estates has made me consider speeding up the process.

HNY

DT2001

cfw1994 said:

SouthCoastBoy said:

I have come to the conclusion I most probably won't use all my money, which I'm very happy about. It means I don't really need to budget for one off capital expenditure items. I know it is a fortunate position but I've worked and saved hard for a very long time.

So much so I'm paying for 6 of us to go to australia next Christmas I'm budgeting 25 to 30k 

£5K+ each?
How long is that for?

We are considering a trip Down Under sometime next winter.  hHaven’t properly looked into it, & we do have a fair number of friends and family to abuse the hospitality of, but I need to research a  lot more on the costs we might incur.   

No idea on the best (but reasonably priced 😉) ways of getting there.  We will have no time limitations, so a 1-2 month trip would be good to enjoy.

We did a month in OZ/NZ for under £5k but no accommodation costs as stayed with friends/family and utilised house swaps.
Flights through Abu Dhabi but could have done cheaper through China but longer.
Used public transport in Sydney, Melbourne and Wellington. Car hire shopped around in Hobart and Queenstown and found good deals.
Took ‘free’ walking tours initially to gain extra information as what else to do.
Self catered and only had hand luggage.
We tend to research areas ourselves rather than use tours. We like sports so took in WBBL and a test match.
So mixed cheaper options with more touristy stuff.

LL_USS

DT2001 said:

Sorry my comments are unclear.
As I understand it, if you sold your house and loaned some of the proceeds to your children then those funds remain in your estate. I was suggesting that if you provide loans you could, say after a couple of years, cancel/write off part of the loan (the amount written off/gifted then starts the PET clock on that amount). Originally I considered that if my children had saved X in a year I would gift the same or a multiple thereof - incentivising a savings habit. The same rules apply to each of them. Another advantage from my perspective was that it was a gradual reduction in assets hopefully in line with a reducing income requirement but not set in stone if there was a sequence of poor returns early. The inclusion of DC pension funds from 2027 in estates has made me consider speeding up the process.

HNY

Happy New Year everyone . May our new year be filled with happiness, fitness and healthy finance.

@DT2001: Thank you very much for the explanation and what could be a brilliant idea. 

I am too soft to handle the second property (our main residence in the past and I keep to move back after kids leave home) so I wish to sort things out as soon as I can because of that too. Yes like you mentioned, I understand if I only loan the sum to the children, this sum still stays in my estate (hence the original ideal was gifting the majority only keeping a small part of the total sum as long term loans, in case - but that way may very likely deincentivize the kids to work sufficiently hard for their own good). 

This IHT is messing our mind up as we are pushed into doing all these much earlier than we are ready - thinking of preparing for eventuality when we are still quite young, and thinking of passing on assets to the children when they are still not mature enough to make the best of our help. I am still wondering if I am a bad person to try to see what's the best way to minimize IHT. I am fine to pay taxes when they are due but what we've built up have been taxed left and right. I've worked hard whilst cutting down so much on myself to accumulate what we have, in the hope to push the whole family out of the "struggling" into a more "comfortable" zone; the kids have gone through everything with me, and worked with me for this, so it's hard to accept giving the state in IHT should anything happen to me. As the assets are mostly in the house and pension, they would have to sell things quick and cheap to pay IHT.

Anyway, the way you suggest might make the best sense, from now I'll refer to this in my plan as the DT2001 way . I think I will follow that, perhaps giving the full amount as a loan first to each of my children, then as they start to have a job, they can give me back what they save in that year (£10K for e.g.); I will put that 10K into an ISA for me that year whilst writing off 10K times xyz from the loan. It could take a while but better in balancing the IHT anxiety with the worry of gifting with advese impact.

Thanks again for the great idea.

MarriedWithKids89

QrizB said:

MarriedWithKids89 said:

DT2001 said:

MarriedWithKids89 said:

Hi all, here is our (couple, retired, late 50's, no dependents, no pets, non-smokers, mortgage free, MCOL area) year end spending summary (living fairly comfortably doing what we want when we want without being extravagant):

Subsistence: £16714 (groceries, fuel, utilities, insurances, taxes, etc.)
Luxuries: £14534 (holidays, short breaks, days out, meals, takeaways, etc.)
Non-discretionary CAPEX: £12435 (car/home repairs, white goods, furnishings, unexpected bills, etc., including £10000 wedding expenses)

If you have any questions then please feel free to ask. Happy New Year.

Happy New Year.

Is the whole of your expenditure covered by income or are you utilising capital (pre SPA) before your luxuries spend reduces (if the U curve research is to be used for planning)?

Hi DT2001, we receive a small income (about £4K) from a pension (taken early) but are mainly utilising capital prior to both drawing full SP at SPA.

Are you using your full personal tax-free allowances? If not, do you have DC pensions you could draw from rather than capital?

£4K is from spouse's DB pension. Then, yes, taking full personal tax-free allowance (plus £1000 unused spouse's allowance) from my DC pension. Then making the rest up with capital.  

pterri

Still planning to go in July 2025 (age 57)

I’ll have an of ISA £89,165 and SIPP £121,408 available. I intend to use some of that to bridge until I’m 60.

I will have built up around £40,000 DB on leaving (RPI linked, max 5%, not sure what index they will use post 2030).  I can access that without reduction at 60 or £33,927 immediately (at 57) or £39,244 reducing to £30,039 in July 35 (when I’m receive the full SP at 67)

Also an AVC £140,252. I need to decide what I do with that on commencement of the DB, take some or all as a lump sum and/or transfer to a SIPP. I think I’ll take the lump sum, put it in a GIA and feed into an isa? Dunno.

 

If I were advising someone else and assuming they had a similar lifestyle to me I’d say you have no worries sunshine,  go for it. I’m still a little apprehensive, but only a little, 

The numbers above may increase by £10k or so depending on how much I save into the SIPP/ISA. It’s surprisingly nerve wracking but I realise I’m in a fortunate position  

kev2009

pterri said:

Still planning to go in July 2025 (age 57)

I’ll have an of ISA £89,165 and SIPP £121,408 available. I intend to use some of that to bridge until I’m 60.

I will have built up around £40,000 DB on leaving (RPI linked, max 5%, not sure what index they will use post 2030).  I can access that without reduction at 60 or £33,927 immediately (at 57) or £39,244 reducing to £30,039 in July 35 (when I’m receive the full SP at 67)

Also an AVC £140,252. I need to decide what I do with that on commencement of the DB, take some or all as a lump sum and/or transfer to a SIPP. I think I’ll take the lump sum, put it in a GIA and feed into an isa? Dunno.

 

If I were advising someone else and assuming they had a similar lifestyle to me I’d say you have no worries sunshine,  go for it. I’m still a little apprehensive, but only a little, 

The numbers above may increase by £10k or so depending on how much I save into the SIPP/ISA. It’s surprisingly nerve wracking but I realise I’m in a fortunate position  

Are you doing a drawdown or annuity with sipp(s)? Have you worked out what this will give you per month to live off and enjoy your retirement?

I'm still a little way off retiring (got about 20 years till spa but I'm hoping to retire earlier than this if I can so always follow threads with interest to get some idea on what's achievable with various figures.

Kev

kempiejon

kev2009 said:Are you doing a drawdown or annuity with sipp(s)? Have you worked out what this will give you per month to live off and enjoy your retirement?

I'm still a little way off retiring (got about 20 years till spa but I'm hoping to retire earlier than this if I can so always follow threads with interest to get some idea on what's achievable with various figures.

Kev

Yeah, the advent of the internet and people coming online t share their FIRE plans has made the art of FI and ER accessible to me, gave me a community to swap ideas with. I had worked out by my 30s I didn't want to be a wage slave. ISA and SIPPS being a way to maximise my FI pot and stay away from tax while accumulating and to a certain extent mitigate some in my retirement.
I worked out my costs, fairly basic living, nothing luxurious, many years ago and once my investments could produce that as an income figure (FU money) work became optional. Once ones investments meets all ones wants, luxuries and more, a safety net, work can become a distraction if that's what you crave. 

pterri

kev2009 said:

pterri said:

Still planning to go in July 2025 (age 57)

I’ll have an of ISA £89,165 and SIPP £121,408 available. I intend to use some of that to bridge until I’m 60.

I will have built up around £40,000 DB on leaving (RPI linked, max 5%, not sure what index they will use post 2030).  I can access that without reduction at 60 or £33,927 immediately (at 57) or £39,244 reducing to £30,039 in July 35 (when I’m receive the full SP at 67)

Also an AVC £140,252. I need to decide what I do with that on commencement of the DB, take some or all as a lump sum and/or transfer to a SIPP. I think I’ll take the lump sum, put it in a GIA and feed into an isa? Dunno.

 

If I were advising someone else and assuming they had a similar lifestyle to me I’d say you have no worries sunshine,  go for it. I’m still a little apprehensive, but only a little, 

The numbers above may increase by £10k or so depending on how much I save into the SIPP/ISA. It’s surprisingly nerve wracking but I realise I’m in a fortunate position  

Are you doing a drawdown or annuity with sipp(s)? Have you worked out what this will give you per month to live off and enjoy your retirement?

I'm still a little way off retiring (got about 20 years till spa but I'm hoping to retire earlier than this if I can so always follow threads with interest to get some idea on what's achievable with various figures.

Kev

I’ll be jumping in July. I will not be doing an annuity that’s for sure. I’ll be drawing down the SIPP and using the isa up to 60 then the DB kicks in which will be more than enough to cover my basics plus some discretionary spend. Then the remainder of the SIPP/ISA and AVC cash will be a fund I’ll dip into as required (within some limits) 

michaels

pterri said:

Still planning to go in July 2025 (age 57)

I’ll have an of ISA £89,165 and SIPP £121,408 available. I intend to use some of that to bridge until I’m 60.

I will have built up around £40,000 DB on leaving (RPI linked, max 5%, not sure what index they will use post 2030).  I can access that without reduction at 60 or £33,927 immediately (at 57) or £39,244 reducing to £30,039 in July 35 (when I’m receive the full SP at 67)

Also an AVC £140,252. I need to decide what I do with that on commencement of the DB, take some or all as a lump sum and/or transfer to a SIPP. I think I’ll take the lump sum, put it in a GIA and feed into an isa? Dunno.

 

If I were advising someone else and assuming they had a similar lifestyle to me I’d say you have no worries sunshine,  go for it. I’m still a little apprehensive, but only a little, 

The numbers above may increase by £10k or so depending on how much I save into the SIPP/ISA. It’s surprisingly nerve wracking but I realise I’m in a fortunate position  

Why would you be able to take all the AVC as a lump sum? (without being taxed prohibitively)