Pensions Planning: The NUMBER

LL_USS

SarahB16 said:

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

@michaels I'm sure @pterri will be along to answer your query regarding his personal circumstances but for me, if my AVC is less than my DB pension x 6 2/3 I can take all of my AVC as a tax free lump sum.  Anything in excess of that amount I need to purchase as additional pension.  There is no tax to pay.  

@SarahB16 this is something I only learnt from others on MSE, about the perk of taking out DC tax free when it's linked with DB. I have done volunteer contributions to DC and will continue when I can, so I can take this amount DB*6.667 as a PCLS at retirement to pay off stuff :-).

PS: Actually I first learnt about volunteer contributions to DC from MSE too. Almost had to start to pay high charge for child benefit when I started to temporarily have a bit more income, whilst I was the only bread winner of the household with growing costs for the children.

SarahB16

LL_USS said:

SarahB16 said:

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

@michaels I'm sure @pterri will be along to answer your query regarding his personal circumstances but for me, if my AVC is less than my DB pension x 6 2/3 I can take all of my AVC as a tax free lump sum.  Anything in excess of that amount I need to purchase as additional pension.  There is no tax to pay.  

@SarahB16 this is something I only learnt from others on MSE, about the perk of taking out DC tax free when it's linked with DB. I have done volunteer contributions to DC and will continue when I can, so I can take this amount DB*6.667 as a UFPLS Uncrystalized Fund Pension Lumpsum at retirement to pay off stuff :-).

PS: Actually I first learnt about volunteer contributions to DC from MSE too. Almost had to start to pay high charge for child benefit when I started to temporarily have a bit more income, whilst I was the only bread winner of the household with growing costs for the children.

I know this MSE forum is excellent. I have posted many questions and am so very grateful for the responses I have received. I have learnt so much from this forum.  

cfw1994

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  

That all sounds good 👍

Maybe I missed it above, but what is your number?  
The 40K DB fund is a nice solid number from 60, wondering how that compares with your target number….could you leave earlier and enjoy more summer 😉 (maybe work prevents that 🤷‍♂️)

barnstar2077

Cobbler_tone said:

It is interesting to read this and numerous threads on people's lifestyles, levels of risk and contingences people build in. I think our plan is more bullish and really don't understand why people feel/want to build such wealth, unless of course it is supporting an extravagant lifestyle, which is fair enough.

We will retire at 58 and 55 respectively in 2 years time. We have a current income of £6k net per month and will retire on half of that using modest DB's and DC drawdowns. No mortgage and will use lump sums to up size, just because we want a big house.
The bridge to 67 (before staggered full SP's) limits any 'risk', plus just because you retire from a long term job, it doesn't mean retirement forever. I find that too 'final'! 
If I loved my job I would probably go to 60 but you don't know how long you have and don't anticipate that I will want to be travelling significantly well into my 60's with 3 back operations behind me. 

So my 'number' is 50% of the net money I earn today.

"...with 3 back operations behind me."  I see what you did there! :  )

Gatser

collinsca said:

@Gatser

Would be great to see how your NUMBER has changed since 2009 (The original post on this massive thread)!
Might give some insights over the last 15 years!

The NUMBER is how much income you need to "live comfortably"
So What's your number?
Very important for pensions planning, to know what you are aiming for.

My Number? (for a couple)
I calculated: £22,000
based on
Food £5,000
Car/transport £5,000
Bills/Utilities £4,500
Holidays/Leisure £4,500
Clothing/Cash/Xmas/Other £2,000
Repairs/replacements £1,000


You may have done this recently - in which case apologies!

Thanks

Thanks for waking me from my retirement "slumber", collinsca 
My planning in retirement is not too far away from the original amounts, even after 16 years!
2024-25 figures look like this:
Food             £5k
Car                £2k running & £3k provision for next car
Bills/Utilities   £6k  (some things did increase!)
Hols/Leisure   £5k  (but we do spend more while we are "fit & healthy"!!)
Cash/Other    £4k
Capex (repair/replace)  £3k
So overall NUMBER is around £28k now.... but we now plan how to SPEND rather than save 
for our retirement NUMBER.   The concept worked well for us...

michaels

£22k in Dec 2009 uprated by CPI would be £33.8k today.

SimonSeys

Hi all.  Just working through my own calculations.   I will have a DB pension linked to CPI, plus a combination of SIPP / ISA that I will use to top up / go on holiday. 

What are people assuming about ‘real inflation?   I’m assuming equities will be 2% higher than CPI, but also that living costs will be c.1% higher than CPI. M the first I’m comfortable with but the second is much more wet finger in the air.  

Cheers

pterri

SimonSeys said:

Hi all.  Just working through my own calculations.   I will have a DB pension linked to CPI, plus a combination of SIPP / ISA that I will use to top up / go on holiday. 

What are people assuming about ‘real inflation?   I’m assuming equities will be 2% higher than CPI, but also that living costs will be c.1% higher than CPI. M the first I’m comfortable with but the second is much more wet finger in the air.  

Cheers

I do wonder about this, my DB will be RPI linked (5% cap). The gov will stop reporting that figure in 2030, not clear what my scheme will use. They may use CPIH which supposedly includes housing costs as does RPI. Usually a little lower than RPI though  

Secret2ndAccount

Bear in mind that using an average figure and assuming growth is constant is quite an oversimplification. Equities could drop 40% and take 10 years to recover. The average works fine if you leave the equities untouched for 20 years. Not so much if you are spending down the amount of equities during the fall and recovery.
To answer your question, in 1999, the average salary in the UK was 17,803. 25 years later, median earnings were 37,430. For finger-in-the-air purposes, that's 3%. 

By matching average earnings you should be able to continue to afford the same things year after year. However, your neighbour might get promoted and switch from a Ford to a BMW. 3% won't get you that, so pick your number accordingly. This chart suggests that the average 60 year old is earning the same as an average 30 year old which I found quite surprising. The figure takes into account both hours worked and hourly rate, so maybe the 60 yr old is working less hours.

If you want to match the growth from say 29 to 49, you will need to beat inflation by 2%, so a growth of maybe 4.5% nominal? That way you could afford to keep buying the latest new thing whenever it came out, at least to the extent that you can now. 

Cobbler_tone

Secret2ndAccount said:

Bear in mind that using an average figure and assuming growth is constant is quite an oversimplification. Equities could drop 40% and take 10 years to recover. The average works fine if you leave the equities untouched for 20 years. Not so much if you are spending down the amount of equities during the fall and recovery.
To answer your question, in 1999, the average salary in the UK was 17,803. 25 years later, median earnings were 37,430. For finger-in-the-air purposes, that's 3%. 

That chart is quite interesting and easy to compare against, especially if you have been with the same company.

I make the above about an average of 2.9% annual increase.
In a similar timeframe my wages have gone from around £28k-£63.5k, which is around a 3.1% annual increase, so haven't done too badly. I think one rise of around £4k per year within that 25 year period and one year where there was no pay rise, with the odd 1% on a couple of years.

It is simple maths but if you start from a higher base then the gap will compound.