Pensions Planning: The NUMBER

Storcko14

I know there are tools available but I found it worthwhile to run a few simple macro scenarios for reassurance before pulling the plug on earned income. I didn't need it to be too granular or complex so I just created a spreadsheet that modelled a few scenarios (equity correction = x%, y%, z% which lasts n, n+1 years etc) focussing on the first decade of retirement (specifically covering the period to SP age when guaranteed income is a relatively low %age of need). I wanted to test what those scenarios would do to the required withdrawal rate.

That reassured that with the current asset allocation, an equity correction of up to 50% taking up to 7 years to get back to where it was, was survivable without pushing the withdrawal rate above a level I was comfortable with.

Obviously having only retired a year ago, I haven't yet discovered what my emotional reaction to a significant equity correction in decumulation would be, but rationally I know that it'll probably work out ok.

Moonwolf

https://forums.moneysavingexpert.com/discussion/comment/82097106#Comment_82097106

I couldn’t handle that stress particularly as for me a big reduction before my state pension kicks in in seven years would be particularly painful. As a result I’ve used 50% of my DC to buy an annuity. Added to my other DBs it is a good guaranteed income, particularly as I have 25% of that as tax free cash to offset the missing state pension.

Storcko14

I totally understand that @Moonwolf and annuities are definitely back in play as an option these days. I've also ensured that about 75% of our required spend is covered by 'guaranteed' income. That's mainly ILGs and STMM plus a couple of small DBs to 67 at which point SPs take up more of that role.

As an aside I worked freelance for 30 years so used to having to deal with fluctuations in income and making sure there's a large buffer in case things go quiet for a bit which, when I think about it, has helped with the switch to living mainly from a DC pension and S&S ISAs.

CrickJon

This is all very interesting. I am 53 and my wife is 57. We are both going to retire at the same time when I am 59 in 5.5 years.

I have a DC pension of £437k and pay £2k per month into it. I estimate that the pot will be around £750k-£800k by the time I hit 59. We also have ISAs totalling £63k but which will be up around £120k by the time I am 59.

My wife has pensions which will provide around £2.5k pa as well.

I have been tracking our spend for some time. The mortgage is paid off. Currently our net income is £4.2k a month as I divert a lot of mine into my pension. Our monthly cost of running the house and everything we spend is £3k a month. That is with 2 kids. When they are both gone, I expect that to drop to closer to £2k. We also pay £1k a month into various holiday saving pots and the ISA as well.

Crunching the numbers, at age 59, we expect to retire with a monthly net income of £5k - in theory better off than we are today with likely lower cost in running the house. It's always hard to get my head around it. I never expected to be better off in retirement than working, but I guess that is because I pay so much into my pension now.

At least we should be able to have a few decent holidays every year.

Brenster

https://forums.moneysavingexpert.com/discussion/comment/82145918#Comment_82145918

If i was you, then i would do some number crunching to see when your income will be equal to your current working income (guessing it will be a couple of years earlier) and potentially consider an earlier retirement date based on that. One thing you cannot guarantee is your health and if finances allow, take retirement earlier (if thats what you want to do of course)

Good Luck

CrickJon

I think that is great advice. I know going before 59 is a possibility. I really enjoy my job though, although 4-5 years away that might not be the case.

I just want to be in a position to not worry about money at all in retirement but you're absolutely right that none of that might matter depending on health.

Brenster

https://forums.moneysavingexpert.com/discussion/comment/82145976#Comment_82145976

Enjoying your job is the key here, why would you give something up that you enjoy and pays handsomely. Maybe there is a hybrid solution which keeps money ticking over but allows you more work / life balance.

Although you say you dont want to worry about money again, i would certainly suggest having a retirement income greater than what you have managed on for the past 40+ years is a great position to be in.

kempiejon

I took the change in work life balance that came with financial independence to focus on longevity rather than wealth. I regularly do movement, cardio and strength activities. My diet naturally improved with more time to think and prepare meals though I added consciously fermented foods, fibre and oatbran for suggested gut health and cholesterol mitigation. I've lost a few stone can make run for nearly and hour and my waistabnd and blood pressure dropped in sympathy.

kermchem

https://forums.moneysavingexpert.com/discussion/comment/82145918#Comment_82145918

Can I suggest that you look at the balance of likely pension income between you and your wife. In 2031 you expect an income of £5K per month, of which £2.5K per year is to your wife. You will be a HR tax payer in retirement, and your wife will have unused personal allowance.

You are currently paying £2K per month into your DC pension. Does this bring you down to just the 40% threshold, or below? Can you put more into her pensions now and less into yours for a better taxable distribution in retirement? If your wife has income from employment then even moving some money from ISA to SIPP gets tax relief.If she is not working then she can still add £2880 per year grossed up to £3600.

CrickJon

https://forums.moneysavingexpert.com/discussion/comment/82146311#Comment_82146311

My pension is salary sacrifice so I don't get that opportunity to put into my wife's name but I am aware of what you're suggesting.

And yes, the reason for my high contributions are to keep me out of the 40% tax bracket. I come in at about £100 outside of the 40% tax bracket and all bonuses and pay increases go straight into the pension as well.