£900,000

Smoked_Haddock

murgord wrote: »

I am hoping to reach £900,000 in my sipp by the time I am 55 and am hopefully on target to retire then...I am looking for an income of circa £50,000 a year after tax is this acheivable through income drawdown on these figures??

Why not push for a round million? Easier maths.

gadgetmind

OK, I have done a spreadsheet that covers the next 10 years. Please can someone check my assumptions?

1) Growth of ISA and pension savings of 5% pa. My ISAs are spread across a range of Hargreaves Lansdown funds and my main pension has a 0.75%pa AMC. I also have a SIPP and some other ISA investments, but I'm not adding to these.
2) Inflation of 2.5% pa.
3) State pension, personal allowances, and ISA limits will all increase by inflation each year.
4) Cash will earn 4% interest. (Maybe ambitious, but as I haven't figured cash into my income it doesn't matter. I'll try and avoid cash and move it to pensions and ISAs where possible.)
5) Pension cap remains at 50kpa.
6) I take lump sum just from my personal pension but not from any of our protected rights. I have also assumed these PR aren't confiscated by HMG.
7) Stock market doesn't crash, UFOs don't land, I don't lose me job, and I don't die.

Based on all of the above, and the level annuity rates given to the OP, I can achieve what I need by 55. I have actually put in a "drawdown" of 5% pa from all pensions and ISAs, which I know is crude, but I don't think it's too far off.

Putting in a level drawdown might not be ideal, but it gives us plenty of income in the early years and we can then drop it if/when state pensions kick in. In our late 60s, we'll also probably be thinking of downsizing the house and/or clearing off somewhere with more sun and less tax.

Are my assumptions close enough for a rough first estimation?

Linton

OK I think for an initial pass through. But I worked on tighter assumptions as a stress test before actually taking early retirement - inflation 3%, overall investment (cash & equity) return after tax of 4%.

I would recommend that you base your plan on a generous view of your actual income reqirement rather than a % drawdown. This will give a clearer understanding of how much slack you have in your plan to deal with the inevitable "events".

With these two changes you should be at a point where most of the uncertainty is on the upside.

Linton

jamesd wrote: »

...


Anticipated returns has to include such things as variability and a decent safety margin. It's also possible to plan to vary the income level from the pot, something that conventional annuities don't allow. One obvious good use of the flexibility is to use an unsustainable drawdown rate until the state pensions start, to make up for the lack of state pension income, then drop back to a sustainable for life level. Accepting variable income is also good to allow for the possibility of worse than anticipated investment returns, without unnecessarily limiting income in the non-extreme cases. Someone who wants £50,000 of income might plan with a safety margin target of £60,000-70,000 at normal returns and willingness to drop to £40,000 in extreme bad cases.


Annuities seem likely for men to become even more uncompetitive than they are now at younger ages, and not efficient until older ages than now. For women the European Court ruling might counteract some of the other negative changes and keep them relatively competitive compared to rates for men.

But annuities will still be the way to go for those who want very low risk or who have no experience with investing and no interest in learning or paying a professional to do the work. They can also be a good tool to provide some level of critical income, perhaps with regular buys as you get older. That's particularly interesting as a thing to consider in boom market years, when it's a way to lock in long term some of the high market return.

You give the impression that you're thinking that someone who has been prudent enough to think of their retirement planning and arrange sufficient money is going to suddenly cease to do prudent planning and adjusting of circumstances in retirement. I don't think that: I think that someone who has been prudent for decades is going to continue to be prudent and make adjustments as required.
....

I agree with most of what you say - what clearly comes through your comments is that drawdown is for people who know what they are doing and are able to cope with variability and possible short fall in income. It provides the flexibility that the richer and more experienced people need to properly manage their finances. Even then IMHO it would be prudent for a significant amount of income to come from annuities.

But this implies that drawdown is not suitable for the majority of people who dont understand money and whose limited resources means they cannot cope with variability.

So anyone making blanket statements that "annuities are uncompetitive" and that drawdown is the way to go is in my view irresponsible particularly on a forum such as this which attracts people in the above category.

We have seen several postings recently by people keen to get their drawdown limits through the system before the new restrictions come in apparently with the objective of maximising their income. This attitude in the hands of inexperienced people could end in serious financial problems in later life.

gadgetmind

Linton wrote: »

OK I think for an initial pass through. But I worked on tighter assumptions as a stress test before actually taking early retirement - inflation 3%, overall investment (cash & equity) return after tax of 4%.

Before even contemplating retirement, I'd definitely stick my whole spreadsheet in front of someone with knowledge of this deeply-complicated and ever-changing quagmire to get a professional view. This particularly applies to what to do with a tax free lump sum (assuming they aren't taxed by then) as I can think of a few options, some of them fun. :-)

I have adjusted the growth and inflation figures in my spreadsheet and it doesn't make a huge difference.

I would recommend that you base your plan on a generous view of your actual income reqirement rather than a % drawdown. This will give a clearer understanding of how much slack you have in your plan to deal with the inevitable "events".

With these two changes you should be at a point where most of the uncertainty is on the upside.

I have based my required income on my current take home minus school fees and what I'm currently investing/saving. I think I can just hit this by age 55, even taking into account tax and inflation, but I guess I just need to trim the sails as best I can, look to windward, and get ready to tack if necessary.

Thanks all.