Pension calculation help to get me to 25k pa

patanne

And back to your wife for a mo - it might be as well to check that your wife is on track to receive a full state pension as £7500 per year is an amount not to be sniffed at and it is possible to buy back years.

FatherAbraham

jamesd wrote: »

Why as a tax reduction strategy?

Sorry, that bit wasn't very well explained, and it's a bit oblique to the main argument.

What I vaguely meant was that, given that pensions offer tax efficiencies for many investors, at the cost of restrictions on consumption, it makes some sense to take as much income as one is allowed to before one hits the next tax bracket (because this frees the money within the pension pot from the restrictions which pension pots carry).

This can be particularly relevant for capped draw-down, because unused distributions don't carry over to subsequent tax years.

The same is true even for uncapped draw-down, where unused income-tax band for distributions this year can't be carried over to next year.

However, this maximizing-withdrawal-to-make best use-of-annual-tax-allowances strategy does not mean that one should necessarily consume all that distribution ("income"), because such consumption might not be sustainable.

In short -- taxation optimization might dictate that one withdraws more than one ought to consume -- the balance should be saved for future consumption.

Warmest regards,
FA

FatherAbraham

FatherAbraham wrote: »

FireCalc's US focus can blind one to alternative possibilities, such as the Japanese experience.

II meant to post a link to this paper, which offers the "international" perspective I was talking about, but I couldn't find it in time before I had to leave the house this morning:

http://www.fpanet.org/journal/CurrentIssue/TableofContents/AnInternationalPerspectiveonSafeWithdrawalRates/

Blimey, do I sound like some sort of risk-averse nutter, or what?

Warmest regards,
FA

jamesd

FatherAbraham wrote: »

In short -- taxation optimization might dictate that one withdraws more than one ought to consume -- the balance should be saved for future consumption.

Thanks. Yes, I agree.

I'm generally more inclined to recycle the income into more pension contributions than to accumulate it. But that'll depend on the specific situation of the individual, some will need the growing lump sum, some might end up not gaining much through having their income end up partially in higher rate if they do recycle.

FatherAbraham wrote: »

Blimey, do I sound like some sort of risk-averse nutter, or what?

Me doing "embrace and manage uncertainty" and you doing "it's risky" isn't a bad tag team... Your posts are interesting, so please do continue with at least the interesting references.

It_Aches

patanne wrote: »

And back to your wife for a mo - it might be as well to check that your wife is on track to receive a full state pension as £7500 per year is an amount not to be sniffed at and it is possible to buy back years.

Thanks - I'm getting right on with that and totally agree, £7.5k could make a significant difference to my plans.

It_Aches

jamesd wrote: »

I think that it is reasonable but that it is your job to learn about the uncertainties and how to manage them and pick a blend that works for you, then monitor and adjust over the years. Tools and options are part of the education brief I use here but ultimately it is your life and you bearing the consequences for your choices, so you must make them.QUOTE]

I'm looking forward to the journey now...many thanks.

jamesd

Some more data on possible targets that might be of interest, from page 13 of the Pensioners' Income Series 2011/12:

Mean pensioner unit income: £23,712
Median pensioner unit income: £17,420

A pensioner unit is roughly a household, whether it's a couple or a single person. It excludes the income of anyone not in the couple but in the same household.

Since median is the income of the average pensioner that can be a useful target if you just don't want to be worse off than average. Mean average is higher because high incomes can go much higher than low incomes can shrink.

Here's how the median breaks down by quintile - fifths of the income range - for couples. Each number is the one in the middle of the fifth:

bottom fifth: £12,324
next fifth: £17,160
middle fifth: £21,840
next fifth: £28,548
top fifth: £43,680

For singles:

bottom fifth: £7,072
next fifth: £9,828
middle fifth: £12,168
next fifth: £15,080
top fifth: £21,112

The singles tend to be older and more female in composition than the couples. For both singles and couples, earnings from work are a substantial portion of the income, particularly the top fifth in couples. Income from work tends to decrease with age. The third and fourth fifths are a better representation of the top income without work income in the mix. Half of the singles in the middle fifth were receiving means tested benefits of some sort, just 15% of the couples.

55% of pensioner couples and 42% of single pensioners were in the top half of the income distribution for the whole population so pensioners on average are doing very well compared to say low earners.

mark55man

what a great thread.

my challenge is somewhat different - how to draw the best balance of retiring as early as I can, whilst managing the interactions of a 22yr old DB pot (now deferred) and a 3 year old DC pot with which I am having some success through fully embracing the risk and reward of QE/asset inflation

however, please don't derail this thread to comment on that situation as I have had some good advice from this board already and I need time to read this thread through and see how it changes my thinking

It_Aches

jamesd wrote: »

Some more data on possible targets that might be of interest, from page 13 of the Pensioners' Income Series 2011/12:

Mean pensioner unit income: £23,712
Median pensioner unit income: £17,420

A pensioner unit is roughly a household, whether it's a couple or a single person. It excludes the income of anyone not in the couple but in the same household.

Since median is the income of the average pensioner that can be a useful target if you just don't want to be worse off than average. Mean average is higher because high incomes can go much higher than low incomes can shrink.

Here's how the median breaks down by quintile - fifths of the income range - for couples. Each number is the one in the middle of the fifth:

bottom fifth: £12,324
next fifth: £17,160
middle fifth: £21,840
next fifth: £28,548
top fifth: £43,680

For singles:

bottom fifth: £7,072
next fifth: £9,828
middle fifth: £12,168
next fifth: £15,080
top fifth: £21,112

The singles tend to be older and more female in composition than the couples. For both singles and couples, earnings from work are a substantial portion of the income, particularly the top fifth in couples. Income from work tends to decrease with age. The third and fourth fifths are a better representation of the top income without work income in the mix. Half of the singles in the middle fifth were receiving means tested benefits of some sort, just 15% of the couples.

55% of pensioner couples and 42% of single pensioners were in the top half of the income distribution for the whole population so pensioners on average are doing very well compared to say low earners.

Thanks jamesd - this is useful info on a few levels actually - namely it does give a benchmark (that I'm guessing most of us secretly or not so secretly crave) as to how we may be doing compared to others - it will give some people who havent yet thought about how much they need to retire a decent starting point - and specifically for me it helps me consider my target in a context I hadn't yet considered.

Having read the intro to the link you provided I've taken from that that the figures are calculated by all income that a 'unit' receives - so that isnt just private/company pension but also state pension, other benefits and other earned income. So with reference to my target (25k net from company pension only) it does show me that in relaiton to the median and mean at least I am aiming quite high - again I had no idea that was the case.

Very interesting - many thanks.

It_Aches

mark88man wrote: »

what a great thread.

my challenge is somewhat different - how to draw the best balance of retiring as early as I can, whilst managing the interactions of a 22yr old DB pot (now deferred) and a 3 year old DC pot with which I am having some success through fully embracing the risk and reward of QE/asset inflation

however, please don't derail this thread to comment on that situation as I have had some good advice from this board already and I need time to read this thread through and see how it changes my thinking

mark88man - I'm gald you've taken something from this thread - I can't begin to explain how all the posts have been helpful to me...but I'll give it a go:

- thanks to Loughton Monkey I now have a spend focus and not just a savings focus. My wife and I have already sat down and seen how we can effortlessly save a minimum of £200/month on top of all the savings etc that we already make - I analysed my statements for the last 6 months and saw that we spent in that time £120+ on coffee shops, £180 on sunday lunches, £150 on 'saturday lunches', £280 on other meals, £190 on 'just popping in to the local Tesco' - the list goes on. This thread has helped me firstly understand that although to some extent I am doing well in terms of salary/pension etc - but there is SO much more I can and should be doing to provide for our future rather than wasting it on coffees and restaurants. My wife and I have now agreed on a strict monthly budget for items that were previously 'off budget' in a pot I simply called Misc. No more!

- thanks to jamesd, FA and others - I am now extremely motivated (I'm avoiding using the term 'excited' but I think thats an adequate description) of building a pot outside of my pension. I'm about to open an S&S ISA (previously had cash ISAs)

- I'm grateful for my company pension - although its not going to make me rich I have been shown that it is working well for me - I thank my lucky stars that i joined a company with a generous contribution (currently 12% to my 5% required) and the fact that I joined in 2005 - so that I was purchasing units all through 2008/2009/2010 and am now feeling the benefit of those investments at low price levels. I guess it means I may not see again (or any time soon) the significant rate of growth thats occurred in my pension pot value since then - but I remain grateful for some lucky timing and the fact my contributions were compulsory - as I may have lost faith in 08/09.

- finally and this hasnt been part of this thread probably because I'm aware that there are better ways to use 50k, but I'm about to bring my mortgage down from 125 to 75k - I know some would say that's crazy in terms of the bigger picture - but the emotional security that will give me (my mortgage payment will go from circa £900 to £450) is priceless and I am prepared to pay a price for that in terms of an opportunity cost - because going forward thanks to all who contributed on this thread I now have clear sight on what I need to do - and it will be all that more achieveable with a 50% reduction in my mortgage payment.