How to plan withdrawing rates for pension

atush

Dont forget your 25% tax free lump sum. this can be invested as well and used to pay for larger items like you mentioned rather than using the pension income.

Thockley

gadgetmind wrote: »

Someone people suggest a "bucket" approach, where near term needs are kept as cash, next layer as bonds, and the rest as equities. The idea is that if equity values drop, rather than rebalancing, you use cash and bonds instead.

I'm no fan.

Most people want to draw down month by month but only rebalance once a year to avoid costs and hassle. This means you're going to start each year with 5% in cash and finish with maybe 3% as you'll have subtracted 4% but received maybe 2% in dividends.

Of course, you can target for more dividend income, but this restricts investment choice. Typically, more dividend income to start with means less growth over the long term, but this is contentious!

The bucket approach is more complicated that I would like. Same with the monthly draw down. I would rather withdraw 4% per year and leave it at that.

dunstonh

Dunnit wrote: »

Why doesn't a company offer a scheme where you give them your pension pot and they agree to invest it and give you a set amount each month with a link to inflation? You wouldn't have to worry whether you lived another 5 or 45 years.

...and must not use a name that has been dirtied unnecessarily

greenglide

... beginning with A ......

Eric_the_half_a_bee

gadgetmind wrote: »

And don't forget "if you die early, they trouser the lot leaving nothing for descendants".

If they trouser the lot if you die early, what do they trouser if you die late?

gadgetmind

Eric_the_half_a_bee wrote: »

If they trouser the lot if you die early, what do they trouser if you die late?

It's this ability for a few people to get back slightly more than they handed over that is the saving grace of the A-word things.

gadgetmind

Thockley wrote: »

I would rather withdraw 4% per year and leave it at that.

Fair enough, but you're still going to need to keep the cash somewhere. The advantage of it being outside the pension is that you'll get more interest, but many drawdown providers currently charge more for ad hoc withdrawals that for monthly sums, and you'll also confuse the tax man and pay more tax up front than required.

Thockley

gadgetmind wrote: »

Fair enough, but you're still going to need to keep the cash somewhere. The advantage of it being outside the pension is that you'll get more interest, but many drawdown providers currently charge more for ad hoc withdrawals that for monthly sums, and you'll also confuse the tax man and pay more tax up front than required.

I don't know what a 'drawdown provider' is. Do I need one? I have my pension in a SIPP. I also have some savings in ISAs. Can I not rebalance my asset allocation on both and then cash in 3% or 4% each year?

gadgetmind

The ISA is easy enough and you can do what you say.

For a SIPP, you have to go into drawdown, and under current rules the amount you can withdraw each year is capped (unless you qualify for flexible drawdown) and people usually arrange for a monthly income.

Things will more than likely be changing in April next year but no-one know quite how.

Note that when you have SIPP, ISAs, unwrapped holdings (including PCLS), and a state pension coming along later, you need to carefully consider tax efficiency of the various streams.