Pension drawdown strategy

digannio

jamesd... do you mean way better than the annuity income level that I quoted? If so, what sort of figure would we be talking about?

jamesd

For those who reach state pension age before the flat rate comes in, 10.4% with 50-70% inheritable by a spouse. After that, 5.8% not inheritable. All inflation-protected.

Those are the raw rates, you also have to allow for the missed annuity income for a year and that reduces the percentage a little, more as the number of years deferred or time until starting deferring increases. I don't know your age so I'll pretend that you are one year from state pension age and that the annuity would pay £1,500 plus that you would have £8,000 of state pension eventually.

Year 1: spend £1,500 to cover the missed annuity income, no state pension missed, now have £46500 left.
Year 2: add around 3% interest/gains now have £47695. Spend £9500 to cover annuity and state pension, 1 year of deferral done. Have £38395 left. State pension gain £464.
Year 3: add 3% have £39546. Spend the £9500 (ignoring inflation increases!). Have £30046.85 left. SP gain £928.
Year 4: add 3% have £30958.25. Spend £9500. Have £21448.25, SP gain £1392.
Year 5: add 3% have £22091.70. Spend £9500, have £12591.70, SP gain £1856.
Year 6: add 3% have £12969.45. Spend £9500, have £3469.45, SP gain £2320.
Year 7: add 3% have £3573.53. That's 3573.53/9500 * 100 = 37.6% of the required spend, deferring with that gains 37.6% of 5.8% of £8000 = £174.46 for total deferral increase of £2484.46.

So instead of £1500 inflation-linked you'd have £2284.46. The annuity is probably RPI linked while deferral is probably CPI liked, so about 1% lower. In addition you'd have the usual inflation increases in the state pension while it was being deferred and the inflation-linked annuity payments to adjust with, so the actual calculation each year would be a bit different, spending more in cash terms and leaving a bit less for deferral.

digannio

Thanks for that jamesd. It all adds to my research and options.