Dilema

gerryr

Hi all. I have this issue. Im 55 soon and want to take early retirement. I have considerable savings ( im lucky OR SAVY). I have 3 pension pots 1 private small 7.5k one company 38k and one larger company 158k .
I dont know what to do.
I need about 20k per year to live from so savings and investments I have about 12 k per year.
I think it would be good to do a draw-down pension. 50k as tax free then draw down 11k per year to supplement my income. from 150 k that gives me 13.6 years of money so say 12 years of actual money and 1.6 years of the money in charges. The 11k should keep me under the tax threshold. now you know the background my question is . can I find somewhere to put the money not at risk and just draw the 11k per year until it runs out? or what would you suggest. Thanks in advance for your comments. \i hope you can help

dunstonh

I think it would be good to do a draw-down pension. 50k as tax free then draw down 11k per year to supplement my income.

Why draw £50k out of a tax free environment like the pension to bring it into a taxable one? Why not perhaps phased drawdown?

now you know the background my question is . can I find somewhere to put the money not at risk and just draw the 11k per year until it runs out?

When it comes to income, everything has risk. There is no risk free option. Cash has inflation and shortfall risk. Investments have investment risk. Annuity gives certainty of payment but inflation risk (if level) or shortfall risk (if inflation proofed). it is all about taking the appropriate level of risk to achieve the goal.

gerryr

The 50k is the tax free 25% you can take at the start of the pension. the 11k was to keep me under the tax earnings threshold. As I wanted to remove all the money to pay until i get my state pension at 67 but not pay tax. I dont want the money at a high risk. certainly not stocks and shares.

sorry if im not clear

dunstonh

gerryr wrote: »

The 50k is the tax free 25% you can take at the start of the pension. the 11k was to keep me under the tax earnings threshold. As I wanted to remove all the money to pay until i get my state pension at 67 but not pay tax. I dont want the money at a high risk. certainly not stocks and shares.

sorry if im not clear

You are clear. I am just wondering why you are going for income drawdown rather than phased flexi-access drawdown.

What is your definition of high risk? Stocks and shares are not all one risk score. They are a sliding scale.

gerryr

My pot is around 200k so 25% would be around 50k. tax free I thought.
what is the difference with Flexi access? my running costs are about 20 k per anum and this will be made up of 10 k of already set up investments. And i need the 11k to top up.


What is your definition of high risk? Stocks and shares are not all one risk score. They are a sliding scale.

Yes but if the markets fail I lose every thing. do i have to take stocks and shares? is it compulsory. Sorry if i seem stupid with my questions.

molerat

With flexi access instead of taking 25% of the whole pot tax free at once then all further payments taxed you take no lump sum and each payment with 25% tax free and the remainder subject to tax.

dunstonh

Yes but if the markets fail I lose every thing.

if the markets fail then so does society and it wont matter if your pension is in cash or equities.

do i have to take stocks and shares? is it compulsory. Sorry if i seem stupid with my questions.

You dont. However, cash has risk. shortfall risk (making less than you need) and inflation risk (£100k in cash with interest drawn will have the spending power of about £65k in 10 years time). Inflation risk can actually create a spiral of events that can cause the money to run out. It is all about finding sensible balance to meet your needs.

what is the difference with Flexi access? my running costs are about 20 k per anum and this will be made up of 10 k of already set up investments. And i need the 11k to top up.

As the pension is the most tax free option, why take out more than you need at the start. Just take it out as you need it. Maybe using the pension more under flexi access to avoid drawing as much on the savings. Its difficult to say without knowledge of the scenario but what you describe doesnt seem to need 25% taken out in one lump at the start.

atush

Basically, single shares are risky, so dont use them.

Funds of tens or hundreds of shares are NOT so risky.

Investment trusts are companies that buy shares in other companies. Again they hold many different companies. Collective funds like this can drop in a market crash, but they wont go to zero- as not every company will fail. Plus many hold shares in companies around the world, so not just the UK.

And some trusts have raised their dividends every year for many decades (in some cases 50+ years). So if you use the dividends for spending, the shares going up and down dont matter as much?

The most prudent course would be to hold a diversified pot of cash, bonds/gilts and equities. And you could use your TFLS to provide a number fo years income (say 3-5) so that you could let the rest increase in value over time before you start taking it?

gerryr

dunstonh and atush

thanks for your help , Im starting to get my head around this a little.
sorry to sound stupid whats TFLS I looked it up and its when the fat lady sings. But im sure thats not what you meant.. can you explain this a little more please?

"The most prudent course would be to hold a diversified pot of cash, bonds/gilts and equities. And you could use your TFLS to provide a number fo years income (say 3-5) so that you could let the rest increase in value over time before you start taking it?"

dunstonh

TFLS is the same as PCLS.

TFLS is tax free lump sum. In 2006, it was renamed Pension Commencement Lump Sum. However, old names tend to stick.

kidmugsy

dunstonh wrote: »

TFLS is tax free lump sum. In 2006, it was renamed Pension Commencement Lump Sum.

I thought Brown's motive for that change was rather transparent; still, it hasn't happened yet.