25% tax free lump sum calculation

jamesd

It's also worth knowing that the critical yield calculation is done assuming that you will buy an inflation-adjusted annuity at a low rate so it's not really a very good guide to whether it's a good move at the moment. Someone using drawdown might expect about three times that income level at typical retirement ages, depending on the drawdown method they use and the investments they plan to use, provided they were willing to see reductions if their investments do badly for a long time.

GDB2222

jamesd wrote: »

It's also worth knowing that the critical yield calculation is done assuming that you will buy an inflation-adjusted annuity at a low rate so it's not really a very good guide to whether it's a good move at the moment. Someone using drawdown might expect about three times that income level at typical retirement ages, depending on the drawdown method they use and the investments they plan to use, provided they were willing to see reductions if their investments do badly for a long time.

But surely the pension you're giving up is inflation adjusted, also?

Oh, and a critical yield of 6.2 is pretty high, surely? What investments do you have in mind to beat that?

davieg11

GDB2222 wrote: »

But surely the pension you're giving up is inflation adjusted, also?

Oh, and a critical yield of 6.2 is pretty high, surely? What investments do you have in mind to beat that?

IFA is going to look after investments for me. He wanted 1% but I managed to get him down to 0.65%. When I got home and read all the paperwork, his company only reduce the fee to 0.65% for investments over £300k, so I done well to negotiate that ongoing fee.

GDB2222

So Your fund will need to earn 6.2% plus 0.65%, just to break even? The 6.2% - is that before or after any charges from your investment provider?

And, as I said, which investments do you have in mind to produce this return?

dunstonh

GDB2222 wrote: »

So Your fund will need to earn 6.2% plus 0.65%, just to break even? The 6.2% - is that before or after any charges from your investment provider?

And, as I said, which investments do you have in mind to produce this return?

Not that difficult. Even the bog standard balanced managed funds over 15 years have managed 5.5 after charges. It's high as you say (by modern standards) and there may be periods of concern if invested too cautiously or too aggressively but I wouldnt be too panicky. The biggest fear will be if they are drawing on the pension straight away and a crash happens in the early years. That will push the CI up to a level that could create a spiral of capital erosion.

ThinkingOutLoud_2

So OP one aspect not asked as yet - do you have any experience of buy to let? My sense is for an inexperienced player with perhaps a single property to let - that is less of a sure bet than it once was.

Of course, no one knows the future of BTL, but it is a bet with risks and effort required vs an assured income you have to do nothing to obtain.

I'd want a fair sized margin of win before that got my vote.

jamesd

GDB2222 wrote: »

But surely the pension you're giving up is inflation adjusted, also?

Oh, and a critical yield of 6.2 is pretty high, surely? What investments do you have in mind to beat that?

Yes, drawdown safe withdrawal rates are inflation adjusted as well.

You don't need to beat 6.2%.

If a person is going to spend all of the money on an inflation linked dual life annuity that delivers only around 1.9% of the pot value in income it's unlikely that a transfer will be a good move unless their life expectancy is lower than normal. Forget 6.2% in this case, the answer is don't transfer if you have normal life expectancy and will buy that annuity. Even before pension freedoms fewer than ten percent of annuities purchased were of this type.

With drawdown instead of early annuity purchase that annuity rate is easily beaten by around 3% UK stock market yield with no capital spending expected or around 6% initial income using modern drawdown rules and an expectation of no balance at the end of the suitably distant planning horizon if worst case historic investment performances are repeated. Even the old fashioned original version of the Bengen 4% rule that doesn't cut inflation increases or raw income if investments do badly produced a higher ending numeric capital value than at the start 96% of the time.

The person doing this can then do things like defer their state pension at an initial rate of 5.8% per year of deferral (no spousal benefit, but the spouse can defer as well) and buy annuities at an age or life expectancy where they beat staying invested.

jamesd

dunstonh wrote: »

The biggest fear will be if they are drawing on the pension straight away and a crash happens in the early years. That will push the CI up to a level that could create a spiral of capital erosion.

Hopefully they will be using something like Guyton's sequence of return risk reduction approach to greatly reduce that risk. Depends on the adviser but at least we can hope that they know about that and do it or something else to deal with it if the drop is sustained and they didn't. Or at least use something like the Guyton and Klinger drawdown rules that do adapt to sustained drops (and sustained increases).

dunstonh

jamesd wrote: »

Hopefully they will be using something like Guyton's sequence of return risk reduction approach to greatly reduce that risk. Depends on the adviser but at least we can hope that they know about that and do it or something else to deal with it if the drop is sustained and they didn't. Or at least use something like the Guyton and Klinger drawdown rules that do adapt to sustained drops (and sustained increases).

A well managed drawdown plan and capacity and acceptance to adjust income downwards if required should counter it.

However, there are plenty of people in or going into drawdown who have very little downside capacity and lack control to not spend their money too quickly. Many of us on this forum have the understanding to run drawdown well. Out there in the real world, it is a different matter.

happyandcontented

jamesd wrote: »

Hopefully they will be using something like Guyton's sequence of return risk reduction approach to greatly reduce that risk. Depends on the adviser but at least we can hope that they know about that and do it or something else to deal with it if the drop is sustained and they didn't. Or at least use something like the Guyton and Klinger drawdown rules that do adapt to sustained drops (and sustained increases).

I read your comments on here re pensions regularly and you seem very knowledgeable, but you don't have an IFA statement in your signature. Are you an IFA? If so, where are you based? You seem to me to be the sort of person we would be interested in seeing.