£780k pot how much would you drawdown each year

dunstonh

OldBeanz wrote: »

Just wondering whether money in a pension is likely to be more at risk if some left wing, communist, zealot got into power in 5 years time and upped the tax rate significantly while finding it more difficult to tax ISA income.

ISAs can be abolished just as easily and as their wealth is more easily taxed in other ways. Everything is fair game when you get extremists in power.

Linton

My policy is to withdraw as much as I can whilst remaining in the basic rate tax band. Any money not used can be put in an S&S ISA. This minimises the risk that once I take my deferred SP I will be unable to withdraw enough to run down my pension without paying higher rate tax.

Similarly my wife draws down sufficient to remain just within her tax allowance until she becomes a tax payer with her SP.

Fermion

I was interested in views and opinions from the cautious to not so cautious. I am drawing £28k p.a. to start with. Should be enough for us but could we be drawing out more?

I'm now 2 years into drawdown. I started out with a pension pot (after 25% tax fee) of £705K. Initially I started drawing £27K/annum (£2,250/month) which was my estimated natural yield at the time, however many of my funds, particularly Global Equity funds, have done much better than expected (partially due to Brexit & the £) and as a result my pot now stands at £814K. As a result I increased my annual drawdown amount to £30K (£2,500/month) which again should be covered by the natural yield as stated by other posters and also keep me within basic rate tax limits.

You need to be careful about following a strategy of only "drawing what you need to live on" as suggested by some posters as if the pension pot continues to grow you might find yourself with a tax liability when the pension pot is revalued at age 75.

dunstonh

however many of my funds, particularly Global Equity funds, have done much better than expected (partially due to Brexit & the £) and as a result my pot now stands at £814K. As a result I increased my annual drawdown amount to £30K (£2,500/month) which again should be covered by the natural yield as stated by other posters and also keep me within basic rate tax limits.

Just remember that good years need to be averaged out with the bad and the nothing. So, be prepared to lower the draw again and not to continuously eat up gains as those gains will be needed in the bad years. Regardless of the reason, there are usually events that create a bumper year or two in every economic cycle. So, your returns were not better than expected. They are part of an expectation of any given year in a period. You just dont know when it will happen.

You need to be careful about following a strategy of only "drawing what you need to live on" as suggested by some posters as if the pension pot continues to grow you might find yourself with a tax liability when the pension pot is revalued at age 75.

Note the comments did say "objectives and tax efficiency".

bostonerimus

GSP wrote: »

Hi,
I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA.

If you have a 60% equity allocation and 40% in fixed income then I'd say you can withdraw £27k in your first year and increase that amount by inflation each year and have a very high probability of having money left after 30 years. If you use a financial advisor that might be a bit less as you'll have to pay their fees.

zagfles

OldBeanz wrote: »

Just wondering whether money in a pension is likely to be more at risk if some left wing, communist, zealot got into power in 5 years time and upped the tax rate significantly while finding it more difficult to tax ISA income.

I would say the opposite. Don't rule out capital taxes, John McDonnell has spoken in favour of them, see http://www.telegraph.co.uk/news/2017/03/09/revealed-john-mcdonnell-calls-20-per-cent-wealth-tax-richest/

I suspect they wouldn't want to be seen "raiding pensions" again, so maybe money would be safer in a pension.

But then I think the biggest risks are the indirect effects, ie what happens to the pound, inflation, shares etc. It's happened time and time again in other countries, even in recent decades, where govts who want to spend but don't want or can't raise the money in taxation, they print it and the currency gets trashed.

bostonerimus

Fermion wrote: »

I'm now 2 years into drawdown. I started out with a pension pot (after 25% tax fee) of £705K. Initially I started drawing £27K/annum (£2,250/month) which was my estimated natural yield at the time, however many of my funds, particularly Global Equity funds, have done much better than expected (partially due to Brexit & the £) and as a result my pot now stands at £814K. As a result I increased my annual drawdown amount to £30K (£2,500/month) which again should be covered by the natural yield as stated by other posters and also keep me within basic rate tax limits.

You need to be careful about following a strategy of only "drawing what you need to live on" as suggested by some posters as if the pension pot continues to grow you might find yourself with a tax liability when the pension pot is revalued at age 75.

Increasing withdrawals in good years is bad as the good years have to fund withdrawals in the bad years. Also that increased withdrawal compounds down the years. Sustainable withdrawal rates are conservative because they are set so you can survive some of the worst combinations of markets, so be careful and at least have a plan to slash spending if you have to.

Thrugelmir

Fermion wrote: »

I'm now 2 years into drawdown. I started out with a pension pot (after 25% tax fee) of £705K. Initially I started drawing £27K/annum (£2,250/month) which was my estimated natural yield at the time, however many of my funds, particularly Global Equity funds, have done much better than expected (partially due to Brexit & the £) and as a result my pot now stands at £814K. As a result I increased my annual drawdown amount to £30K (£2,500/month) which again should be covered by the natural yield as stated by other posters and also keep me within basic rate tax limits.

What contingency have you allowed for a recovery in the £ -$ and £ - € exchange rates. Companies such as BP, Shell, HSBC for example. Pay their dividends in foreign currency. Yields may look attractive currently. Far from guaranteed though.

zagfles

michaels wrote: »

Isn't it worth moving the tfls as quickly as possible (given annual isa allowance) from the pension wrapper to an isa wrapper?

Generally - yes. Less chance of the LTA becoming an issue. When you die it's usually more tax efficient (overall) to leave crystallised funds than uncrystallised.

kidmugsy

GSP wrote: »

I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA. She has given up work Excluding shopping, all regular household bills are less than £500 a month, no loans or mortgage.

Your position changes in about five years time when your wife's pension becomes available. Until then you could take about £40k p.a. in TFLS and about £12k p.a. in taxable but untaxed income. I'll bet that's far more than you expect to spend, so take out less of the TFLS than £40k. Or perhaps take it but don't spend all of it, putting the surplus into ISAs or even (why not?) into pensions. In five years time your wife can take about £40k TFLS and, again, about £12k p.a. taxable but untaxed. So jointly you'll be getting £24k p.a. plus however much TFLS you want, all without paying income tax. Sounds comfortable. You'll still have lots of money to let you bridge the gap until your State Retirement Pensions begin.

If you die before 75 and have completed the relevant form, your wife can inherit your unused pension tax-free. (And vice versa, come to that.) You should balance up the chances of that versus the chances of (i) future basic rate of income tax exceeding 20%, or reduction in the Personal Allowance, and (ii) punitive attacks on pension holders e.g. by means testing of SRP.