What to do with £120k without future plans

redux

CatLady13 wrote: »

Thank you coyrls.

I did check this with my accountant and I can pay up to £118k this tax year when using my previous years' allowance. This is probably the best tax year for me to do it as I earned around £12k self-employed and was in full time employment (around £37,500) prior to that. I have based my current contributions on the £2,280 figure, ie. £240 per month, as I don't know what I'll be earning in the next tax year.

With respect to that £118k, the maximum payment in still also depends on the earnings this year.

Thus if the employment and self-employment are both within this tax year, you could put make a gross contribution of of up to £59k5 for this year (whether you want to is another question).

If on the other hand the employed period is in the previous tax year then £12k contribution for this tax year on the basis of the self-employed profits (this also depends on your exact accounting year; some people account for a different period than the tax year, and the profits come into the following tax year). Sorry if I'm being unnecessarily pedantic here.

ColdIron

CatLady13 wrote: »

I did check this with my accountant and I can pay up to £118k this tax year when using my previous years' allowance.

Not unless you earned £118,000 in the year you make the contributions. You can carry forward unused allowances but you cannot carry forward your earnings limit. You must also have been a member of a UK registered pension scheme in each of the years from which you are carrying forward

CatLady13

As far as I understand it, I can use my previous 3 year's worth of allowance. Up until now I've only paid around £40 a month into my pension. My accountant has access to my previous earnings and information and it's the figure he came back with. Not that I would put the whole lot into my pension but definitely worth putting in a lump sum and drip feeding what I can.

Audaxer

coyrls wrote: »

Note that you can only pay a maximum of 100% of relevant earnings into a pension in any tax year; if you are not earning, the maximum contribution you can make is £2,280 (net, grossed to £3,600) per tax year.

I think that was a typo as it is £2,880 grossed up to £3,600.

CatLady13

ColdIron wrote: »

Not unless you earned £118,000 in the year you make the contributions. You can carry forward unused allowances but you cannot carry forward your earnings limit. You must also have been a member of a UK registered pension scheme in each of the years from which you are carrying forward

I think I have misunderstood how the allowance works. I need to clarify with HMRC but from my new understanding, I should still be able to put in £40k for this tax year and £40k for the previous 3 years. Or maybe I still have that wrong! I have lots of learning about pensions to do

Gadfium

Audaxer wrote: »

First time I've seen the Rule of 300. To safely live on £1,200 per month from a pot of £360k, surely depends upon what investments are in the pot? If the investment portfolio is too cautious, I would not think that it would generate enough of a return to allow you to draw £1,200 per month?

Its based on the pot growing at 4% per annum and a Safe Withdrawal Rate of 4%.
At the end of the day, it's a rule of thumb, not a Law of nature.

https://fifthperson.com/the-rule-of-300-how-much-you-need-for-retirement/
http://www.fourpercentrule.com/

Audaxer

TCA wrote: »

The Trinity Study was the piece of work that backtested the rule with different withdrawal rates and various equity/bonds splits to see how they did over different periods for a 30 year retirement horizon. From memory, across almost all equity/bond splits (I think), the 4% withdrawal had a very high probability of not depleting the funds over those 30 years (and made good gains in many instances) albeit with plenty assumptions built in. Worth a google.

I've had a look at the Trinity Study findings as per the link below:
https://www.forbes.com/sites/wadepfau/2018/01/16/the-trinity-study-and-portfolio-success-rates-updated-to-2018/2/#
Interesting to note that with a 100% equities, a 4% withdrawal rate over 30 years has a 94% chance of success, whereas with only 50% equities, a 4% withdrawal rate over 30 years has a 100% chance of success!

Alexland

CatLady13 wrote: »

I think I have misunderstood how the allowance works. I need to clarify with HMRC but from my new understanding, I should still be able to put in £40k for this tax year and £40k for the previous 3 years. Or maybe I still have that wrong! I have lots of learning about pensions to do

You have misunderstood but it's an easy error to make so don't beat yourself up about it. If using carry forward your pension contributions are still limited by your relevant earnings for the current tax year.

For example if you want to put £80k in a pension you need £80k of relevant earnings this tax year and £40k of carry forward allowance available from previous years. If you are a super high earner then tapering of the annual allowance will also affect you.

http://www.hl.co.uk/pensions/sipp/pension-carry-forward

Alex.

CatLady13

Alexland wrote: »

You have misunderstood but it's an easy error to make so don't beat yourself up about it. If using carry forward your pension contributions are still limited by your relevant earnings for the current tax year.

For example if you want to put £80k in a pension you need £80k of relevant earnings this tax year and £40k of carry forward allowance available from previous years. If you are a super high earner then tapering of the annual allowance will also affect you.

http://www.hl.co.uk/pensions/sipp/pension-carry-forward

Alex.

Ah I see, thanks Alexland. That does somewhat limit my pension contribution then as I think this year’s earnings are around £12k.

Thrugelmir

TCA wrote: »

The Trinity Study was the piece of work that backtested the rule with different withdrawal rates and various equity/bonds splits to see how they did over different periods for a 30 year retirement horizon. From memory, across almost all equity/bond splits (I think), the 4% withdrawal had a very high probability of not depleting the funds over those 30 years (and made good gains in many instances) albeit with plenty assumptions built in. Worth a google.

Totally based on historical US data though. Seamlessly morphed by investors to apply to any global market somewhat erroneously.