Quick calculation

murphydog999

Thanks for that. However there would be no lump sum taken out, does that alter the calcs?

Brynsam

murphydog999 wrote: »

Thanks for that. However there would be no lump sum taken out, does that alter the calcs?

No - and the table is the one Dox gave you the link to...

zagfles

3% escalation gives nowhere near the same result as RPI escalation. Just because inflation might be around 3% now doesn't mean a future guarantee of 3% is similar to a future guarantee of RPI escalation.

Eg see here https://www.hl.co.uk/pensions/annuities/annuity-best-buy-rates

RPI gets £2048 per £100k.
3% gets £2519

kidmugsy

murphydog999 wrote: »

Thanks for that. However there would be no lump sum taken out?

Good grief, why not?

murphydog999

How come the big difference between £825k and £630K?

murphydog999

kidmugsy wrote: »

Good grief, why not?

For my question, it's not applicable.

zagfles

murphydog999 wrote: »

How come the big difference between £825k and £630K?

Because one's based on RPI escalation and one's based on 3% escalation. See above.

You said you wanted index linked, so ignore the £630k figure.

murphydog999

I'm revisiting my post from a couple of months back because I can't get my head round these figures. In the annuity rate chart above, could someone explain, in laymen terms,
Dividing £16,500 (presuming gross) by that gives a fund of £630k required. What is THAT? And what is the 10 yr guarantee? I looked at the other link and it quoted 5yr guarantees!

Are the figures quoted in the chart what you would get per year with £100,000k pot? So, bear with me........rather than something obvious......
£3971 x 2.1 = £8339 p.a with 3% esc, does that mean 2.1 x £100,000K? So a pension pot is required of £210K to achieve this??

Sorry, my brain isn't wired for this!!

NoMore

You want £16500

For every £100,000 you get £ 2617 (3% esc. no guarantee)

So 16500/2617 * 100000 gives 630k approx.

jamesd

I'll have a different try at it with these assumptions:

1. you want an income of 16500 a year in today's money for life
2. your state pension will start in 12 years and pay 8500 a year, leaving 8000 to fund from when it starts to death
3. that you have some flexibility to reduce spending if you live through exceptionally bad investing times.

The first part to calculate is the cost of the 8000 from 55 for life. 5% of capital as income is about right if the Guyton-Klinger drawdown rules are used, so multiply the required income by 20 to get the drawdown capital need. Which comes to £160,000.

I'll use something very crude for the extra 8500 that's needed for 12 years, just multiplying the two, so £102,000.

That gives a total capital requirement of £262,000.

If you want to be more spendy you could consider buying an annuity for some or all of the 8000 part that's needed for life. Say you wanted 4000 to increase by 3% a year to cover some inflation. Each 100000 spent produces 2617 of income so to get 4000 costs 4000 / 2617 * 100000 = 152846. You save half of the drawdown cost, though, now 80000 instead of 160000. So your total capital need is now 102000 + 80000 + 152846 = 334846.