Quick calculation

MK62

jamesd wrote: »

That is with inflation increases and with investment performance so bad that only one in ten historic cases were worse. Even average investment performance would cause increases greater than inflation. The worst historic case wouldn't double the cost, it's more like a reduction from 5% to 4.5%.

But when in history have we had 9 year's of near to zero interest rates and trillions of dollars poured into the markets to inflate asset prices?
History is only a useful guide, not a reliable predictor.......

The debate still rages about safe withdrawal rates and strategies......in the end it's a conviction call......it would seem then that I am far less convinced of the sustainability of an initial 5% withdrawal rate for a 55yo than you are. I accept I could be wrong though.
In the absence of further information, I also wouldn't assume that someone retiring at 55 on £16500pa would have much in the way of flexibility to reduce that income.....but I accept that's the way the Guyton Klinger strategy works.

MK62

murphydog999 wrote: »

LTA valuation?? Please can it not be assumed that everyone knows what these abbreviations mean!

Sorry.....LTA means LifeTime Allowance.
For a defined benefit schemes such as the forces pension, when the pension is drawn a notional valuation is given to the pension......usually it's 20x the annual benefit plus any lump sum paid at the time. This is then compared to the LTA in force at the time (currently £1.03M) to see how much of the LTA was used.....if it's more than 100% there is a tax charge.

As an example, your £358000 would use 358000/1030000*100=34.75% of the LTA, so no tax would be payable for LTA purposes.

murphydog999

jamesd wrote: »

That isn't a very good transfer deal.

What would constitute a good 'deal'?

jamesd

30-35 times the annual income is pretty common these days at around age 55.

jamesd

MK62 wrote: »

But when in history have we had 9 year's of near to zero interest rates and trillions of dollars poured into the markets to inflate asset prices?
History is only a useful guide, not a reliable predictor.......

The UK worst case is retiring just before WW2. WW1 is also pretty bad. The US worst case for a 60:40 equity:bond mixture delivered only 0.86% real a year for the first fifteen years. Recent events are tame in comparison. Still, it is possible that someone retiring today could live through worse investing times.

MK62 wrote: »

..it would seem then that I am far less convinced of the sustainability of an initial 5% withdrawal rate for a 55yo than you are. I accept I could be wrong though.
In the absence of further information, I also wouldn't assume that someone retiring at 55 on £16500pa would have much in the way of flexibility to reduce that income.....but I accept that's the way the Guyton Klinger strategy works.

It also has the advantage of starting at a much higher income, so even skipping some inflation increases or making bigger cuts is still likely to remain above the annuity income level. With the 630k mentioned for annuities earlier, starting on 31500, not just 16500, would be fairly cautious, at only one in ten chance of having to cut more than the rules would.

Even so, you might have noticed that I tend to suggest increasing guaranteed income with state pension deferral, and in longer expositions suggest annuity buying in the high 70s or 80s.

Worth remembering that the state pension is on top of that, though even 16500 is a lot of flexibility in much of the country.

murphydog999

£825k quoted, then £630k then
30-35 times the annual income is pretty common these days at around age 55 = £495,000 - £570,000

How can I know what's right when there's a difference of £330k??

jamesperrett

It would really help if you told us exactly what you were trying to do. There are so many subtleties involved in pensions that the answer could revolve around a detail that would otherwise seem insignificant to you. What's the full story?

murphydog999

I'd rather not go into detail on an open forum if you don't mind. A pm would be fine if it helped.

jamesd

825k as a rough estimate for an inflation-linked annuity, not a current market quote.
630k was current market price for 3% a year increases instead of inflation.
30-35 times is common but not what you're being offered.

The numbers are for different things. Something between 630k and 825k is what it might take to replace a forces pension in the annuity market, depends on the specifics of your situation. The specifics matter in determining what to buy to match benefits.

If you just want to buy an annuity with transfer money, forget about it, no chance with the value you've mentioned.

If it's for something like divorce calculations it's tougher because transferring would hugely decrease the income if an annuity was purchased by each party instead of finding some way to leave it where it is.

Alibert

Absent any more information I am going to guess thst murphydog has a forces pension starting soon that will pay out £16500 pa .

He is trying to work out whether he can cash it in, collect a lump sum, buy an annuity that pays the same as the pension does , and have some change left over

If that's the question the answer is boind to be be "no"

Murphydog if someone is trying to sell you a product on this basis , be suspicious.