Can I really retire...

ams25

Jamesd - I appreciate you are a big fan of the Guyton-Klinger drawdown rules and I understand they may result in higher intial drawdown rates than other approaches, but I think caution (and balance) is needed with it. I have been reading Wade Pfau's latest book https://www.amazon.co.uk/dp/B076J4NBBZ/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 and he covers it among other drawdown approaches.

My key take out is that when you take everything into account - high current markets/CAPE, very low bond yields, lower likely returns in the next 10 years than the last 10, fees, global/UK returns vs historic US returns then as minimum you should build some safety into your plans and be prepared to be very flexible. This applies to any approach.

Everything I read on SWR (safe withdrawal rates) brings me to somewhere around 3% for a longer period (c.40 years) especially if you would be uncomfortable with seeing your funds substantially depleted (and/or want to leave a legacy). Higher rates may and could work, but certainly after reading the book, I keep coming back to 3% as a sound planning rule with a very flexible approach.

I am not saying GK is not the right answer in some cases but I do think anybody using needs to understand it well (and you have explained it in other places) and appreciate the risks, ie that if markets are not favourable then then it will result in spending being more volatile. There may be a cost to that higher initial rate - it's not magic.

FWIW, in his book a hybrid approach (endowment rule) of 50% constant inflation adjusted (ie standard 4% rule) and 50% fixed % of your portfolio results in a decent compromise and gives not dissimilar results to GK but with less complexity.

WirelessWizard

Your plan to draw on savings before DB seems poor

Jamesd:
I should have been a little clearer, my plan would be to use my cash/ISA savings to fund my income if I retire early and until I reach 55 when more options open up. I have looked at taking DB early and/or drawing down DC for the reasons you mention. I have some more thinking/analysis to do...All really helpful advice, thanks for the detailed response.

WirelessWizard

.... So every year delayed is a prime year lost. There is no getting it back.

Originally posted by ams25

My wife keeps telling this, I'm starting to come around to your/her way of thinking

ams25

Don't forget that, under current rules, your SIPP/DC pension can be used as a tax efficient way of leaving money to your heirs. You can pass it on completely free of Inheritance tax if you die before 75 or the recipients pay tax at their marginal rate after 75. worth considering since your current estate looks some way above the thresholds. Just something to bear in mind. (sorry to bring it up.. I have the same considerations at the back of my mind)

stoozie1

@wireless

I might be wrong but I don't think you are maxing your wife's personal allowance for tax between ages 55 and 60.

Rather than filling her ISAs with the 14% salary not going into your pension due to LTA concerns, shouldn't you be contributing £2880 net £3600 gross into a SIPP?PP for her, that she can have grossed up now and draw free of tax between 55 and her DB pension commencing?

WirelessWizard

stoozie1:
Yes, I think you're right. I should be doing this...

JoeEngland

Quote of the day: "Running out of money is only a possibility, running out of time is a certainty."

Triumph13

jamesd wrote: »

Assume 735k at 55 with 5% a year plus inflation growth. Take 25% of that and you have 551k in the pension. At 5% average growth that's 27.5k a year you need to be taking just to keep the pot from growing. With 13k DB and say 9k state pension that's 49.6k a year and higher rate tax territory, so worth at least drawing enough to fully use your basic rate band each year.

Lots of good points from James as always. If anything though he's underestimating what you need to pull out of the DC funds each year from 55. 5% a year growth would turn your £700k into about £890k by 55 (assuming you've only recently turned 50). A more modest 4% would still get you to £850k and well over the LTA unless you take the DB early.
If we use the £850k figure then after the 25% TFLS you have £637,500 in draw down funds and you have to draw ALL the growth, not just the real terms growth to avoid a further LTA charge at 75. If you work on 4% real growth plus 2% inflation then that's over £38k pa you have to draw just to stand still. With DB kicking in at 65 and SP later you are almost certainly going to end up paying some higher rate tax later on so it's essential to draw your full lower rate band every year from 55.

Triumph13

Actually, playing with the numbers more, you should be able to avoid higher rate tax / LTA charge at 75 by taking your full basic rate tax band from the DC between 55 and 65 if inflation stays fairly low, just so ling as you get on top of it early.


The glaring hole in your finances is of course ... the fact that full SP is only £8.5k not £9k so your combined SPs should be £17k not £18k. Not sure how you will cope without that extra £1k!


Well actually I am sure. Lets forget your £4k per month budget as you have way too much money for that and use £5k per month instead. You should be able to take about £40k pa from the 75% of your DC in draw down plus your DB and SP when they come on line and have the right kind of amount in the DC pot at 75 to a) avoid LTA charge and b) have that £40k be sustainable long term. Eventually your wife will have the £15k BTL plus her state and DB pensions. Roll all of that together and you have £60k pa post tax.
Backfilling for the gaps costs you £230k for the period 50 to 55 when the only income coming in is the BTL, £34k to backfill 6 years of wife's post-tax DC (54 to 60) and £95k to backfill 14 years of her SP (54 to 68) meaning you need a total of about £360k to fill those gaps. To do that you have your current cash and ISAs of £535k and your TFLS from the DC of another £200k plus. That only leaves you with about £380k in your emergency fund I'm afraid. Retire now!

jamesd

Triumph13 wrote: »

If we use the £850k figure then after the 25% TFLS you have £637,500 in draw down funds and you have to draw ALL the growth, not just the real terms growth to avoid a further LTA charge at 75. If you work on 4% real growth plus 2% inflation then that's over £38k pa you have to draw just to stand still. With DB kicking in at 65 and SP later you are almost certainly going to end up paying some higher rate tax later on so it's essential to draw your full lower rate band every year from 55.

The lifetime allowance is now supposed to increase with inflaion so withdrawing real rather than nominal growth should suffice.

Avoiding higher rate tax is one of the potential advantages of taking DB early, could help quite a bit after state pension age.