More planning questions.

Truffle_Snuffler

I'm almost 60 & have taken a step towards early retirement. Gone to a part time position that pays about half my old salary but has none of the stress.


I now need to start looking at moving some or all of my investment money into producing an income but I would like to find the best & most efficient way of doing it.


When I reach State Pension age, I will start drawing a company final salary pension as well as my state pension. Together, they will put me close to the HR tax bracket.


In the meantime, I have a SIPP which was opened with the intention of bridging this gap & also to avoid paying HR tax. This stands at about £100k. I also have an S&S ISA of about the same value. I have chosen all my investments myself without advice up until now.


My new income is around £25k p/a so I'll have a bit of personal tax allowance left before getting to the HR threshold.


My investment knowledge is limited to knowing how to put money away without any real thought about accessing it later so this is where the questions start.



Will I benefit from paying for professional advice & if so, what am I looking for in an IFA?



Do I need a pension or retirement specialist or is this what they all do?



What sort of income could I expect without taking any daft risks?


I think that I may just need guidance with maybe the odd review every couple of years rather than a fully managed service. Is this an option? And if so, what sort of charges should I expect?


Looking at similar threads, I've no doubt that I haven't provided enough info for a comprehensive answer but I'll supply more details if asked.


Thank You for looking.

MallyGirl

you haven't said how much you need. Is the SIPP + ISA just covering the gap to SPA so it can be completely depleted, or is it going to be a 'top up' ongoing. If FS plus State pensions are going to get near HR tax then you should maybe look at getting everything taxable out of the SIPP before then, just paying the 20% tax on 75% of it.

Truffle_Snuffler

MallyGirl wrote: »

you haven't said how much you need. Is the SIPP + ISA just covering the gap to SPA so it can be completely depleted, or is it going to be a 'top up' ongoing. If FS plus State pensions are going to get near HR tax then you should maybe look at getting everything taxable out of the SIPP before then, just paying the 20% tax on 75% of it.

Thanks for the quick reply.
It wouldn't matter too much if the investments were depleted. I'm on my own with no close family & a house to fall back on if I need care home fees. But I don't think I want to run it all down before SP age. Is it possible to put it into income funds & then later decide when I want to get at the capital.


WRT how much, well again that depends. If I could get an extra 10K or so per year, I could cut the work down further & enjoy it even more. But I don't know if that's being realistic.

Audaxer

Truffle_Snuffler wrote: »

In the meantime, I have a SIPP which was opened with the intention of bridging this gap & also to avoid paying HR tax. This stands at about £100k. I also have an S&S ISA of about the same value. I have chosen all my investments myself without advice up until now.

I'm no expert, but I agree it seems a good plan to bridge the gap by drawing from the SIPP so you are not in the HR tax band. Even if you don't spend it all, you could transfer some of the SIPP each year to the S&S ISA. So the plan would be that when you get to SP age, all the SIPP capital left would be invested in your S&S ISA.

Will I benefit from paying for professional advice & if so, what am I looking for in an IFA?

In your circumstances when it appears you will have significant amount of income when your State Pension and DB pension kicks in, I wouldn't think it would be worth consulting an IFA unless you are really not confident about your DIY investing.

What sort of income could I expect without taking any daft risks?

From a medium risk income portfolio, I think you could expect dividends of between 3.5% and 4% with some growth in capital over the long term. However some investors prefer the total return approach, drawing from capital growth, than just relying on dividends.

Just out of interest, do you have the option of taking a tax free lump sum with your DB pension, or are you planning to take the full pension?

kidmugsy

Truffle_Snuffler wrote: »

... I have a SIPP which was opened with the intention of bridging this gap & also to avoid paying HR tax. This stands at about £100k. I also have an S&S ISA of about the same value.My new income is around £25k p/a so I'll have a bit of personal tax allowance left before getting to the HR threshold.


My investment knowledge is limited to knowing how to put money away without any real thought about accessing it later so this is where the questions start.

Are you currently contributing to a pension in your part-time job? If so, how much, and is it to a DC or DB pension?

squirrelpie

Agree with what other people have said about moving funds from your SIPP to your ISA. You can do that as fast as you can up to the point of triggering higher rate tax. Make sure that the very first payment you make is a very small one, as it will be treated on an emergency tax code. With regard to the rate of spending funds from a pension pot (as opposed to transferring from one pot to another), it's generally reckoned that spending 3% or maybe 4% a year is reasonably safe. If you have £200k in total that would be £6000 - £8000 per year. If you spend more than that you will probably start to run down your capital.

Truffle_Snuffler

kidmugsy wrote: »

Are you currently contributing to a pension in your part-time job? If so, how much, and is it to a DC or DB pension?

Not currently contributing. The new job is on a self employed basis. I can (within reason) pick & choose when I work. As I get further into it, I may vary my hours as I see fit.

Truffle_Snuffler

Audaxer wrote: »

Just out of interest, do you have the option of taking a tax free lump sum with your DB pension, or are you planning to take the full pension?

I haven't really planned that far ahead. Still got about 6 years before I need to decide on that.

sjp999

Truffle_Snuffler wrote: »

Not currently contributing. The new job is on a self employed basis. I can (within reason) pick & choose when I work. As I get further into it, I may vary my hours as I see fit.

Properly self employed or a director of your own company?

kidmugsy

Truffle_Snuffler wrote: »

When I reach State Pension age, I will start drawing a company final salary pension as well as my state pension. Together, they will put me close to the HR tax bracket.


In the meantime, I have a SIPP which was opened with the intention of bridging this gap & also to avoid paying HR tax. This stands at about £100k. I also have an S&S ISA of about the same value. My new income is around £25k p/a so I'll have a bit of personal tax allowance left before getting to the HR threshold.

So, ignoring growth/losses/inflation: you could draw out about £16k per annum for six years or so. 25% is TFLS = £4k. £12k is taxed at 20%, leaving about £9.5k. Is £13.5k p.a. good enough for you?

Just check that in 18/19 you will not be dinged for Higher Rate Tax because of your higher earnings in the first few months. If that's the case just use proportionately more TFLS and less taxable drawdown than in the long term.

Now, since you are drawing down the taxable bit of a pension the amount you're allowed to contribute to a pension is limited to £4k gross per tax year, so £3,200 net. So, if you feel you can afford to, bung that £3,200 net back into your SIPP: it's worth 6.25% more there than putting it into an S&S ISA. So, put it in, let the tax relief reach the SIPP, and draw it out again. Repeat each year in which you will be paying only in the 20% tax band.

Or, sod it, draw out the TFLS in the first couple of tax years and the taxable bit in the years when you will have neither the high income that's just ended nor the high DB pension and SRP income of your later years. All spare cash can be recycled through the pension one last time and then parked in the ISA. Or you might even decide to stop working a year before the DB and SRP start and therefore draw down a sizeable chunk of the SIPP at 0% tax. Really, you are spoiled for good options.

Truffle_Snuffler

kidmugsy wrote: »

So, ignoring growth/losses/inflation: you could draw out about £16k per annum for six years or so. 25% is TFLS = £4k. £12k is taxed at 20%, leaving about £9.5k. Is £13.5k p.a. good enough for you?

Just check that in 18/19 you will not be dinged for Higher Rate Tax because of your higher earnings in the first few months. If that's the case just use proportionately more TFLS and less taxable drawdown than in the long term.

Now, since you are drawing down the taxable bit of a pension the amount you're allowed to contribute to a pension is limited to £4k gross per tax year, so £3,200 net. So, if you feel you can afford to, bung that £3,200 net back into your SIPP: it's worth 6.25% more there than putting it into an S&S ISA. So, put it in, let the tax relief reach the SIPP, and draw it out again. Repeat each year in which you will be paying only in the 20% tax band.

Or, sod it, draw out the TFLS in the first couple of tax years and the taxable bit in the years when you will have neither the high income that's just ended nor the high DB pension and SRP income of your later years. All spare cash can be recycled through the pension one last time and then parked in the ISA. Or you might even decide to stop working a year before the DB and SRP start and therefore draw down a sizeable chunk of the SIPP at 0% tax. Really, you are spoiled for good options.

I think I'm going to have to read this several times....reeeaallyyyyy slooooowllyy!:eek: