Is it really worth it?

cobson

Malthusian wrote: »

The main different factor in play in the US is that retirees don't get as generous a level of inflation-linked guaranteed basic income as ours do from the State Pension.

Is that right ? I don't know anything about US Social Security but had got the impression from other posters on here that it was more generous that the UK state pension. There are also reports like this:

https://www.ftadviser.com/pensions/2018/02/13/uk-state-pension-worst-in-the-developed-world/

JoeCrystal

cobson wrote: »

This site is worth a read as the author looks at various retirement strategies, and he favours the 'floor and upside' approach where you annuitize enough of your pot to provide a guaranteed safety net for your minimum needs and invest the rest. It is a US site, so there are different factors in play such as healthcare costs, but it is still interesting.

http://www.theretirementcafe.com/2018/01/unraveling-retirement-strategies-floor.html

Hmm, sound like a good idea. Initially, I was thinking about aiming for annuities in full when I retire in a few decades, but the fact is that it is not worth doing annuities and do the drawdown instead to cover the gap between the age I can access the pension to the SPA. So I got a minimum pension pot goal of £134,000 in today's term to cover that 13 years gap. One could go for a fixed term annuity to provide a guaranteed safety net until the state pension kicks in, but that isn't worth it either. I suppose it all depends on individual situations.

Spreadsheetman

cobson wrote: »

Is that right ? I don't know anything about US Social Security but had got the impression from other posters on here that it was more generous that the UK state pension. There are also reports like this:

https://www.ftadviser.com/pensions/2018/02/13/uk-state-pension-worst-in-the-developed-world/

You are right - that is incorrect. Full USA SS is MUCH more than the UK SP. A quick search shows over $2700/month.

cobson

Of course you can't take things in isolation. US pensioners have to stump up for healthcare and I think the UK has one of the highest personal tax allowances in the developed world.

JoeCrystal

Spreadsheetman wrote: »

You are right - that is incorrect. Full USA SS is MUCH more than the UK SP. A quick search shows over $2700/month.

Thanks! I was curious enough to look into how they work out the retirement benefit and interestingly enough, the amount payout is calculated by averaging the earnings from your 35 best income-generating years. An average monthly benefit for the retired person last year was $1,415.94 per month or £247 per week.

I found the formula used to work out the US retirement benefit on paper and for someone who been earning a household average income for 35 years can expect a pension of $2,575 per month which quite generous. This will pay off all the social security contributions paid in the working life in four years in dollars term.

jamesd

Spreadsheetman wrote: »

Full USA SS is MUCH more than the UK SP. A quick search shows over $2700/month.

The maximum UK state pension is about £290 a week, £15,080 a year or £1,256 a month. That's for a person who worked earning at least the upper earnings limit for a full working life. Both of those are earnings-related and don't reflect normal payments. In the US in 2017 97% received less than $2,700 a month and the average was $1,360, 2015 median $1,248 vs around £597 for a UK person on £137.81 a week, the average old rules state pension.

cobson wrote: »

Of course you can't take things in isolation. US pensioners have to stump up for healthcare

The US doesn't have the nearly universal free at the point of delivery NHS but most retirees get something free:

Medicare part A (hospital): most qualify for free, not everything
Medicare part B (optional, outpatient services): $107 monthly cost
Medicare part D (prescriptions): $34 monthly cost

Even with cover there are often extra payments, copay, if you use care. Overall the system is a fractured mess without certainty of affordability for patients.

NHS is far better in certainty of no cost and broad cover.

tgroom57

The singular advantage to the works pension that I paid into for 13 years before a career "setback" - was that the works pension was not linked to the state retirement age. When OP reads up on his works pension that is definitely something to look out for.

kinger101

Apodemus wrote: »

I’m not sure that a portfolio with a high allocation of bonds and gilts could achieve an inflation linked 2.7% return and a 3.5% drawdown presupposes a reasonable level of risk tolerance and adaptability. My point remains that for the risk averse, who want certainty about their income for potentially 40 years of retirement, an annuity still has an attraction.

Average life expectancy at 65 in the UK is 18.6 for males, and 20.9 for females. I know nobody is average, but doubling the average is a bit extreme.

hugheskevi

Average life expectancy at 65 in the UK is 18.6 for males, and 20.9 for females. I know nobody is average, but doubling the average is a bit extreme.

Latest Office for National Statistics 2016 cohort-based life expectancy at age 65 is 86 years for a male and 88 years for a female.

Males aged 65 have a 1 in 10 chance of reaching age 97 and females have a 1 in 10 chance of reaching age 99.

Given females aged 65 have a 10% chance of surviving 34 years, it doesn't seem unreasonable that a risk-averse individual would plan for around 40 years. Given these statistics are at population level, a healthy and fit 65 year old woman with no limiting illness, a good family health and longevity history living in an area with high life expectancy and who is reasonably well-off would need to be planning for 35+ years or having a significant risk of living beyond their funds.

kinger101

hugheskevi wrote: »

Latest Office for National Statistics 2016 cohort-based life expectancy at age 65 is 86 years for a male and 88 years for a female.

Males aged 65 have a 1 in 10 chance of reaching age 97 and females have a 1 in 10 chance of reaching age 99.

Given females aged 65 have a 10% chance of surviving 34 years, it doesn't seem unreasonable that a risk-averse individual would plan for around 40 years. Given these statistics are at population level, a healthy and fit 65 year old woman with no limiting illness, a good family health and longevity history living in an area with high life expectancy and who is reasonably well-off would need to be planning for 35+ years or having a significant risk of living beyond their funds.

You've quoted me old figures.

https://www.gov.uk/government/publications/health-profile-for-england-2018/chapter-1-population-change-and-trends-in-life-expectancy

You're missing the main point. It's entirely possible to plan to live to a ripe old age, with income, without using an annuity. Annuities are poor value for money. How much do you get a 65 per £100K for a joint-life index-linked annuity? Which will only pass on half the income to the spouse.

Drawdown just needs a flexible approach. Have 7-8 year's income in cash/money market, leave the rest vested, topping up the cash pot as needed. Tighten your belt (as we do during our working lives) if you hit a rough patch.

There's a lot of misquoting figures here. I'm debunking the 40 years from 65 nonsense. The chance of reaching 100 is near 1%. We don't need to plan on living to over 105 - certainly not to the detriment of being able to retire at a sensible age on a decent income.

I might get it disastrously wrong, but as long as there's enough left for a one way ticket to a clinic in Switzerland......