True Potential - good idea or not?

bostonerimus

If the 1M lump sum is chosen then a very rough sensible withdrawal level will be maybe 4%. If you take off 1% for fees you end up with 3% ie 30k. Of course the balance of probability is that a 1M pot will easily sustain an index linked 4% withdrawal, but you need to plan for the 5% chance of failure rather than concentrating on the 95% chance of success. So if you have that 1M pot you might consider buying an annuity with some of it to give you a nice guaranteed income floor along with state pension.

bostonerimus

Kit_Katt wrote: »

2018 i saw a 6.6% drop in my fund but YTD have made that back and now showing a nice surplus. So in a well managed decent portfolio despite a brutal year my fund didnt drop 20%+.

.

But it could drop 20%, in fact in a 20 or 30 year retirement if you have a portfolio that has a good chance (ie 95%) of sustaining a 4% withdrawal level you will probably see multiple 20% corrections. So you need to be able to manage your withdrawals by being able to use cash reserves or cut spending so you don't spend down your capital in a down market.

Madeinireland

I am 58 and my wife is 52. She has 3 quite small DB schemes amounting to about 8k and of course a state pension which is 1 year short of full (as do I) We have a fairly substantial Cash ISA position (about £200k) and about £100k in shares. We have a property without mortgage that’s probably worth about £600k. I also have about £220k in AVC’s that sit alongside my DB pension which I will be able to take as a tax free lump sum ( the majority of it) if I don’t transfer out the pension. Alternatively it could supplement the transfer pot if I did transfer it out.

After reading the responses to date I think I am being put off the idea and starting to come to the conclusion that I’m probably in the ‘why take the risk’ camp. I will still need an IFA I think to get my affairs in better shape and to help with the alternative strategy of maintaining my pension and helping with the purchase an an annuity with my residual AVC’s that I can’t use for my tax free lump sum.

Thanks all for responses to date - happy to hear further comments if above info changes position at all.

Thanks...

jamesd

You might want to send a private message to dunstonh, someone I've previously checked is an IFA and would be happy to do business with. The potential pot value implies that hourly fees will be likely to be your best option and plain FAs aren't required to offer that, I think.

With anticipated low life expectancy yours is a situation where drawdown could pay substantially more. Even with 1.5% in ongoing costs the Guyton-Klinger drawdown rules for a 40 year plan would have a starting income of £50,000 a year from a million Pound pot.

What I suggest you do initially is play around using the worked examples I did, experimenting with your own situation and perhaps setting an income floor of 30k. That will cut the initial income so the worst cases historically wouldn't have gone below it.

The 25% tax free lump sum is only applicable on the portion of the pot up o the lifetime allowance. It's calculated only as you take benefits so one workaround can be to take some initially and more gradually after market drops have temporarily reduced the value.

The options with a pot are very flexible. You can do some annuity buying, adjust the income up or down over time and can vary the investment mixture to manage drop potential.

Dunstonh was correct to mention 25% as the sort of drop a commonplace 60:40 equities:bonds mixture might see. Really. A quarter million Pound drop. And recovery. Once or twice every ten years because it's just routine ups and downs of investments. You can reduce that by using a lower equity portion. The ups and downs are considered in the drawdown rules already so that just carries on per the rules being used.

To help manage income tax you could give tax free lump sum money to your wife.

Some defined benefit schemes allow partial transfers. Unlikely but worth checking.

Assuming a million plus the ISA and shares and eventual state pensions for two I suspect that taking an initial Guyton-Klinger income in the £80,000 to £90,000 range plus your wife's DB is doable. More if you want to deliberately plan to start high and decrease as you get older - play around with cFiresim, the examples and background reading of Drawdown: safe withdrawal rates.

Much about risk has been written but you can use settings and investments chosen so that we'd have to live through times worse than either world war or the great depression before your income would drop as low as the DB £30,000.

bostonerimus

You seem to be in pretty good shape with a good variety of assets. Critical to your choice is how much income you actually need. If a couple of state pensions and the DB pensions can give you a decent baseline income floor that will keep the wolf from the door then maybe you don't need the guarantee of the 30k DB pension and can take on the added risk and potential benefits of managing the 1M lump sum for income. If you do that either employ an IFA and keep you fees down as much as possible or educate yourself and DIY; in fact whatever you do educate yourself.

I DIY a large pension pot use simple index tracker funds to keep costs down saving myself thousands a year...but last year from Jan to end of Dec the market loss on my investments was around 200k, but now I've more than gained it back. So expect volatility and if you can't deal with that yourself and you use an IFA, make sure you get a down to earth one that knows that the best thing to do is often nothing.

AnotherJoe

Madeinireland wrote: »

I am 58 and my wife is 52. She has 3 quite small DB schemes amounting to about 8k and of course a state pension which is 1 year short of full (as do I) We have a fairly substantial Cash ISA position (about £200k) and about £100k in shares. We have a property without mortgage that’s probably worth about £600k. I also have about £220k in AVC’s that sit alongside my DB pension which I will be able to take as a tax free lump sum ( the majority of it) if I don’t transfer out the pension. Alternatively it could supplement the transfer pot if I did transfer it out.

After reading the responses to date I think I am being put off the idea and starting to come to the conclusion that I’m probably in the ‘why take the risk’ camp. I will still need an IFA I think to get my affairs in better shape and to help with the alternative strategy of maintaining my pension and helping with the purchase an an annuity with my residual AVC’s that I can’t use for my tax free lump sum.

Thanks all for responses to date - happy to hear further comments if above info changes position at all.

Thanks...

I think that makes it a better bet to take the £1M !!

Look at it dispassionately you will have £8k a year coming in from DB;s plus probably another £16k from two state pensions, so thats £24k a year covered anyway. Thats living expenses plus more once you get to SP age Then you have all that additional cash, more than half a million. So you just need to bridge the gap to that then you probably wont be burning down as much.

You could be taking £30k a year for holidays or whatever, if you did lose 20 % even straight away it wouldn't be an issue

Pension_Geek

What is the lump sum on your DB scheme? If you transfer, and have £220k in AVCs, you'll be over the Lifetime allowance.

Madeinireland

I will be over the LTA limit as the scheme lump sum is 3 times pension.

Albermarle

I will be over the LTA limit as the scheme lump sum is 3 times pensio

Are you aware that DB pensions are treated much better in LTA terms than having a pot of money.
So if you took the £30Kpa , it would count as £600K towards the LTA + any lump sum paid .
Whereas if you did the transfer it would count for over £1million and more after it had grown for a few years .

cfw1994

nigelbb wrote: »

I wouldn't trust financial advice from any company with such a naff vomit inducing name as "True Potential".

LOL - it would only be worse if it was True Potential Wealth Management, eh :rotfl: