level of sustainable income?

NeilC1965

Hi All,
on a previous post I thought I had decided to take my final salary pension as a pension , using my dc funds to supplement, leaving a guaranteed income at 67 including state pension of around 30k pa and around 35k up to that point. However, i have since received a CETV for my db pension and it has increased significantly on previous quotations. I will have total fund value around 930k. Retiring at 55, what would a realistic , before tax , annual income be able to support from a fund of this size? My state pension kicks in at 67.
I would like to better the db+ dc option if possible but without too much chance of the dc money running out!

There are many online calculators , all with different outcomes . I am also speaking with my FA, but I know there are very knowledgeable people in these forums who will have a view on this also!

MallyGirl

do a search for threads about safe withdrawal rate (SWR). 3.5% seems to be a sustainable figure mentioned quite a bit for the UK

MK62

Nobody really knows what the safe withdrawal rate will actually be......we can only take an informed guess today based on historical data and average lifespans etc.

Unfortunately though that usually entails using long term returns averages, but once into drawdown, the sequence of those returns becomes as important as the long term average rates - unfortunately, nobody knows what that sequence of returns will actually be though, so in the end it may need be a fluid plan.

MallyGirl has already posted what many would consider to be a reasonable starting point.......from there it could get better......or worse. You have to be happy taking on that uncertainty......some have little choice in that, but you do have a choice.
I'm not saying you shouldn't transfer, but you should weigh your options carefully.

If you gave more detail about your current age, marital status, your planned retirement date under both scenarios, the size of your current DC pot, the actual payout at chosen retirement age of your DB pension, your State pension provision and the details of the CETV, then you'd probably get some better ideas/opinions. Also, if you do have a spouse/partner, you also need to take his/her pension provision into account too.....

[Deleted User]

Have a look at the Variable Percentage Withdrawal (VPW) table. The main advantage of this approach is that (unlike the SWR) it guarantees that you won’t run out of money

https://www.finiki.org/wiki/Variable_percentage_withdrawal

LHW99

I will have total fund value around 930k

Just a thought - how large are your DC funds, because that CETV is getting close to the LTA?

bostonerimus

NeilC1965 wrote: »

There are many online calculators , all with different outcomes . I am also speaking with my FA, but I know there are very knowledgeable people in these forums who will have a view on this also!

The essence is that you are trying to predict the future and so anyone of the multiple answers could be the actual answer. You need to judge the probabilities and then stress test your plan so that you have exceptionally good confidence that you will be ok and then compare with the DB approach.

enthusiasticsaver

Aren't you getting close to the LTA? Is that £930k at todays value or if you carry on contributing until 67 which obviously you wont if you retire at 55.


I would think long and hard about giving up a DB pension at that level to transfer to a DC scheme. You will need to pay for financial advice which will be very expensive due to the cost of the insurance premiums any pension transfer specialist would have to take out to guard against you suing them in the future for advising you poorly.

atush

While all the info above is good re safe withdrawal rate, yours will be affected by the investments you choose.

Go too cautious and you might not be able to get even 3.5%, go too adventurous and you better have a few years cash as a buffer so that you dont have to sell units in a crash.

LadyTC

Hi Neil

I think quite a few people on here including myself use the Retireeasy Lifeplan to build and play around with future scenarios but it's not free.

I transferred my DB Scheme (TV £295,000) into a drawdown scheme recently and will probably start drawing down in a couple of years time when me and my partner retire. We have considered a few scenarios and we do think that taking my partner's DB pension of £22K in two years time is important as we need to wait a long time to get our State pensions.
We have considered taking the transfer value (£500K) and whilst this scenario also works we will prefer the security of the pension paying most of the bills.

Others will be more well versed on here but you may also need to look at the pros and cons of the LTA as the tv is close to £1m

Malthusian

Deleted_User wrote: »

Have a look at the Variable Percentage Withdrawal (VPW) table. The main advantage of this approach is that (unlike the SWR) it guarantees that you won’t run out of money

https://www.finiki.org/wiki/Variable_percentage_withdrawal

The main disadvantage being that if the fund value goes down your income goes down. All the safe withdrawal rate rules of thumb assume that you cannot cope with any fall in your income. Even the clever ones (Guyton-Klinger et al) assume the most you can cope with is a freeze in your income, except in extreme circumstances. If you can comfortably afford to reduce income during a crash or correction then you have no problems.

People are highly averse to taking pay cuts. This is why inflation is an essential economic lubricant (it allows businesses to cut real-terms wages by the rate of inflation by freezing pay) and why it is easier to sack someone than get them to agree to a paycut.

There is little reason to think this changes in retirement, except that it makes drawdown solutions easier to sell and makes people's retirement plans easier to draw up.

This is why "safe withdrawal rate" discussions fixate on a rate that can survive continuing to draw the same income throughout a crash and the consequent pound-cost ravaging. Even though the benefits of keeping a large fund in cash and stopping income during a crash are obvious.

No retiree should have to cancel their annual holiday to the Algarve because the stockmarket has crashed. If you do then your lifestyle is maintaining your pension when it should be the other way around.

Prism

Malthusian wrote: »

No retiree should have to cancel their annual holiday to the Algarve because the stockmarket has crashed. If you do then your lifestyle is maintaining your pension when it should be the other way around.

I don't fully agree with that. People might not want to but having worked through two stock market crashes in my lifetime and seeing effect it had on my wage (made redundant after dot.com and had little free lance work during the financial crisis), it is at least for some of us entirely normal to have to deal with reduced income and cancelled luxuries during those times. Its all about expectations of course, and many wouldn't be used to such fluctuations but its not on its own a thing that can't be dealt with.