It's time to start digging up those Squirrelled Nuts!!!!

Sea_Shell

Just thought.     Should we (would you) include any Income Tax you end up paying in your "spends" category, going forward?

It is money that is "gone" for the purposes of balance going forwards, after all.    Especially whilst its a "voluntary" decision, to pay it.

We do this for our ISA charges as they are drawn from the cash in the ISA element (soon to be a separate cash management account), so we count them as "spends".

MK62

Personally I think it would be crazy not to include any tax liability in your retirement plans....I certainly do (but then I'm highly averse to nasty surprises popping thru the letterbox labelled "HMRC"... )

westv

shinytop said:

jamesd said:

shinytop said:

Agreed.  That's exactly the situation we're in.  Having just retired the plan is around 4% but in 7 years SP kicks in and it should drop to well under 2%.  If you use the (perhaps optimistic?) 4% rule, each £9k SP is worth £225K 'CETV'.  It's a significant amount for most people and even more so for a couple. 

4% is what worked in the worst case of the US sequences over a 30 year term. Substituting small caps for some of the equities increased it to 4.5%. Increasing with uncapped inflation every year. Worst historic case is very pessimistic.

For the UK it's about 0.3% lower and after deducting more for all costs that takes 4% down to 3.2%. UK 40 year Guyton-Klinger starts at 5% on the same basis but 99% success rate. It doesn't have to start as pessimistic because it adjusts based on what you end up living through.

For SP you deduct 7 times your SP from the pot and use a safe withdrawal rate based on what remains.

Sorry if I'm being a bit thick but I'm not sure what you mean here?

7 years to SP so 7 x 9000 = 63,000. Deduct this from pot and apply withdrawal rate to rest.

jamesd

If your state pension will be 9k, you'll need 7 times 9k to draw on between now and your state pension starting. 7 times 9k is 63k. If your pot is 400k you deduct that 63k to get to a 333k lifetime pot. 3.2% of 333k is 10.7k and 5% is 16.7k. So you'd start paying yourself 9k + 10.7k or 9k + 16.7k from your pot. Once you start your state pension you switch to your stat pension plus the 10.7k or 16.k.

shinytop

jamesd said:

If your state pension will be 9k, you'll need 7 times 9k to draw on between now and your state pension starting. 7 times 9k is 63k. If your pot is 400k you deduct that 63k to get to a 333k lifetime pot. 3.2% of 333k is 10.7k and 5% is 16.7k. So you'd start paying yourself 9k + 10.7k or 9k + 16.7k from your pot. Once you start your state pension you switch to your stat pension plus the 10.7k or 16.k.

Ahh I get it now.  I didn't realise it was a personal quotation for me!  I was wondering where the 7 came from.  

garmeg

jamesd said:

If your state pension will be 9k, you'll need 7 times 9k to draw on between now and your state pension starting. 7 times 9k is 63k. If your pot is 400k you deduct that 63k to get to a 333k lifetime pot. 3.2% of 333k is 10.7k and 5% is 16.7k. So you'd start paying yourself 9k + 10.7k or 9k + 16.7k from your pot. Once you start your state pension you switch to your stat pension plus the 10.7k or 16.k.

I like this approach. Straightforward too.

Anonymous101

Yeah I like that. I'd always though of the SP as a bonus on top of the pot but if you're close to receiving SP then that is a great way to factor it in.

Also interested to know if people are factoring in the £2880 you can contribute to a SIPP once you're in drawdown and still receive the tax relief.
I understand why you may not want to do this Sea Shell but its free money after all.

MallyGirl

the £2,880 certainly appears in my plans - free money!

garmeg

MallyGirl said:

the £2,880 certainly appears in my plans - free money!

Doesn't figure in mine as I have (carelessly in retrospect) exceeded LTA which is, admittedly, a nice problem to have. I am paying it for my wife though.

Sea_Shell

I'm still putting in the £2,880.   DH isn't, due to above issues of tax on exit.