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

BarbaraG2000

Hello, just found this thread via another forum and felt moved to join in (hope that’s OK).  Husband finished work at Easter and me 6 weeks ago. We then had to move house because we were in job-related accommodation, but our own house was waiting for us.

So now here we are, aged 57 (me) and 61 (him), with zero income until our various DB and state pensions kick in, between 3.5 and 10 years from now.  But that’s fine, because we have got a whole load of ISA’s, from which we will be taking a monthly ‘income’ from next month.  Plus a DC pension pot each, which is going to be left to grow.

The monthly spend figure we’ve gone for is more than our combined income when in work (because we now have to pay housing expenses which were previously provided for us), but less than we will get when all DB pensions are in payment.  This plan has been properly cash flow forecasted and stress tested by our IFA and she tells us we can afford it.

So, here’s to adjusting to a new life without needing to change our spending habits. We recognise that we are very fortunate.  Especially with the social care announcement yesterday - we won’t be earning, so won’t pay NI or the new health and social care levy when that comes in, and since all our share holdings are within ISAs or pensions, I think those are exempt from dividend tax anyway?

enthusiasticsaver

@BarbaraG2000 Congratulations on your early retirement. I retired just before my 58th birthday 3 years ago and my DH retired the year before on his 58th birthday.  Sounds like you have the finances sorted and yes as pensions are exempt from NI we will not be paying the social care levy.  Not sure  if that sits well with me or not but I guess there is no perfect system. No dividend tax on ISAs as far as I know.

Will you be taking monthly amounts out of a stocks and shares ISA or taking a yearly amount out? We took our DB pensions on retirement which luckily more than covers our essential outgoings leaving our DCs/SIPPS and S and S ISAs  invested.  Exciting time for you.  All I can say is I cannot think how I found time to work as  my days are really full although retired. 

BarbaraG2000

@enthusiasticsaver I know what you mean about not contributing to the health and social care levy not sitting right.  Those who can, should IMO…..  although I suppose if I felt that strongly about it we could hold some investments outside of ISA’s, but that kind of seems silly.

We will be taking a monthly amount from the S&S ISAs.  Never considered making an annual withdrawal….. would you be more subject to volatility if you did that, and there happened to be a market fall when you needed to take your year’s money out, whereas a monthly withdrawal averages it out?

We each have two ISA’s.  The one we are drawing from is on a platform connected to our IFA and invests in a small number of funds, I imagine they will sell some units each month to realise the cash we need.  The other is a bespoke managed portfolio which started out 10 years ago as my husband’s inheritance from his parents.  Each year they shifted the maximum allowance from the core account into an ISA for each of us.  Then last year, just as COVID was getting going, we needed funds to buy our retirement home, as the house we had been letting out for years wasn’t suitable for our needs/wishes, and didn’t sell for as much as we hoped.

So what was left outside ISA’s was liquidated over a couple of weeks, which crystallised a loss for us, but the manager managed to buy back in time to profit from a market rally before selling again before the next phase of the slump, so he mitigated our losses to some extent.  And in the subsequent 18 months, we are up about 25% from the low point.  

At the start of 2020, we had a total of nearly £520K, we withdrew £100K in March 2020 from a pot which had fallen significantly, and as of today our pot is £450K.

enthusiasticsaver

@BarbaraG2000 Oh yes I wasn't suggesting deliberately paying unnecessary tax just wondering why they increased NI which does not hit wealthy pensioners whereas the tax rates would.

As our pension income is DB we are not in the same position as you but @Sea_Shell who started this thread is in same position as you with DC/ISA pots to draw on to fill the gap until DB/SP pensions kick in and I think she keeps a large cash buffer so presumably does not draw monthly. As you say maybe monthly withdrawals balance out over the year.   Our portfolios are up by about 20% over the last 2 years in spite of the pandemic which seems strange to me.  Ours went down in March 2020 but we did not withdraw anything in that year and it had recovered by July anyway. We also have an IFA who has cash flowed/stress tested our investments to work out how much we can withdraw annually to supplement our pension income. 

BarbaraG2000

I read the first couple of pages and yes we are in a similar position to @Sea_Shell, but it sounds like she is doing more active management than me.

The IFA we had had for 14 years rather annoyingly retired shortly before we did, and before plans were finalised.  We’ve therefore had several meeting with the new one and, although it felt a bit like starting from scratch again, she does appear to have her head screwed on and we think will do Ok for us.  Today we had a joint meeting with her and our investment manager. We’ve agreed a revision to the strategy for the next phase of life, and they are going to go off and implement that while we get on with exploring our new home and finding interesting things to do.

Sea_Shell

enthusiasticsaver said:

@BarbaraG2000 Oh yes I wasn't suggesting deliberately paying unnecessary tax just wondering why they increased NI which does not hit wealthy pensioners whereas the tax rates would.

As our pension income is DB we are not in the same position as you but @Sea_Shell who started this thread is in same position as you with DC/ISA pots to draw on to fill the gap until DB/SP pensions kick in and I think she keeps a large cash buffer so presumably does not draw monthly. As you say maybe monthly withdrawals balance out over the year.   Our portfolios are up by about 20% over the last 2 years in spite of the pandemic which seems strange to me.  Ours went down in March 2020 but we did not withdraw anything in that year and it had recovered by July anyway. We also have an IFA who has cash flowed/stress tested our investments to work out how much we can withdraw annually to supplement our pension income. 

We're not entirely sure how we'll structure our withdrawals for the money to actually live on just yet.    

Until the next tax year at least, we have £40,000 in our cash buffer, plus £20k due to be invested, and are due to receive £18,000 from DH's first DC pot (cashed in in full - will squeak in completely tax free) and this will be set aside for our spends in the foreseeable.

From April 2022, DH will then place his main DC pot into drawdown, with the decision still to be made around annual or monthly amounts.  Will probably be about £17,000 pa*. He will be taking the 25% up front, which we will move to our ISAs and invest.  If we took annual, it would sit in a cash savings account and just be drip transferred across to our main CAs monthly, as needed.

We'll only dip into our ISA's if we need cash for any large purchases (car etc), but we may actually end up with enough spare out of the drawdown.  We'll see.     Any we don't spend (waits for @cfw1994 to tell me off!!), will be reinvested in our ISA's as we go along, in say, £1000 chunks.

But its a very fluid plan, not set in stone.   We'll see how the wind blows.


*We've run the numbers, and it's actually tax efficient, over 15 years, to pull the draw down at a rate that would attract some Income Tax, than just pull the PA (and not get it all out), as once he clatters into DB and SP, he'll have to pay IT, so any balance remaining in the DC pots would be fully taxable.   If IT rates were to increase in the future, it makes even more sense to get it out ASAP!

Sea_Shell

BarbaraG2000 said:

So now here we are, aged 57 (me) and 61 (him), with zero income until our various DB and state pensions kick in, between 3.5 and 10 years from now.  But that’s fine, because we have got a whole load of ISA’s, from which we will be taking a monthly ‘income’ from next month.  Plus a DC pension pot each, which is going to be left to grow.

Any particular reason you're doing it that way round? *   ISAs first and leaving DC pension untouched?

Will you be both utilising your Income Tax Personal allowances over the years until other pensions kick in??

If you don't use it, you lose it!!!     Why pay tax on a joint £25k per annum if you don't need to?   



As you can see from my post above, we're actually doing the complete opposite!!!    This means that we can "get at " our DC pensions pots in the most tax efficient way possible, to both live off and reinvest into our ISA's if any is spare.


* ETA - is this purely as a consideration of the IHT rules?

OldScientist

BarbaraG2000 said:

We will be taking a monthly amount from the S&S ISAs.  Never considered making an annual withdrawal….. would you be more subject to volatility if you did that, and there happened to be a market fall when you needed to take your year’s money out, whereas a monthly withdrawal averages it out?

An interesting article on how the frequency of withdrawal affects portfolio survival at https://thepoorswiss.com/how-often-withdraw-portfolio/

For longer retirements (30 years plus) it looks like more frequent withdrawals (in the absence of transaction costs) is better

Sea_Shell

OldScientist said:

BarbaraG2000 said:

We will be taking a monthly amount from the S&S ISAs.  Never considered making an annual withdrawal….. would you be more subject to volatility if you did that, and there happened to be a market fall when you needed to take your year’s money out, whereas a monthly withdrawal averages it out?

An interesting article on how the frequency of withdrawal affects portfolio survival at https://thepoorswiss.com/how-often-withdraw-portfolio/

For longer retirements (30 years plus) it looks like more frequent withdrawals (in the absence of transaction costs) is better

Does that still apply though, if your "long" retirement is going to be pretty much 100% funded by DB and SP after 10-15 years in??   

Surely if one is only talking about the "short term" plan for getting your money out, it makes less difference whether this is monthly or annually.


*not withstanding any implications to IHT of doing it that way.

Dizee123

Although my last day at work was 24 June, accrued leave etc, meant that my official last day was 31 July.  This meant that I got July pay so September is the first month when I have paid myself a monthly "wage" out of my small DC pot (bridging the gap until DB pays out at 60 to avoid reductions).  It has been interesting to note that there has been a marked change in my spending habits this month now that it is my savings/pension that I am spending rather than a salary.  I now consider each spend with much care than before - do I really need this, is it good value for money, will it last etc... although being Scottish I have always been careful which has allowed early retirement at 58. I must also compliment Standard Life on their efficiency of transferring my AVCs to a drawdown pension and paying me my tax free lump sum.  It was all accomplished within a week, and without a hitch.
My other half is very bemused by my increased scrooge-like behavior, saying that now is the time to loosen the purse strings and spend a little more as we will have sufficient to pay for care etc. should it be needed.  However, it is very hard to get into a different mindset.  
Sea Shell, I shall be following your journey to ramping up your spending levels with interest - love this thread and it really resonates with me.