Taxable income when retired

nigelbb

AnotherJoe wrote: »

You can also delay taking your SP which then gets uprated by an amount i forget enabling you to take more money out.

Your state pension increases by the equivalent of 1% for every 9 weeks you defer which works out as just under 5.8% for every year you defer. You need to draw your pension for over 17 years to recoup the money you lost by deferring for a year.

AnotherJoe

TSCati wrote: »

Thanks AnotherJoe. The unwrapped savings could last me up to 10 years, so I’m not sure about taking the DC out as I’d be trying to build this up as per Dazed and Confused suggestion. Sounds like delaying SP could be a good plan - I’ll do a bit of research on that!

You can still pay £2880 into your DC as well as withdraw the personal allowance. Its not either/or.

The objective shouldn't be just to build up the money in your SIPP, it doesnt matter where it is, it should be not to needlessly pay tax on your SIPP.
I am doing this as are quite a few others here. Each year I extract the personal allowance part of which is £3,600 that was initially £2,880 that i paid in.
Once you are in receipt of the SP, then the opportunity to take that money out without paying tax is gone forever.
Even if you dont actually need the money you should still do it, just put it in a ISA if you are investing it or higher rate savings if you want it as cash.
The objective isn't just to "build up" you SIPP, its to build up money you can later spend.

Why would you pay up to £30k in tax when you dont have to ?

AnotherJoe

nigelbb wrote: »

Your state pension increases by the equivalent of 1% for every 9 weeks you defer which works out as just under 5.8% for every year you defer. You need to draw your pension for over 17 years to recoup the money you lost by deferring for a year.

But that is mitigated by the extra tax free cash you can take out.

I feel a spreadsheet coming on

Mnd

I think I'm doing it right by paying the 2880 in and then withdrawing although I pay basic rate tax,, and always will. Then I use the 3600 minus tax on 75% to pay into my wife's pension as she's still working, but when she retires she won't be paying tax (until I die!) And she can drawdown when retired. Does this make sense?

TSCati

AnotherJoe wrote: »

Why would you pay up to £30k in tax when you dont have to ?

Good point! It currently looks like I'll be working until I'm 60, so it's probably around £17.5k....but definitely worth avoiding paying this in tax if I can!!

AnotherJoe

Exactly. Another poster, i think JamesD (thanks) put me onto this when i retired a couple years ago.

lvader

AnotherJoe wrote: »

You can still pay £2880 into your DC as well as withdraw the personal allowance. Its not either/or.

The objective shouldn't be just to build up the money in your SIPP, it doesnt matter where it is, it should be not to needlessly pay tax on your SIPP.
I am doing this as are quite a few others here. Each year I extract the personal allowance part of which is £3,600 that was initially £2,880 that i paid in.
Once you are in receipt of the SP, then the opportunity to take that money out without paying tax is gone forever.
Even if you dont actually need the money you should still do it, just put it in a ISA if you are investing it or higher rate savings if you want it as cash.
The objective isn't just to "build up" you SIPP, its to build up money you can later spend.

Why would you pay up to £30k in tax when you dont have to ?

I'm confused why you are just taking out £3600 and not the full £11850 personal allowance?

jamesd

TSCati wrote: »

It currently looks like I'll be working until I'm 60, so it's probably around £17.5k....but definitely worth avoiding paying this in tax if I can!!

Please tell us more about working including approximate gross pay.

There are significant edge cases that affect what we should suggest. Some:

1. Provided pension contributions from all sources are no more than 40k you can make gross (after tax relief) pension contributions of the higher of gross pay or £3600 a year. You do get pension tax relief of 25% added in the nil income tax 12.5k but not in a work salary sacrifice scheme. 25% of pension money being tax free means you can effectively use this to make 25% of your pay tax free. If you have enough savings to afford it.

2. If you flexibly take any taxable money from a pension the 40k annual allowance is reduced to 4k. Flexible includes UFPLS and flexi-access drawdown. Allowed is 25% tax free lump sum and up to 10k up to three times per lifetime small pot rule 25% tax free, 75% taxable.

Normally we'd tell an actually retired person that the 12.5k is a use it or lose it allowance so they should use it and invest what they don't need inside an ISA. But for those working pay is normally above 4k so avoiding tripping that restriction so all pay can go into a pension usually matters more.

As AnotherJoe mentioned I and we have come up with some nice tweaks over the years. The more we know, the better we can do at coming up with an optimal plan for you.

AnotherJoe

lvader wrote: »

I'm confused why you are just taking out £3600 and not the full £11850 personal allowance?

"Each year I extract the personal allowance part of which is £3,600 that was initially £2,880 that i paid in"

I thought it clear from the above I am extracting the full PA.
Part of it can be thought of as the £3600 that was £2880 but got bumped up by £720.

TSCati

jamesd wrote: »

As AnotherJoe mentioned I and we have come up with some nice tweaks over the years. The more we know, the better we can do at coming up with an optimal plan for you.

Thanks jamesd, here goes:

• I'm 53 and hope to retire at 60, possibly a couple of years earlier if things work out.
• Current salary approx. £80k
• I own shares in my employer's company (private US-based company so shares priced in USD).
• Employer's DC pension pot approx. £420k. Hoping to salary sacrifice £40k per year until I retire.
• Recently started S&S ISA approx. £10k.
• Mortgage is around £150k and this is on course to be paid off by the time I'm 60.

I am unable to release the equity I have in my employer until I leave the company. If I stay until I'm 60 my current calculations suggest that I could get £1 million after paying CGT. This is clearly dependant on company performance between now and then and the GBP/USD exchange rate.

So, my current thoughts are:

1. Use the money from the sale of my employer's shares to live off and max out my wife and my ISAs and my pension contribution (£2,880).
2. When this is used, live off the ISAs.
3. When ISAs are used up, draw down the DC pot.

Is this a sensible approach?

The big issue is what to do with the cash from the company and how to live off it? I will be exposed to the stock market in my pension and ISAs so would a lower risk solution be sensible? Could bond laddering or high(!) interest account laddering be a solution? Maybe putting half of it in a GIA and half in lower risk investments?

I realise that I should discuss with an IFA when the time comes, but is there anything I should be doing now that will help when I get to that point?