Realistic Drawdown Amount

MrDinosaur

A bit of a continuation of my first thread, if I have a drawdown amount of £840K to utilise from retiring at 55 ( Fingers Crossed ). I will be taking the full 25% tax free allowance, but don't really want to utilise this as a supplement.
The question is what would be a good annual drawdown amount, at 60 wife's NHS pension kicks in with a £5k annual pension. we also both have full state benefit.
I originally thought £28k but by the time we reach 67 we really are not drawing that much of the pension pot so I really don't see the point of having the same drawdown amount at 55 as say 80 so front end loaded would be an ideal scenario.
Any thoughts that I can run through my spreadsheet.

SonOf

I will be taking the full 25% tax free allowance

Why? - do you have a lump sum cost that this will meet or is there a different justification?
Why not use phased flexi-access drawdown instead?

The question is what would be a good annual drawdown amount, at 60 wife's NHS pension kicks in with a £5k annual pension. we also both have full state benefit.

A good figure would be a figure that meets your needs. There may some some adjustments for tax efficiency as well.

You should take no more from the pension than you need to unless there is a justifiable reason for doing so. It also sounds like you will have some phasing of income needs. So, that will need factoring into your spreadsheet.

MK62

Personally I think somewhere iro £35k would probably strike the right balance.......but I suppose it depends how much front loading you are happy to go with......

If you don't want to use the TFLS as a supplement to your income, do you have a plan for it?.....£210k is a substantial lump of cash to manage outside of a tax wrapper.......you could consider phasing the crystallisation and taking £40k TFLS per year and fund your ISAs with it for 5-6 years.

Triumph13

I always think it's easier to split the pot in two - a perpetual drawdown pot and a bridging pot. The former you model with whatever you think is a sustainable rate and assume it pays out forever. The latter is to be spent down to replace pension income not coming on stream yet and will probably be invested more cautiously as a result.

MrDinosaur

MK62 wrote: »

Personally I think somewhere iro £35k would probably strike the right balance.......but I suppose it depends how much front loading you are happy to go with......

Thanks - That was the figure I had in mind.

If you don't want to use the TFLS as a supplement to your income, do you have a plan for it?.....£210k is a substantial lump of cash to manage outside of a tax wrapper.......you could consider phasing the crystallisation and taking £40k TFLS per year and fund your ISAs with it for 5-6 years.

I do have a plan for it - I need around £50k once retired for a Car, 2 x new bathrooms, and other bits the rest as you say would be £40k per year and fund our ISAs with it for 4 years

SonOf

I do have a plan for it - I need around £50k once retired for a Car, 2 x new bathrooms, and other bits the rest as you say would be £40k per year and fund our ISAs with it for 4 years

So, all £210,000 tax free cash is going to be spent within 12 months? No would be the answer based on what you have said. So, crystallising the pension 100% up front would not be the best option. (based on very limited information provided)

GSP

Leave it uncrystallised and take out portions as you need them. Use the personal allowance for your crystallised and tax free on the uncrystallised.
Leaving it longer in uncrystallised gives you more chance of increasing your tax free amount of £210k.

MrDinosaur

SonOf wrote: »

So, all £210,000 tax free cash is going to be spent within 12 months? No would be the answer based on what you have said. So, crystallising the pension 100% up front would not be the best option. (based on very limited information provided)

I see that and as I said i could take £40k and place into ISA's over the next 4 years. I just don't want to use the money to supplement the annual spend ( everyday living )

ffacoffipawb

Given that the OP is close to LTA (approx 80%) I would be tempted to crystallise the lot as the fund will more likely grow faster than LTA in future. Only needs 3 years of good growth to be at 100% LTA.

Crystallising 80% LTA now leaves 20% LTA available for the age 75 test or any other uncrystallised funds.

gm0

The recommendation on phased FAD in terms of access method is a good one so long as your scheme supports it (or you decide on the balance of issues (costs, fund choice, protection) to transfer to one that does).

With the LTA coming into the forward view at this level (who knows what markets, sterling and inflation will do for the next 20 years) the other consideration also raised is important the 25% LTA penalties at age 75 on the cash value vs the cpi indexed LTA value.

The 75 backstop BCE test comes as a shock to many. A bit arcane but phased FAD can help (crystallisation at different stages in different market conditions consuming more or less % of total - may win - may lose - pushing more units "under" the crystallised curve. Typically this is for people over the LTA but not by much trying to squeeze in. The basic argument for phased is the IHT exemption - if you don't need it why take it out and pay IHT on it.

Or if you are very near the LTA you can crystallise the lot and then just need to draw enough each year from 55-75 to keep cash growth below the line = no penalty beyond SA tax paid along the way. You can leave a full LTA (cpi indexed) worth in there at 75 but no more before the 25% extra penalty tax on top of income tax cuts in. We all know there is zero chance the politicians won't change it three more times before then but - today - that's the story.

The simple but key thing is therefore to aim to keep the value below the line for the long term (75) and not waste early years of annual income tax allowance at nil or basic rate leaving a problem aged 70+
Pulling 20k of (extra) income could always be put in an ISA tax wrapper and reinvested in whatever you choose. But no free lunch. Maximising drawdown to the HRB boundary each year and ISA recycling will put the money pulled out back into a tax friendly spot for growth but it is now inside your estate for IHT. The pensions exemption is valuable if you have IHT challenges for other reasons.

This last requires you to think about your consumption, charitable, gifting plans (and care costs risk and handling).

Consumer not IFA but my wife and I have "our" retirement mostly in one DC lump so I have had to get to grips with this to a degree. If I have misled you someone will likely chime in and we'll both learn something.

Albermarle

Given that the OP is close to LTA (approx 80%) I would be tempted to crystallise the lot as the fund will more likely grow faster than LTA in future. Only needs 3 years of good growth to be at 100% LTA.

It is a good point for the OP to think about but to reach LTA from £840K , the investments/markets would have to be booming - around 8% above inflation ( assuming LTA keeps rising with inflation.)
The figure you see most often mentioned for the next few years for a medium risk portfolio is around 2to 3 % above inflation so probably will be a few more years before hitting the LTA.
Of course if we have a few bad years it might not be an issue at all ……...