Drawdown

jolly790

hi all , I have a pension pot of £500k and looking to finish work at 55,I reckon by taking a 25% tax free option and an income of 13k a year I should manage on a drawdown,by using my 25% tax free to supplement this until I recieved state pension,does this sound right ,also what rate can I expect my pot to grow ,at a low risk investment 

SonOf

Why would you take the 25% up front?   Do you have a capital need to spend the 25% straight away?
Using phased flexi-access drawdown may well be the better option.

what rate can I expect my pot to grow ,at a low risk investment 
What is your definition of low risk? (maybe define it by how much would go into equities and how much into gilts/bonds)

Thrugelmir

How much can you afford to lose? In the short term there's no guarantee that values will increase. 

Prism

Are you intending on increasing that 13k by inflation each year? Its normal to assume a medium level of risk during drawdown to make the best out of your retirement. You might also consider reading up on variable rate withdrawals rather than sticking to a fixed 13k

cfw1994

jolly790 said:

hi all , I have a pension pot of £500k and looking to finish work at 55,I reckon by taking a 25% tax free option and an income of 13k a year I should manage on a drawdown,by using my 25% tax free to supplement this until I recieved state pension,does this sound right ,also what rate can I expect my pot to grow ,at a low risk investment 

Well: if we assume 12 years until SP aged 67 (??), 13k pa adds up to £156k.   
If you 'only' took 125k (25%) out to start, you should comfortably be able to meet that & still have cash in the pot - even if you left it IN the pot as cash (to avoid ANY risk of market crash wiping out a big chunk!).
That obviously doesn't include for inflation, but even then, I am certain things would work out fine: you can fairly easily model that with a spreadsheet for a given value of inflation that you want to guess at!

Question is really what do you expect to be in the pot at age 67: as per your last line.   
& that is a tricky one for anyone to answer.   
I feel many would say you should be able to comfortably beat inflation by a couple of %, & look forward to other comments, but what are you investing in?   
I *hope* my main pot to manage to average at least 5% over inflation, BUT I am also aware the equities in the pot could potentially suffer a crash of 20-50% at some point.

jolly790

I was hoping by taking a lower drawdown to avoid any tax ,and use my 25% to supplement until I get SP , thus providing  an average of 20k tax free , not sure how to split into equity/bonds ,I believe the equity market maybe due a correction in the future ,but who knows when . My concern is ,if I keep working I may not recieved the full benefits in my life time and I could live quite easy on 20k tax free I think 

SonOf

I was hoping by taking a lower drawdown to avoid any tax ,and use my 25% to supplement until I get SP , thus providing  an average of 20k tax free
But then you will be taxed more later on.

, not sure how to split into equity/bonds 
This is important when it comes to investing your pension in drawdown. We cant answer your question without an idea of that.

,I believe the equity market maybe due a correction in the future ,but who knows when .

you will probably see around a dozen crashes in your period of drawdown. They are always coming and you have to factor that into your draw rate.

jolly790

Please excuse my if I appear naive, but the advice given I would be foolish to put more than 80% into equity , but not to concerned about inheritance as my father died youngish and didn’t enjoy the full benefits of his pension , is their a rule of thumb regarding split ie bonds / annuity & equity 

jolly790

My friend has invested all his £1.5 m pot into equity and for the last 3 yrs has averaged 5% growth which is great ,I just feel that for me it’s too much risk , I am mortgage free , but would use some of the 25% tax free allowance to help my kids get on the housing ladder 

Prism

jolly790 said:

Please excuse my if I appear naive, but the advice given I would be foolish to put more than 80% into equity , but not to concerned about inheritance as my father died youngish and didn’t enjoy the full benefits of his pension , is their a rule of thumb regarding split ie bonds / annuity & equity 

There is a lot of scope for different splits but somewhere between 50% - 65% equities usually gives a decent chance of success (success being not run out of money)

Thrugelmir

jolly790 said:

My friend has invested all his £1.5 m pot into equity and for the last 3 yrs has averaged 5% growth which is great ,I just feel that for me it’s too much risk , I am mortgage free , but would use some of the 25% tax free allowance to help my kids get on the housing ladder 

Personal circumstances differ. Some people are able to afford and are comfortable with taking a higher degree of risk. One size doesn't fit all.