Retirement Planner - Importance of Inflation?

Stubod

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

GSP

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

But I suppose why defer the SP if it keeps your pot going longer?

Linton

GSP said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

But I suppose why defer the SP if it keeps your pot going longer?

You dont know when you are going to die so you dont know how much you will be spending in later life.  If you are sensible you will plan for a very long life as you dont want to spend your final years in comparative poverty.   Deferring your state pension gives you some inflation guaranteed insurance against a very long life so you need to put less pot money aside for the very long term now.  This means you can spend more now without jeopardising your future.

Or from another point of view  deferring SP shifts your expenditure from late in life by which time inflation and a possible series of poor investment returns could have changed everything to earlier when your circumstances are much clearer.   It also has the effect that when you are very old you will be less dependent on your capability to manage your investments.

Stubod

But I suppose why defer the SP if it keeps your pot going longer?

..for me that is exactly the point. I want to spend my pot down. I do not have any index linking on my deferred DB pension, so taking money out of the "pot" which is always at risk of devaluing at some point it makes more sense (to me), to use this money and defer the SP as when you do start taking it at least it's index linked and will give a "guaranteed" income.....each to their own I guess..

Sea_Shell

If you defer SP for 1 year, how long do you have to live to "break even"?

Linton

Sea_Shell said:

If you defer SP for 1 year, how long do you have to live to "break even"?

Ignoring the effect of inflation (or beyond) increases, which could change the numbers significantly, defering SP breaks even after 17.2 years which is pretty close to the average lifespan.  Defering SP is insurance and like all insurance you only benefit if you need to use it.

But the cost/benefit analysis is more complex that that.  If you die unexpectedly early you would not have benefited by not defering because your financial plan will be based on a long life, so you will just leave more money in yourpension  pot.  You could not have used it because you did not know you were going to die early.

pensionpawn

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

garmeg

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

It is 5.8% pa simple interest for post April 2016 state pensioners.

Stubod

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.

I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

I am not depleting any pension, but I am happy to swap the uncertainty of an investment "pot" for the certainty of a higher index linked state pension....each to their own..

pensionpawn

garmeg said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

It is 5.8% pa simple interest for post April 2016 state pensioners.

In that case even less reason to defer!