Did You Blow Some (or All) of Your Lump Sum?

pensionpawn

27 months worth of net pay taken as TFLS. Used to top up wife's pension to 99% of salary (including a tasty rebate) last financial year, come good on promises to pay final balloon PCP payments on daughters cars (bought from new), repay a huge whack of debt freeing up income to top up wife's pension to 99% again this financial year and treated myself to a Weber barbecue! Very happy with that helping family, clearing debt and strengthening our broader pension position.

Sea_Shell

As he turns 55, DH is in the process of cashing in one stand alone pension in full, worth about 9% of his overall DC pensions.

No sure it can be classified as "blowing it", but we'll be living off it for the next 12 months.

Nebulous2

I avoided the temptation by not taking a lump sum from my pension. The last 2-3 years of work were reasonably good earning ones and we managed to do some of the bigger expenditure then and paid it off before I retired, with a view to reducing the need in retirement. New vehicle, updated caravan and trip to New Zealand were all paid for. 

I do have a modest amount due from an AVC, if I can ever prise it out of Prudential’s hands. I’ve ordered a new bike which will take some time to build due to a shortage of parts, but my money may go towards it. 

jim8888

I'm struggling with balancing a tax free income for as long as possible by trading off the lump sum. I intend to take my full tax allowance via drawdown, along with my DOH. so the balance we need for our annual expenditure comes from the TFLS. Blowing the cash then shortens the length of time that we can do this. I could clear the mortgage and our car payments with the lump sum, thus reducing our annual expenses, so less pension income then needed to be taxed. On the other hand, these next ten years will probably be our healthiest, so maybe we should be spending the money now? No pockets in a shroud, and the only two certainties in life are death and taxes. 

jamesd

jim8888 said:

I know we're all relatively prudent on this board, but I wondered how many people took some of their Tax Free Lump Sum and just blew it on something nice? A new car? A mega holiday? A new kitchen? 
I'm thinking of a new car and then I tell myself to go and lie down. I wonder what others have done with theirs? Confess below please.

My net worth is now around 10% higher than it was when I retired so in favourable market conditions I've in effect not blown anything and many with investment backed income could be in a similar situation at present.

The Retirement Living Standards have this to say about those things:

Minimum (£10,200 a year if single): no car, a week and a long weekend in the UK once a year, DIY and decorating one room a year.

Moderate (£20,200 a year if single): 3 year old car replaced every ten years, two weeks in Europe and a long weekend in the UK every year, Some help with maintenance and decorating each year.

Comfortable (£33,000 a year if single): 2 year old car replaced every five years, three weeks in Europe every year, replace kitchen and bathroom every 10/15 years.

So, that's some context on what might be considered to be blowing some of the money. unusually expensive long-haul holiday, completely new car or getting several rooms replaced perhaps, except if part of the long term plan and compensated for in it.

vulcanrtb

It's madness how much we spend on cars (me included, I'm not pontificating). For something that spends around 23 hours a day gathering dust either outside your house or blocking up some car park/road elsewhere ready for the moment it will be used to transport a 50 to 120kg person somewhere. 
Cars are somewhat of a weakness for me, current car is a Golf R Estate, it's way more car than we need and I think I've finally cracked my car obsession, it goes back in September and we bought a runaround from a local car sales place instead. I do about 10000 miles a year by bicycle anyway and now in retirement I have even less of a need for a flash car, though I can definitely afford one. We go to teh alps every July, we'll hire a car for that instead.
Not sure why I bothered posting all that, but if you're on the edge somewhat, give it a try, it's liberating not to have an extremely valuable and easily damaged asset stored in public space!

michaels

I see my DC pot as being a single entity, the fact that I can draw 25% of it tax free just means a lower average tax rate for the whole pot not some sort of freebie to be accessed and spent all at once.

Not sure if there are tax advantages in drawing as much as can be sheltered in isas each year at the start and crystallising everything that is in the pension - gain is that any growth in the isa is not subject to tax, downside is growth of everything left in the pension will be taxed - does it cancel out?

Perhaps if I had a DB pension with a compulsory lump sum I would see it differently.

MallyGirl

I am in the process of getting a 5 year low rate fix on our mortgage which will end at around retirement time - whether we use any lump sum against the remainder will depend on what the interest rates are by then and how much cash we have on hand. I haven't had savings for so long due to the offset mortgage that I have no idea how things will look at that point. 
Since it looks like there is now no practicable way to transfer out my small DB pension I will be taking the max lump sum from there that it will allow.

Ibrahim5

I didn't blow any of my lump sum, just invested it. I don't spend more because I have more in the bank.

rickenbacker330

I spent about 25k on house improvements (mainly in the garden and on building an outside bar), 100k on offsetting the mortgage (so technically haven't spent that yet), 40k on paying up the remaining school fees. The rest will be used to supplement pension income to enable us to spend more on travel in the early years of retirement including a new car in the next couple of years.