Can i afford to retire (if pushed)

Robwales

Albermarle said:

(and conscious of LTA so might need to look for other vehicles eg VCTs / EIS if i continue work and get into that position).  

In other posts you say you need to spend more time looking into potential LTA issues , but here suggest using VCTs and EIS .

You can use these to mitigate LTA but I think it is fair to say that they would only be for more experienced investors . I do not think many regular posters on this forum with LTA issues go down that path ( with one notable exception) .

I guess the challenge / question i was considering is - if one maximises annual Pension contributions (or holds off contributions due to LTA) and max their their annual ISA contributions - where do you go next (considering the most tax efficient etc)?

Albermarle

Robwales said:

Albermarle said:

(and conscious of LTA so might need to look for other vehicles eg VCTs / EIS if i continue work and get into that position).  

In other posts you say you need to spend more time looking into potential LTA issues , but here suggest using VCTs and EIS .

You can use these to mitigate LTA but I think it is fair to say that they would only be for more experienced investors . I do not think many regular posters on this forum with LTA issues go down that path ( with one notable exception) .

I guess the challenge / question i was considering is - if one maximises annual Pension contributions (or holds off contributions due to LTA) and max their their annual ISA contributions - where do you go next (considering the most tax efficient etc)?

Yes and a conundrum discussed at length at regular intervals on this forum , with no easy/simple  answer. eg
Looming LTA — MoneySavingExpert Forum
The other point to take into account is that money left in a pension when you die is not included in your will and not included in  inheritance tax calculations.
Although there are ways to partly mitigate IHT and LTA , in very simple terms it can boil down to paying 40% tax on one or the other ................

Audaxer

Madrick said:

Secret2ndAccount said:

What are you figuring for inflation?  4% pension growth, with inflation at 2% is certainly something that could happen. 4% pension growth over and above inflation is unlikely over long periods.

Hi

I was figuring 2% for inflation along with the very low 1.25% for DC pension growth, which I then increased to 2%

Then an annual increase of 2.5% on the State Pension (which I wont get for 7 years) and 1% increase to the small £2k Royal Mail DB pension which started this year. 

Would go Into retirement , (investing £3.6k pa from savings into pension)

Taking an initial  annual withdrawal of 7% into drawdown for the first 6 years leaving the remaining pension invested. This including the £2k DB pension will keep me just above the tax allowance, paying minimum tax. 
The shortfall up to £19k required income after tax  made up from savings, premium bonds, etc. ( this £19k required income would increase by 2% for annual inflation) 

Once SP kicks in, on my spreadsheet, the drawdown drops to between 3.5% - 4%.

This would seem to last until age 85-88 based on the 1.25% growth
With 2% growth, just over 90 years old.

My thoughts were, if some people are using up to 4% as a good average figure for pension growth, I'm laughing. 

I just used 4% average growth as an example on the initial holding, irrespective of what inflation was. If inflation goes much higher that 2.5% for some time, overall growth may be higher, but over retirement I was just assuming an average of 4% growth irrespective of inflation. That level may or may not allow a SWR of 4%, but it really depends on the returns during the first decade. 

Looking at your figures of 1.25% growth and 2% inflation (or as I would look at it - as 3.5% overall growth) could a bit on the low side to fund a withdrawal rate of 7% for first 6 years, followed by 3.5% to 4% thereafter, especially if you have a poor returns early on. How long your pot lasts really depends on the Sequence of Returns.

Madrick

Audaxer said:

Looking at your figures of 1.25% growth and 2% inflation (or as I would look at it - as 3.5% overall growth) could a bit on the low side to fund a withdrawal rate of 7% for first 6 years, followed by 3.5% to 4% thereafter, especially if you have a poor returns early on. How long your pot lasts really depends on the Sequence of Returns.

Hi thanks for your comments
Over the past 6 years, I've got one eye on personal tax free earnings allowance
My DB pension plus the 7% pushes me just above the tax threshold, so I'll just pay a few £ in tax per annum
Then use some spare cash, premium bonds, S&S ISA etc to make up any shortfall.

Then see what happens to the tax allowance after the 5 year price hold. 

Robwales

Thanks cfw1994 for his xls - really useful to model a few drawdown scenarios over a 45 yr period (i will be 95)  - factoring in inflation (i have assumed 2.5% in latest model - and applied the same to the state pension) and pot growth (assumed 3.5%) and 3 crashes over 45 yrs (minus 25% that year) - certainly enlightening!    Does these figures feel about right as a first approximation??

Robwales

Robwales said:

Thanks cfw1994 for his xls - really useful to model a few drawdown scenarios over a 45 yr period (i will be 95)  - factoring in inflation (i have assumed 2.5% in latest model - and applied the same to the state pension) and pot growth (assumed 4%...so 1.5 above inflation) and 3 crashes over 45 yrs (minus 25% that year) - certainly enlightening!    Does these figures feel about right as a first approximation??

Edit - i guess this is conjecture - i mean no one can forecast...but interesting (and somewhat scary with a few early crashes) how the draw down pans out with different values and timings.  

Albermarle

What Is Sequence Of Returns Risk? – Forbes Advisor

Might be of interest.

cfw1994

Robwales said:

Robwales said:

Thanks cfw1994 for his xls - really useful to model a few drawdown scenarios over a 45 yr period (i will be 95)  - factoring in inflation (i have assumed 2.5% in latest model - and applied the same to the state pension) and pot growth (assumed 4%...so 1.5 above inflation) and 3 crashes over 45 yrs (minus 25% that year) - certainly enlightening!    Does these figures feel about right as a first approximation??

Edit - i guess this is conjecture - i mean no one can forecast...but interesting (and somewhat scary with a few early crashes) how the draw down pans out with different values and timings.  

You've got it: nobody here can tell anyone how markets (& individual investments) will perform.....in some ways it is all just playing with numbers....but at least might give some plans on how flexible you might need to be!

ex-pat_scot

cfw1994 said:

Robwales said:

Robwales said:

Thanks cfw1994 for his xls - really useful to model a few drawdown scenarios over a 45 yr period (i will be 95)  - factoring in inflation (i have assumed 2.5% in latest model - and applied the same to the state pension) and pot growth (assumed 4%...so 1.5 above inflation) and 3 crashes over 45 yrs (minus 25% that year) - certainly enlightening!    Does these figures feel about right as a first approximation??

Edit - i guess this is conjecture - i mean no one can forecast...but interesting (and somewhat scary with a few early crashes) how the draw down pans out with different values and timings.  

You've got it: nobody here can tell anyone how markets (& individual investments) will perform.....in some ways it is all just playing with numbers....but at least might give some plans on how flexible you might need to be!

Depends on your outlook and how much you have to play with.

You can be nimble and adapt to market pressures if your starting "number" is £50,000 with much more flexibility than someone whose number is £12,000. 

I'm sure you can map out the "must have", "like to have", "luxury" spend categories and have a pretty good idea of how you could cope under stressed conditions.
Eg food - min vs ideal vs luxury vs eating out
Travel - don't travel vs minimal / public transport vs small car vs regular replacement car vs holidays etc

The essential bills - rent/ mortgage, council tax, power, water/sewerage, telephony, basic food. Insurance.

The "Which" guide to the "How much is enough for retirement" question covers the basic, modest and luxury retirement, and gives figures for individuals and couples. Your starting point is at the luxury end of the scale.

michaels

Robwales said:

Thanks cfw1994 for his xls - really useful to model a few drawdown scenarios over a 45 yr period (i will be 95)  - factoring in inflation (i have assumed 2.5% in latest model - and applied the same to the state pension) and pot growth (assumed 3.5%) and 3 crashes over 45 yrs (minus 25% that year) - certainly enlightening!    Does these figures feel about right as a first approximation??

Sorry to bank on about this but running a few scenarios in a spreadsheet is not stress testing your portfolio - at the very least run it against the last 100 years historical actuals and ideally also 10k random monte carlo simulations based on real world variance in asset prices and inflation.