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How long pension pot might last - sense check of calculations

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  • Sea_Shell
    Sea_Shell Posts: 10,016 Forumite
    Tenth Anniversary 1,000 Posts Photogenic Name Dropper
    Or Equity Release your house to the max, and leave a note with your will saying "sorry, there's no money left!" 😉
    How's it going, AKA, Nutwatch? - 12 month spends to date = 2.60% of current retirement "pot" (as at end May 2025)
  • Hi All,

    Following some really helpful advice over the last couple of weeks, I've started pulling together a spreadsheet plan of how far my pension pot will take me...

    Based on some fairly simple numbers of:

    4% growth
    3% inflation
    3.5% drawdown

    My calculations show pot running out after approx 33-34 years does that sound about right? ( current calc based on starting to draw at 58 so would be good until 91/92 which feels suitably ambitious)

    Also does growth of 1% above inflation sound realistic, especially as by the time of drawing down I'll presumably have a very low risk investment

    Thanks in advance for any thoughts
    Really depends on what you have allowed for fees, your asset allocation and whether you think you will be a perfectly behaved investor.
  • JohnWinder
    JohnWinder Posts: 1,862 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper
    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approach 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
  • Linton
    Linton Posts: 18,154 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approach 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
    Buying an annuity is buying insurance, not choosing an investment.  The measure is is whether the benefits, should you need them, outweigh the cost, not about whether on average you win or lose.

    From HL's figures

    A single fixed annuity at 65 returns 5.6%. In the short term it is not too bad but is likely to be of little value should you live to 90+.  But you are probably safe in that sort of time period anyway assuming you have made sensible provision.

    At 75 the return goes up to 7.6%.  That is beginning to look like a reasonable return for guaranteed income for the rest of your life.  Probably better than you will make from your investments without any risk.    Sure, you might die early and not get the benefit but you will be dead so wont care.  On the other hand you still have some risk from inflation.

    Figures for age 85 are not available but from life expectancy data the figure could be say 12%.  By which time buying an annuity looks very sensible to me.   

  • NedS
    NedS Posts: 4,496 Forumite
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    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approach 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
    I guess the benefit of purchasing an annuity at 70-75 comes for the folks who live to be 100 plus.

  • AndrewB22
    AndrewB22 Posts: 33 Forumite
    10 Posts
    I guess the benefit of purchasing an annuity at 70-75 comes for the folks who live to be 100 plus.

    Plus the benefit of receiving money automatically direct into your bank account, meaning you won’t default on basic payments if you’re infirm or have a spell in hospital or something. 
  • Linton
    Linton Posts: 18,154 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    NedS said:
    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approac   h 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
    I guess the benefit of purchasing an annuity at 70-75 comes for the folks who live to be 100 plus.

    In principle yes, just like the people who win out from house insurance are the ones whose house burns down. Though I think 70-75 is too early since life expectancy then is >10 years, especially if you are in good health and have more than enough money to self insure.
  • MacMickster
    MacMickster Posts: 3,646 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 9 May 2022 at 9:05AM
    Linton said:
    NedS said:
    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approac   h 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
    I guess the benefit of purchasing an annuity at 70-75 comes for the folks who live to be 100 plus.

    In principle yes, just like the people who win out from house insurance are the ones whose house burns down. Though I think 70-75 is too early since life expectancy then is >10 years, especially if you are in good health and have more than enough money to self insure.

    Surely the point of insurance isn't winning. It is about making sure that you don't lose far more than you could possibly afford to. Using part of your pension pot to buy an index linked annuity is insurance against the risk of spending your later years living in abject poverty.
    If people have "more than enough money to self insure" then they would be daft to buy an annnuity, or to worry about safe withdrawal rates etc.  The reality is that most people aren't in that position.
    "When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
  • Linton
    Linton Posts: 18,154 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    Linton said:
    NedS said:
    To my currently fairly lucid mind, it makes a lot of sense to consider that when you approac   h 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 
    I get the second reason, but serious question: how much benefit is there from higher annuity rates at an older age after you factor in the foregone annuity payments between older age and whenever preceded that?
    I guess the benefit of purchasing an annuity at 70-75 comes for the folks who live to be 100 plus.

    In principle yes, just like the people who win out from house insurance are the ones whose house burns down. Though I think 70-75 is too early since life expectancy then is >10 years, especially if you are in good health and have more than enough money to self insure.

    Surely the point of insurance isn't winning. It is about making sure that you don't lose far more than you could possibly afford to. Using part of your pension pot to buy an index linked annuity is insurance against the risk of spending your later years living in abject poverty.
    If people have "more than enough money to self insure" then they would be daft to buy an annnuity, or to worry about safe withdrawal rates etc.  The reality is that most people aren't in that position.
    That was the point of my previous 2 points.  Perhaps I should have said "win" in inverted commas.

    However you would be foolish to pay too much for your insurance. Below the age of say 80 I would say that at present annuity rates the cost would be too much in that the amount you would get as income would not make sufficient difference to your situation given the cost.
  • westv
    westv Posts: 6,447 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I can understand the benefit of deferring purchasing an annuity to later life but obviously we won't know if rates by that then will be similar or not to now or whether our pension pots will be better or worse than now.
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