How long pension pot might last - sense check of calculations

Linton

westv said:

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.

You do know that annuity rates will be better because they are very dependent on age, more so than on gilt rates.  Also, unless you have planned badly you should be pretty certain that you have sufficient money to safely last out until your mid 80's so you wont need the extra income earlier.  Also there is the issue of inflation matching -- the longer you defer purchasing the less necessary it is.

westv

Linton said:

westv said:

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.

You do know that annuity rates will be better because they are very dependent on age, more so than on gilt rates.  

No, I mean better/worse than today's rate for the same age. . .

pensionpawn

pensionpawn said:

cfw1994 said:

DT2001 said:

getting_better_2 said:

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

How flexible can you be with drawdown as you can deal better with poor early returns if you do not draw down a fixed % each year.
Is it your intention to reduce your drawdown at SPA? If so you can probably draw more early.

I feel this is key to it.  Those are things you can most definitely influence.
Do you have 2-4years ‘cash’ funds you can access to avoid drawing down if markets are not behaving kindly?
Many can start with more than 3.5% if they can reduce the draw dramatically when SP kicks in.

Inflation is a tricky one.  Could be 10% by the end of the year, but the question is more about your ‘personal’ inflation rate.  Somethings we cannot impact: council tax, energy prices.  Some we can: defer capital purchases, shop around for insurance, the holidays we chose to have, even the shops we visit for food & the food we buy…

Given how none of us have a crystal ball, plan as best you can & be flexible.  Good luck!

These are important issues that I'm trying to get across to a friend. Inflation is a general measurement and we all have personal spending / outgoings profiles. Some are more exposed to general inflation than others. Also, having a cash buffer of a few years in your SIPP helps mitigate against a stagnant market. Finally, as mentioned above, full SPs allows the proportion of draw down from your fund holdings to drop considerably. We're both aiming to draw down our personal allowances as a minimum. If we're still doing this at SPA we'll reduce the impact on our SIPP by almost 77%!

The BBC appear to have realised this too. https://www.bbc.co.uk/news/business-62553641

Albermarle

pensionpawn said:

pensionpawn said:

cfw1994 said:

DT2001 said:

getting_better_2 said:

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

How flexible can you be with drawdown as you can deal better with poor early returns if you do not draw down a fixed % each year.
Is it your intention to reduce your drawdown at SPA? If so you can probably draw more early.

I feel this is key to it.  Those are things you can most definitely influence.
Do you have 2-4years ‘cash’ funds you can access to avoid drawing down if markets are not behaving kindly?
Many can start with more than 3.5% if they can reduce the draw dramatically when SP kicks in.

Inflation is a tricky one.  Could be 10% by the end of the year, but the question is more about your ‘personal’ inflation rate.  Somethings we cannot impact: council tax, energy prices.  Some we can: defer capital purchases, shop around for insurance, the holidays we chose to have, even the shops we visit for food & the food we buy…

Given how none of us have a crystal ball, plan as best you can & be flexible.  Good luck!

These are important issues that I'm trying to get across to a friend. Inflation is a general measurement and we all have personal spending / outgoings profiles. Some are more exposed to general inflation than others. Also, having a cash buffer of a few years in your SIPP helps mitigate against a stagnant market. Finally, as mentioned above, full SPs allows the proportion of draw down from your fund holdings to drop considerably. We're both aiming to draw down our personal allowances as a minimum. If we're still doing this at SPA we'll reduce the impact on our SIPP by almost 77%!

The BBC appear to have realised this too. https://www.bbc.co.uk/news/business-62553641

I just checked my personal inflation rate and it was almost identical to the actual rate ( not the CPIH in the article, but the one announced today) so I must be Mr Average !