Almost embarrassed to ask...

3 Posts

I am trying to build my understanding of pensions and there is one thing I don't understand. If you have a SIPP, of say £200,000 at your desired retirement age and you put it in drawdown, most things I have read guide you to take 4% of your pot as your income. Would this mean that you never really touch the £200,000? Most people on the forum seem super focused on preserving the actual pot and living on the profit from it.
Is this because people try to leave the actual pot value to relatives/their estate?
If you didn't plan to leave an inheritance, would you factor in using some of the actual pot too for your retirement?
I'm sorry if this is really obvious and I have just missed it, but if someone can help clear this up I'd be very grateful.
Is this because people try to leave the actual pot value to relatives/their estate?
If you didn't plan to leave an inheritance, would you factor in using some of the actual pot too for your retirement?
I'm sorry if this is really obvious and I have just missed it, but if someone can help clear this up I'd be very grateful.
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Personally, I will be aiming to retire early, eating into my private/company pensions capital until state pension age. At which point my private/company pension will only need to provide top up money. I will probably run out of this top up money in my eighties at some point, if I live that long!
In the end it is whatever is right for you though.
Have a play around with this modeller - https://www.2020financial.co.uk/pension-drawdown-calculator/#calculator
So the whole "take 4percent-ish but preserve the post at all costs" is a personal choice as people may want to leave an inheritance...that makes sense too.
thank you.
Some people dont invest at a level that makes 4% sensible. Some do.
Focus on your objective and meeting your objective. Don't focus on generic information that may not be suitable for you.
Because you sometimes end up with a large pot left over, there are numerous alternative plans which start with a higher withdrawal, but have to be flexible and lower the withdrawals if investment returns don't live up to your hopes. 3% is safe enough that you are unlikely ever to have to cut back. However, if you are able to make substantial cutbacks if needed, you could start out at 5% or more.
Your pot needs to be properly invested to generate the necessary returns. Can't just sit in cash, or even all in bonds.
So for example if you estimate that you will have a £200K pension pot, at age 60, you could say that it would be sustainable to take around £7K pa from it. So at least you have some figure to work around.
Than as explained in other posts, you maybe could take more, or less as your need for income/investment performance pans out. One common thing to do is to take more before getting your state pension and less afterwards, but you have to be careful that the 'more' is not too much and set the value of your pot into a downward spiral.