Flexible Drawdown Strategies
Moonwolf
Forumite 115 Posts
I'm currently thinking about more complex strategies for part crystalizing funds and drawing down the tax free and taxable elements at different times. I haven't found a good google question that finds me what I am looking for.
I'm currently 57. I have 3 DB pensions which between them kick in between 60 and 65 and currently should give me about £20,000 a year. I qualify for full state pension ("You can't improve your pension anymore") so by 67 I will have a guaranteed index linked pension income of around £30,000 a year. My partner is 15 years older than me and already retired and has pensions of about £17-18k a year but I'm mostly ignoring that in my calculations as they pay £300 a month into the joint account (utilities, home maintenance, basic shopping etc), I pay £1,000 a month which will drop to £700 when the mortgage is paid off. The basics are covered, I have more money left over than they do but mostly pay for holidays and nights out. (it is more complicated than that but we have been together 34 years and it works for us; I'd prefer not to get bogged down on if this strategy is sensible)
I budget household out of the joint account and hobbies, cars, holidays and going out from mine.
I have a DC pot of £300,000 (this is with Standard Life - Phoenix at the moment)
I have budgets based on current spend, and itemised future spend. A comfortable budget of 30,000 and a big budget of £36,000 which has more holidays etc. As my comfortable budget is covered by my pensions, and I have no-one to leave the money to apart from my older partner, I'm not too worried about running out of money and don't plan to do safe withdrawal. This is particularly true where I don't expect to be taking a lot of holidays when I am 90 and my partner is 105. If we need care, particularly if I am on my own and need care, we can use the house.
I have a spreadsheet that assumes I will spend about 50% of my DC pot on bridging to my pensions then the remaining 50% should give me about £6,000 a year and run out in my late 80s; depending what figure I use for pot growth above inflation, at 2.5% I just reach 90. It changes obviously depending on if I retire at 58, 59 or 60.
The spreadsheet is simplistic as it assumes 25% drawn down each year is tax free and the remainder taxed at basic rate. This is fine but, for example, my budget also has £300 a month for a new car every 5 years. Clearly not drawing down that money until I trade in my current car allows it to grow but drawing down £18,000 to add to the trade in value of my current car might push me into higher rate tax. I can work around this by part crystallizing and drawing down tax free cash for large purchases.
So what sort of strategies are out there and do they make a big difference to how long the money lasts. How much tax flexibility do I have if my DB pensions take my tax allowance. Is it best to suck it and see or are there well described strategies I can learn from. Dows anyone have examples of how easy different platforms make it to draw down flexibly choosing what is taxable and what is tax free, and/or leaving crystallised funds in the portfolio. Are some easier than others.
I'm currently 57. I have 3 DB pensions which between them kick in between 60 and 65 and currently should give me about £20,000 a year. I qualify for full state pension ("You can't improve your pension anymore") so by 67 I will have a guaranteed index linked pension income of around £30,000 a year. My partner is 15 years older than me and already retired and has pensions of about £17-18k a year but I'm mostly ignoring that in my calculations as they pay £300 a month into the joint account (utilities, home maintenance, basic shopping etc), I pay £1,000 a month which will drop to £700 when the mortgage is paid off. The basics are covered, I have more money left over than they do but mostly pay for holidays and nights out. (it is more complicated than that but we have been together 34 years and it works for us; I'd prefer not to get bogged down on if this strategy is sensible)
I budget household out of the joint account and hobbies, cars, holidays and going out from mine.
I have a DC pot of £300,000 (this is with Standard Life - Phoenix at the moment)
I have budgets based on current spend, and itemised future spend. A comfortable budget of 30,000 and a big budget of £36,000 which has more holidays etc. As my comfortable budget is covered by my pensions, and I have no-one to leave the money to apart from my older partner, I'm not too worried about running out of money and don't plan to do safe withdrawal. This is particularly true where I don't expect to be taking a lot of holidays when I am 90 and my partner is 105. If we need care, particularly if I am on my own and need care, we can use the house.
I have a spreadsheet that assumes I will spend about 50% of my DC pot on bridging to my pensions then the remaining 50% should give me about £6,000 a year and run out in my late 80s; depending what figure I use for pot growth above inflation, at 2.5% I just reach 90. It changes obviously depending on if I retire at 58, 59 or 60.
The spreadsheet is simplistic as it assumes 25% drawn down each year is tax free and the remainder taxed at basic rate. This is fine but, for example, my budget also has £300 a month for a new car every 5 years. Clearly not drawing down that money until I trade in my current car allows it to grow but drawing down £18,000 to add to the trade in value of my current car might push me into higher rate tax. I can work around this by part crystallizing and drawing down tax free cash for large purchases.
So what sort of strategies are out there and do they make a big difference to how long the money lasts. How much tax flexibility do I have if my DB pensions take my tax allowance. Is it best to suck it and see or are there well described strategies I can learn from. Dows anyone have examples of how easy different platforms make it to draw down flexibly choosing what is taxable and what is tax free, and/or leaving crystallised funds in the portfolio. Are some easier than others.
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Just on this point, it will depend on the platform. I believe HL keep crystallised and uncrystallised pots separate, whereas other (DIY) platforms keep it as one, but mark the % that has been crystallised. If you use an IFA, they presumably keep track on it for you.
It includes gas and electricity £300 a month at the moment because the house is a 1929 built single skin semi so the insulation is poor, I'm looking at external thermal cladding but it is expensive so the payback period is quite long and I need to be confident it will last.
Approx, £80 a week food shopping, which is high for two but we like good cheese and wine. TV licence, telephone, TV and broadband bundle, Netflix, home and travel insurance and £100 a month into the joint emergency savings account.
We also pay National Trust out of it and a couple of other subscriptions.
There is space to make savings, particularly on the shopping and the subscriptions but as we can afford them and use them
Also HL charge two separate account fees for the SIPP and Drawdown accounts, some other brokers don't.
Although sometimes the answer is no, the usual answer is ' why are you still working? This one might be of interest.
What made you 'pull the trigger'? — MoneySavingExpert Forum
On the subject of outgoings there are also various threads. Some will spend a bit less than you, and some a bit more. Personally I think £80 for two shopping including some alcohol is rather low, and I would not want to be cutting back especially with food inflation at 15%.
Also as always you have to be careful with figures. Some people seem to have low outgoings but they do not include motoring or holiday costs for example. One guideline is here. Home - PLSA - Retirement Living Standards
You can quibble with some of the figures but it is just a guideline.
That sucks, UFPLS rules!