What annual pension would a £1m pension give you

Linton

Peterrr said:

ader42 said:

If it was me at age 55 I would be remaining invested and take £50k a year (reducing to £50k including state pension at 67)  

I'd agree, though flexibility is key: being willing to tighten the belt in the event of a poor sequence of returns. Our intention in such circumstances would include downsizing the home and releasing equity. Also this riskier drawdown rate is with the intention to "die with zero" as opposed to leaving much of an estate.

I believe that tightening the belt is to be avoided if at all possible. To optmise happiness it is better to be used to a 99% sustainable standard of living than trying to cope with booms and busts in expenditure even if the latter gives on average a higher income.  The only flexibility should be on the upside.

The primary driver for my asset allocation is to make this possible. So far since retiring in 2005 I have never had to consider cutting expenditure, the level in real terms has actually been slowly increasing. 

Planning to die with zero would be easy if one knew when one was going to die.   One doesn't so implementing such a plan is impossible to do safely - one doesnt want to die a couple of years too late unable to afford the standards one has been used to.

SouthCoastBoy

Tbh the whole pension drawdown process is a lottery, nobody knows,  its all guesswork. Past performance is no indication of future performance etc. That what makes it so difficult to decide when one can retire. I model 3.5% growth after fees no idea if that is correct also guessed at inflation being 8% this year then sticking around 4% for around 5 to 6 years, so in real terms terms losing money on my investments, again no idea if it is correct. So I have come to the conclusion I need to keep working due to the fact there are too many unknowns.

Linton

SouthCoastBoy said:

Tbh the whole pension drawdown process is a lottery, nobody knows,  its all guesswork. Past performance is no indication of future performance etc. That what makes it so difficult to decide when one can retire. I model 3.5% growth after fees no idea if that is correct also guessed at inflation being 8% this year then sticking around 4% for around 5 to 6 years, so in real terms terms losing money on my investments, again no idea if it is correct. So I have come to the conclusion I need to keep working due to the fact there are too many unknowns.

In practice I have not found the future being unknown to be a problem.  With a long term plan based on assumptions on long term returns and inflation one can detect soon enough when one is going off-course.  Short term variations are irrelevent and should be ignored.  Long term inflation is not a significant problem as equity prices should at least match it.  With an historically low estimate of equity returns I dont see this being a significant risk either. barring end of the world as we know it scenarios.

My planning both before retirement and since retiriring is based on 3% inflation and 4% returns.  The plan is deemed effective if the value of my planned total wealth at age 95 exceeds a fixed limit. 

Short term effects such a the recent inflation jump or the occasional crash are managed by holding a large buffer of cash and lower risk investments.  This should give plenty of time for the world to recover. If global events are so catastrophic that it doesnt nothing much else would have worked anyway.

Mick70

dunstonh said:

At 55, 1m would allow around £30,000 a year as a reasonable sustainable rate of draw.    Taking higher until state pension and then lower after that would need to be modelled but it’s a very common thing to do.

Yeah I felt if going to reduce it once state pension kicks in then makes sense to take more while younger and active (4%)

SouthCoastBoy

Linton said:

SouthCoastBoy said:

Tbh the whole pension drawdown process is a lottery, nobody knows,  its all guesswork. Past performance is no indication of future performance etc. That what makes it so difficult to decide when one can retire. I model 3.5% growth after fees no idea if that is correct also guessed at inflation being 8% this year then sticking around 4% for around 5 to 6 years, so in real terms terms losing money on my investments, again no idea if it is correct. So I have come to the conclusion I need to keep working due to the fact there are too many unknowns.

In practice I have not found the future being unknown to be a problem.  With a long term plan based on assumptions on long term returns and inflation one can detect soon enough when one is going off-course.  Short term variations are irrelevent and should be ignored.  Long term inflation is not a significant problem as equity prices should at least match it.  With an historically low estimate of equity returns I dont see this being a significant risk either. barring end of the world as we know it scenarios.

My planning both before retirement and since retiriring is based on 3% inflation and 4% returns.  The plan is deemed effective if the value of my planned total wealth at age 95 exceeds a fixed limit. 

Short term effects such a the recent inflation jump or the occasional crash are managed by holding a large buffer of cash and lower risk investments.  This should give plenty of time for the world to recover. If global events are so catastrophic that it doesnt nothing much else would have worked anyway.

Maybe it's my personality, I suffer a lot with anxiety, and don't like unknowns. I've modeled to the nth degree, but still doesn't give me confidence, latest spreadsheet shows me with 600k at aged 95 in 2022 terms, but means nothing as based on assumptions which I can guarantee are incorrect. Stock market could crash by 50% in the next year or never recover, ftse 100 index had a high in 1999 and took about 15 years to beat it. Inflation could run at 10% for 10 years, all I can see are problems.

Kim1965

Scb, would youconsider an annuity for peace of mind.?You have a large dc pot, the anniuty could cover your minimum lifestyle.
 Will working, lets say 2 more years and adding 150k give you that peace of mind? 
 I have considerably less than you( although i have a small db pension). If things didnt go to plan i would do some pt work. In my head i woukd still be a winner. 
 

SouthCoastBoy

Kim1965 said:

Scb, would youconsider an annuity for peace of mind.?You have a large dc pot, the anniuty could cover your minimum lifestyle.
 Will working, lets say 2 more years and adding 150k give you that peace of mind? 
 I have considerably less than you( although i have a small db pension). If things didnt go to plan i would do some pt work. In my head i woukd still be a winner. 
 

Yes I have considered an annuity, just not sure I'm getting value for money, but could be worth peace of mind. I may take one out at 65 that would pay me 10k a year with rpi increases. That way I will have 20k a year guaranteed income which if push came to shove I could live on. My wife will also have a full sp and she has a db for approx 10k.

Linton

SouthCoastBoy said:

Linton said:

SouthCoastBoy said:

Tbh the whole pension drawdown process is a lottery, nobody knows,  its all guesswork. Past performance is no indication of future performance etc. That what makes it so difficult to decide when one can retire. I model 3.5% growth after fees no idea if that is correct also guessed at inflation being 8% this year then sticking around 4% for around 5 to 6 years, so in real terms terms losing money on my investments, again no idea if it is correct. So I have come to the conclusion I need to keep working due to the fact there are too many unknowns.

In practice I have not found the future being unknown to be a problem.  With a long term plan based on assumptions on long term returns and inflation one can detect soon enough when one is going off-course.  Short term variations are irrelevent and should be ignored.  Long term inflation is not a significant problem as equity prices should at least match it.  With an historically low estimate of equity returns I dont see this being a significant risk either. barring end of the world as we know it scenarios.

My planning both before retirement and since retiriring is based on 3% inflation and 4% returns.  The plan is deemed effective if the value of my planned total wealth at age 95 exceeds a fixed limit. 

Short term effects such a the recent inflation jump or the occasional crash are managed by holding a large buffer of cash and lower risk investments.  This should give plenty of time for the world to recover. If global events are so catastrophic that it doesnt nothing much else would have worked anyway.

Maybe it's my personality, I suffer a lot with anxiety, and don't like unknowns. I've modeled to the nth degree, but still doesn't give me confidence, latest spreadsheet shows me with 600k at aged 95 in 2022 terms, but means nothing as based on assumptions which I can guarantee are incorrect. Stock market could crash by 50% in the next year or never recover, ftse 100 index had a high in 1999 and took about 15 years to beat it. Inflation could run at 10% for 10 years, all I can see are problems.

£600K at death seems a very safe leeway in your plans.  How long could you live on that amount of cash? If you update your plan every year you will soon see if the £600K is threatened and cut your expenditure accordingly.

If global stock markets crash by 50% and never recover that would imply the collapse of the global economy when all bets on anything would be off.  The chances are that you would not have a job anyway so would have had no choice about retiring. If everyone in your street is in the queue for the soup kitchen you will probably be there as well.  The best you can do is to take reasonable precautions. 

If you were foolish enough to put all your investments in the FTSE100, with dividends re-invested the 1999 value would have recovered by early 2006.  By 2012 total returns would have exceeded inflation since 1999.  The FTSE100 is now showing a return of more than 150%.   However if you had invested globally you would be looking at a 400% return.  With those sort of figures it would seem a 10 year buffer, 5 years as cash and 5 years as cautious investments would have coped with little cause for concern.

michaels

What level of provision are people looking at for the 'surviving partner'?

My current scenarios are about 45k pa gross including 2 state pensions or 35k with one SP regardless of which one survives longest - ie the only loss is one of the sate pensions.

I am aiming for constant income so before SPs cut in DBs and DCs will provide this, post SPA then the DBs and DCs provide 20k less.

Modelling this against historic data suggests that the front loaded DC draw-down allows a higher swr (4-5%) given the 'guaranteed' income from the DB and SP than would be available if all pension was to come from a DC pot (3-4%)

Albermarle

SouthCoastBoy said:

Linton said:

SouthCoastBoy said:

Tbh the whole pension drawdown process is a lottery, nobody knows,  its all guesswork. Past performance is no indication of future performance etc. That what makes it so difficult to decide when one can retire. I model 3.5% growth after fees no idea if that is correct also guessed at inflation being 8% this year then sticking around 4% for around 5 to 6 years, so in real terms terms losing money on my investments, again no idea if it is correct. So I have come to the conclusion I need to keep working due to the fact there are too many unknowns.

In practice I have not found the future being unknown to be a problem.  With a long term plan based on assumptions on long term returns and inflation one can detect soon enough when one is going off-course.  Short term variations are irrelevent and should be ignored.  Long term inflation is not a significant problem as equity prices should at least match it.  With an historically low estimate of equity returns I dont see this being a significant risk either. barring end of the world as we know it scenarios.

My planning both before retirement and since retiriring is based on 3% inflation and 4% returns.  The plan is deemed effective if the value of my planned total wealth at age 95 exceeds a fixed limit. 

Short term effects such a the recent inflation jump or the occasional crash are managed by holding a large buffer of cash and lower risk investments.  This should give plenty of time for the world to recover. If global events are so catastrophic that it doesnt nothing much else would have worked anyway.

Maybe it's my personality, I suffer a lot with anxiety, and don't like unknowns. I've modeled to the nth degree, but still doesn't give me confidence, latest spreadsheet shows me with 600k at aged 95 in 2022 terms, but means nothing as based on assumptions which I can guarantee are incorrect. Stock market could crash by 50% in the next year or never recover, ftse 100 index had a high in 1999 and took about 15 years to beat it. Inflation could run at 10% for 10 years, all I can see are problems.

What would give you the confidence to retire? If this spreadsheet modelling showed £1M at 95? £2M ?
I suspect you would still be thinking 'What if ?'