What annual pension would a £1m pension give you

SouthCoastBoy

Albermarle said:

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 ?' 

Good question, have thought about that quite a bit, I think 1m+ based on 3.5% growth after fees and inflation 4% for next 10 years then down to 2.5%

Superdude0499

What on Earth will you do with 1M at 95? Very comfortable beneficiaries I think.

I hope to have c1M I combined SIPP/ISA at age 60. I don’t intend to live extravagantly, requiring around 36k in today’s money. 2xSP + Wife’s modest DB (c12K) will account for over 85% of our needs.

i’ve modelled all kinds of apocalyptic scenarios but come out with 99% success each time. There are many tools to use but I’ve found the timelineapp very good for fleshing out my plans. Made for FA’s but simple enough for plebs like me to use (and free if the only client you have is yourself). Still more Han likely to leave large legacy for my two children.

So, 60 for me with 1M more than adequate. I think!

SouthCoastBoy

Superdude0499 said:

What on Earth will you do with 1M at 95? Very comfortable beneficiaries I think.

I hope to have c1M I combined SIPP/ISA at age 60. I don’t intend to live extravagantly, requiring around 36k in today’s money. 2xSP + Wife’s modest DB (c12K) will account for over 85% of our needs.

i’ve modelled all kinds of apocalyptic scenarios but come out with 99% success each time. There are many tools to use but I’ve found the timelineapp very good for fleshing out my plans. Made for FA’s but simple enough for plebs like me to use (and free if the only client you have is yourself). Still more Han likely to leave large legacy for my two children.

So, 60 for me with 1M more than adequate. I think!

My modelling needs to give me 1m at 95 to feel comfortable I can retire, it doesn't mean I expect or need 1m at 95.

Interestingly your spending needs appear to be similar to mine, with my wife's db also similar to your wife

Pat38493

SouthCoastBoy said:

My modelling needs to give me 1m at 95 to feel comfortable I can retire, it doesn't mean I expect or need 1m at 95

Why don't you just buy an annuity then because with that kind of headroom in your fund, I suspect you can get an annuity that will allay your fears of running out of money?  Don't take this the wrong way but maybe in relaity you just enjoy making your pot larger and your work is enjoyable so you don't really feel the need to retire?

Linton

Modelling showing £1M remaining at assumed end of life does not mean you intend that to actually happen.  What it does is to give one the flexibility to steadily and safely reduce that value over time by making occasional major one-off expenditures.   £1M leeway at say 60 could be reduced by say £100K every 5-10 years without increasing the overall risk, the decrease in the pot being covered by the decrease in expected survival times.

ukdw

I would take £120k off of the figure to match 12 years of pre state pension extra £10k withdrawals - leaving £880k.  

Then assuming the pension is properly invested then between 3.5% and 5% of the £880k (depending on whether they want to strictly follow inflation rises, or be willing to forgo them when not needed or in bad years).

So this would lead to between £40.8k = £30.8k+£10k (3.5%) for first 12 years or £54.4K = £44.4K+£10k (5%). 

Personally I'd go for the £54.4k option.  

ex-pat_scot

Well I checked my pot this morning and the markets seem to be heading up again for me (invested in global ETF trackers).
My spreadsheet shows £998,750 - tantalisingly close to the 7 figure threshold.
It's only a number, but is a big milestone for me.
I'm not at the @SouthCoastBoy level of caution, but am rather tailoring my thoughts towards refining the "how much", "when" and the future forecasting.
Simplistically I see the £1m would provide £250,000 tax free cash, to be immediately withdrawn to pay off mortgage, and about £60,000 wrapped into ISAs. The remaining £750,000 would then be front-loaded with 6% withdrawal rate from 55 to 67, then lower at SPA (when I get to SPA I will look at whether it would be better to defer the SP as an increasingly-valuable guarantee floor), or to reduce the withdrawal rate and take the full SP at that point. I'd have to be flexible in my approach - a 6% withdrawal rate is punchy and it would have to flex if conditions worsen. (I could always go back to consulting part time in extremis).

I'm not quite at the age when I can access the pension though - next Easter will bring that joy and opportunity and time for thorough planning.

Whilst £1m is a great achievement, and a convenient goal, my target is really the £1.073m level to be able to maximise the tax free cash allowance. Anything beyond that becomes a bit of a "one more year" exercise, in that it would give greater confidence in withdrawing up to the HR tax threshold.

SouthCoastBoy

Congratulations, as you say a great achievement which is underpinned by a lot of hard work, in my experience, it's never easy to accumulate wealth. I will be interested to see what decisions you make over the next 18 to 24 mths.

Clive_Woody

Following with interest as I had set myself a goal of a pension pot of at least £1m by age 55, supported by a decent chunk of funds in S&S ISAs and also Premium bonds as an easy access bit of fun. My OH will have a smaller pension pot, around £150k, and both with qualify for full state pension when eligible.

At some point there will most likely be inheritances to include, one of which will be quite substantial, but trying to not consider these in calculations as hopefully parents will live forever or go out with one hell of a party.

Ciprico

ex-pat_scot said:

Well I checked my pot this morning and the markets seem to be heading up again for me (invested in global ETF trackers).
My spreadsheet shows £998,750 - tantalisingly close to the 7 figure threshold.
It's only a number, but is a big milestone for me.
I'm not at the @SouthCoastBoy level of caution, but am rather tailoring my thoughts towards refining the "how much", "when" and the future forecasting.
Simplistically I see the £1m would provide £250,000 tax free cash, to be immediately withdrawn to pay off mortgage, and about £60,000 wrapped into ISAs. The remaining £750,000 would then be front-loaded with 6% withdrawal rate from 55 to 67, then lower at SPA (when I get to SPA I will look at whether it would be better to defer the SP as an increasingly-valuable guarantee floor), or to reduce the withdrawal rate and take the full SP at that point. I'd have to be flexible in my approach - a 6% withdrawal rate is punchy and it would have to flex if conditions worsen. (I could always go back to consulting part time in extremis).

I'm not quite at the age when I can access the pension though - next Easter will bring that joy and opportunity and time for thorough planning.

Whilst £1m is a great achievement, and a convenient goal, my target is really the £1.073m level to be able to maximise the tax free cash allowance. Anything beyond that becomes a bit of a "one more year" exercise, in that it would give greater confidence in withdrawing up to the HR tax threshold.

I am in similar position but not quite as much cash and a little older.....

...have you not been tempted to switch to fixed income (gilts) and cruise to the £1.7M at no risk?

I've been tempted and am switching all dividends and new contributions to Gilts/MM, but currently left the bulk in HMWO and City of London it...

Like you I plan to "relax" saving at the old limit.

Unlike you I can and plan to retire in the next 6 months.

Don't be envious...I'd rather be 7 years younger!