What annual pension would a £1m pension give you

ex-pat_scot

michaels said:

michaels said:

ex-pat_scot said:

 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.

Can I ask what the pluses (and minuses?) are of holding your global tracker as an ETF rather than a fund - I have the latter, total charges including platform are about 14 basis points - are the ETFs cheaper?

I have a mixture of VWRL and VEVE (0.22 and 0.12 BP). I'm spread across Fidelity and HL, so there's platform costs on top.
My workplace pension is with SW and is one of their global equity trackers.
Pluses and minuses - the fund costs - charging treatment of the platform - they are both such large/established investments that I'm not concerned about their stability / security.

DT2001

ex-pat_scot said:

Ciprico said:

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Simplistically I see the £1m would provide £250,000 tax free cash, to be immediately withdrawn to pay off mortgage, and about £60,000 wrapped into ISAs.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!

Cruising to £1.071m - I'm not so sure that FI / Gilts is risk free at the moment!
Given the pot will have to last for another 35-40 years, I'm happy to take the volatility for now.
I'm pretty much 100% global diversified low cost ETFs.
If markets dive, then I can delay / go part time / consulting.

As I age, and / or start to lose my faculties, I can start to annuitise to buy a floor level of income. 

Just checked the end of day position - just nudged into the 7 figure mark with £1,000,537. I'm off to celebrate with a nice cup of tea.

Well done.
It is psychologically good to pass/reach milestones even if we pass them again, in the wrong direction (hopefully only temporarily!).

When you mention flex as your withdrawal rate is ‘punchy’ do you mean adjusting your income, say post SPA, when your expenditure could start to slow or as you go (adopting a variable drawdown %)?

I have a pot of savings to cover the gap years to SP and OH’s small DB providing a solid base. As OH has continued to work (she enjoys her work/life balance) we will be in a position to live off the ‘guaranteed’ income plus natural income. Previously I had planned a higher initial  withdrawal rate expecting capital reduction up to SPA and then a hopefully sustainable one thereafter. Our key is flexing the non essential part of our budget - which includes a lot of travel. For us this is acceptable.

Linton

kinger101 said:

Linton said:

kinger101 said:

I personally don't see the point of modelling £1m at 95.

All models are wrong, so you just need one that is useful.  If it is going to go wrong, it's likely in the first decade due to sequence of returns risk.

30+ years out is finger in the air territory. If your spreadsheet says one million, the reality will be somewhere between being penniless 15 years earlier of having an eight figure sum.

So accept the risk or mitigate with annuities.

Barring end of the world scenarios I dont think reality is as uncertain as you suggest.  For example you always have the option of spending most of your available wealth on an inflation linked annuity.  That provides a pretty certain worst case position - you wiont be penniless 15 years before death.

The benefit about modelling to 95 and showing that you will have £1M still available is that it gives you a measure of the leeway should the plan go wrong.  It represents the period of time you have available to do something about a deteriorating position. It is also is a useful for checking whether a particular large expenditure is affordable or not. So for example if you are  deciding whether to take a £20K holiday or buy a £30K car, with say £500K as your wealth at death you can confidently go for it without worrying any further about significant extra risk.  If wealth at death was less than £100K you may reasonably have doubts.

To basically it is a useful way to understand and cope with risk.

But all if that could be achieved without modelling £1m at 95.  It's a very specific goal a very long way into the future.

Target could for example be enough to purchase annuity to cover basic living standard, then use a flexible drawdown plan that has sufficient resilience to cut one's cloth accordingly.

If you are using a year by year spreadsheet model you should get the money left over at death automatically so it's not something you need go out of your way to calculate.  The £1M figure was used  just because the OP happened to use that number. Being some way into retirement I could be happy with any value above say £250K as it would still give me the flexibility to pay for reasonably expensive one-offs without worry.

One of the requirements of my retirement plan is that short term market disruption should not affect my life in any way.  The wealth at death figure helps identify potential risks long before any change in tack is required and helps avoid ill considered and excessive reactions to sudden market changes.  Used in this way the wealth at death figure effectively acts as a buffer without the need for very large cash holdings and allows the use of higher equity investments over the long term than one may otherwise find acceptable.

An annuity/DB pension/SP are useful for day to day ongoing expenditure and I would say essential to cover basic expenditure.  However they are not so useful for large one-offs. 

ex-pat_scot

DT2001 said:

ex-pat_scot said:

Ciprico said:

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!

Cruising to £1.071m - I'm not so sure that FI / Gilts is risk free at the moment!
Given the pot will have to last for another 35-40 years, I'm happy to take the volatility for now.
I'm pretty much 100% global diversified low cost ETFs.
If markets dive, then I can delay / go part time / consulting.

As I age, and / or start to lose my faculties, I can start to annuitise to buy a floor level of income. 

Just checked the end of day position - just nudged into the 7 figure mark with £1,000,537. I'm off to celebrate with a nice cup of tea.

Well done.
It is psychologically good to pass/reach milestones even if we pass them again, in the wrong direction (hopefully only temporarily!).

When you mention flex as your withdrawal rate is ‘punchy’ do you mean adjusting your income, say post SPA, when your expenditure could start to slow or as you go (adopting a variable drawdown %)?

I have a pot of savings to cover the gap years to SP and OH’s small DB providing a solid base. As OH has continued to work (she enjoys her work/life balance) we will be in a position to live off the ‘guaranteed’ income plus natural income. Previously I had planned a higher initial  withdrawal rate expecting capital reduction up to SPA and then a hopefully sustainable one thereafter. Our key is flexing the non essential part of our budget - which includes a lot of travel. For us this is acceptable.

Flex - in that I expect our spending requirements to be quite erratic, particularly in the early years (pre SP)
Naturally when SP kicks in, the withdrawal rate can come down by the same equivalent amount.

I anticipate early expenditure on children (university will still be underway for the younger ones), travel, weddings etc over the next 10 years or so. 

I do expect to keep a keen eye on investment performance and withdrawal in the initial phases, as I'll have the option of consulting work (or even return to full time in extremis) if there's the likelihood of sequence-of-returns issues.

DT2001

ex-pat_scot said:

DT2001 said:

ex-pat_scot said:

Ciprico said:

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!

Cruising to £1.071m - I'm not so sure that FI / Gilts is risk free at the moment!
Given the pot will have to last for another 35-40 years, I'm happy to take the volatility for now.
I'm pretty much 100% global diversified low cost ETFs.
If markets dive, then I can delay / go part time / consulting.

As I age, and / or start to lose my faculties, I can start to annuitise to buy a floor level of income. 

Just checked the end of day position - just nudged into the 7 figure mark with £1,000,537. I'm off to celebrate with a nice cup of tea.

Well done.
It is psychologically good to pass/reach milestones even if we pass them again, in the wrong direction (hopefully only temporarily!).

When you mention flex as your withdrawal rate is ‘punchy’ do you mean adjusting your income, say post SPA, when your expenditure could start to slow or as you go (adopting a variable drawdown %)?

I have a pot of savings to cover the gap years to SP and OH’s small DB providing a solid base. As OH has continued to work (she enjoys her work/life balance) we will be in a position to live off the ‘guaranteed’ income plus natural income. Previously I had planned a higher initial  withdrawal rate expecting capital reduction up to SPA and then a hopefully sustainable one thereafter. Our key is flexing the non essential part of our budget - which includes a lot of travel. For us this is acceptable.

Flex - in that I expect our spending requirements to be quite erratic, particularly in the early years (pre SP)
Naturally when SP kicks in, the withdrawal rate can come down by the same equivalent amount.

I anticipate early expenditure on children (university will still be underway for the younger ones), travel, weddings etc over the next 10 years or so. 

I do expect to keep a keen eye on investment performance and withdrawal in the initial phases, as I'll have the option of consulting work (or even return to full time in extremis) if there's the likelihood of sequence-of-returns issues.

Thank you for the fuller explanation. It seems to me to be an excellent approach. At the end of the day we adjust during our working careers to changes of circumstances so can do so in retirement.
Self employment and Limited company ownership has prepared us and I think made it easier to look forward with the knowledge that we will just adapt.

After Uni there is always the possibility of a returning child/ren - as long as they are saving we haven’t charged any rent so costs are somewhat inflated for however long.

Good luck with full or partial retirement.

Clive_Woody

ex-pat_scot said:

DT2001 said:

ex-pat_scot said:

Ciprico said:

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!

Cruising to £1.071m - I'm not so sure that FI / Gilts is risk free at the moment!
Given the pot will have to last for another 35-40 years, I'm happy to take the volatility for now.
I'm pretty much 100% global diversified low cost ETFs.
If markets dive, then I can delay / go part time / consulting.

As I age, and / or start to lose my faculties, I can start to annuitise to buy a floor level of income. 

Just checked the end of day position - just nudged into the 7 figure mark with £1,000,537. I'm off to celebrate with a nice cup of tea.

Well done.
It is psychologically good to pass/reach milestones even if we pass them again, in the wrong direction (hopefully only temporarily!).

When you mention flex as your withdrawal rate is ‘punchy’ do you mean adjusting your income, say post SPA, when your expenditure could start to slow or as you go (adopting a variable drawdown %)?

I have a pot of savings to cover the gap years to SP and OH’s small DB providing a solid base. As OH has continued to work (she enjoys her work/life balance) we will be in a position to live off the ‘guaranteed’ income plus natural income. Previously I had planned a higher initial  withdrawal rate expecting capital reduction up to SPA and then a hopefully sustainable one thereafter. Our key is flexing the non essential part of our budget - which includes a lot of travel. For us this is acceptable.

Flex - in that I expect our spending requirements to be quite erratic, particularly in the early years (pre SP)
Naturally when SP kicks in, the withdrawal rate can come down by the same equivalent amount.

I anticipate early expenditure on children (university will still be underway for the younger ones), travel, weddings etc over the next 10 years or so. 

I do expect to keep a keen eye on investment performance and withdrawal in the initial phases, as I'll have the option of consulting work (or even return to full time in extremis) if there's the likelihood of sequence-of-returns issues.

More very good points.

I had accounted for universities (assuming both kids do 3 yrs and not do medicine/architecture or some prolonged degree course), but weddings I hadn't thought about......my daughter apparently has a Pinterest wedding planning board and it's not an MSE approach.

ianthy

I think it depends on your level of comfort in drawing down 3 or 4%. I'm in a similar situation but age 61 and about to drawdown. I will take 4% = £40k gross. Once I reach state pension age 67, I can adjust the %. Also, I am comfortable as OH has a DB and State Pension plus there are a couple of BTL too just in case we need to tighten our belts.

Mick70

ianthy said:

I think it depends on your level of comfort in drawing down 3 or 4%. I'm in a similar situation but age 61 and about to drawdown. I will take 4% = £40k gross. Once I reach state pension age 67, I can adjust the %. Also, I am comfortable as OH has a DB and State Pension plus there are a couple of BTL too just in case we need to tighten our belts.

I would rather take 4% whilst in the earlier stage of retirement and active, then adjust accordingly when SP kicks in , rather than say 3% and leave it at that throughout, if that makes sense