Withdrawal strategy

Albermarle

The point I was trying to make is that if you are of state pension age and have £800k in a SIPP you could easily end up with way more money aged 80 than you know what to do with and potentially have regrets for the money not spent.

That is very true.

The 4 /3.5 % withdrawal theory reduces your chances of running out of money to a small probability, whilst at the same time increases the chance of the the scenario you mention.

westv

Pipthecat said:

The point I was trying to make is that if you are of state pension age and have £800k in a SIPP you could easily end up with way more money aged 80 than you know what to do with and potentially have regrets for the money not spent.   

For reference, assuming leaving a legacy behind is not a concern,  current annuity rates for a Joint life 3% could give an income at 65 of over £38k + SP

I make it 18k. 3% of 75%'of 800,000

QrizB

I make it 18k. 3% of 75%'of 800,000

That isn't what the 3% refers to. 3% is the annual increase.

https://www.hl.co.uk/retirement/annuities/best-buy-rates

Time4T_Accounts

This is an interesting point vis-a-vis planning for future care home fees, especially should (hope not!) they have to cover dementia. It strikes me that those fees could be so high that the drawdown needed to cover them could end up being taxed at 40% - and this could be a lot higher than a swr of 4-ish%. It might well make sense to draw additional at 20% tax to build a buffer.

NedS

Steve_PL_too said:

This is an interesting point vis-a-vis planning for future care home fees, especially should (hope not!) they have to cover dementia. It strikes me that those fees could be so high that the drawdown needed to cover them could end up being taxed at 40% - and this could be a lot higher than a swr of 4-ish%. It might well make sense to draw additional at 20% tax to build a buffer.

That depends on if you intend to pay for care costs yourself or rely on the local authority.

Assets in a pension are treated under tariff income rules as if you had purchased an annuity, or as income if you are drawing a regular income under drawdown. Assuming you are under the capital limits and have insufficient income to fully cover the costs, the LA will pick up the shortfall.

If you withdraw large amounts and keep in an ISA, that would be considered capital at which point if you exceed the capital tariff limits, you'll be paying the full amount.

Of course if you prefer to fully pay for your own care then as you say, would be better to maximise withdraws at 20% tax so as to minimise the amount withdrawn at 40% or higher. With some care costs approaching or exceeding £100k per year, the chances of avoiding 40% tax are slim without a significant capital buffer if you intend to self fund.