How ‘adventurous’ should my SIPP investments be?

kjs31

Qyburn said:

How do you get tax-free income from your DB pension?

I assume the tax-free interest is from ISAs, and the DC drawdown will be an uncrystalised lump sum.

Ah, my bad, that’s not how it works with DB is it. There is a tax free lump sum of 3 times the annual pension but that will be paid at the start so just adds to the savings pot unless I spend it. 

Yes tax savings interest from cash ISAs and 1k tax free allowance, and DC drawdown uncrystalised lump sum. Tax free savings interest should increase a bit each year as I move more from the taxable pot into an ISA. Assuming savings rates remain decent. Still finding my way around how it all works. 

kjs31

Albermarle said:

Drawdown strategies follow a similar pattern, so unlikely that the advisor would have deviated much from that.

A 50%/60% equity allocation.

Some standard average returns based on history.

Drawdown 3.5%/4% each year increasing with inflation.

By the time you are 90 there is a 95% chance the pot will not have run out and maybe well be rather large

Please note though I have simplified a complex subject discussed at length many times on this forum.

One thing you have not mentioned is charges. Often they can be quite high with this kind of company ( but I might be wrong)

Thanks. I do need to look at charges. I know I will pay a flat fee now and I don’t need to pay for ongoing advice unless I want to. I will clearly want advice when I move my pension into drawdown but not sure beyond that. 

So you think that a 60% equity allocation feels ok for a long term drawdown pot? 

I will need to read some of the other threads to fill in my knowledge gaps. 

Is there somewhere with a decent drawdown spreadsheet like the advisor was using? I’ve found simple ones where you can just put the drawdown pot in and say how much you want to drawdown each year but none that allow you to add other pensions, the state pension when it kicks in, savings etc. 

QrizB

kjs31 said:

QrizB said:

You're currently 65?

How much annual income do you expect to require when you retire?

Do you have a spouse or any other dependents?

Do you have children or anyone else that you might want to leave an inheritance to?

No, I’m 58.

Sorry, I mis-read and somehow thought youd reach SPA in two years.

kjs31 said:

I would like an income of the most I can get and stay under the higher tax rate but that’s a rough guess and I’m going to see how I get on with that.

So, if the target is £50k pa gross:

• From 67, you'll have £8k DB plus £10k SP. You seem to be expecting £17k of taxable savings interest too, so that's £35k. You can take £19k UFPLS from the combined DC pensions (£15k taxable, £4k TFLS). If you live for another 40 years that's £760k.
• From 60 to 67, you'll have £8k DB plus £17k of taxable interest, total £25k. You can take another £31k from the DC (£25k taxable), which over 7 years is £175k.

So, with no real growth, you'll looking at getting £935k out of your DC pension from age 60 to 107. And you;re expecting your combined DC pots to be at least £1160k (albeit 25% of that, £290k, will be TFLS).

Allowing for the potential taxable interest from the £290k TFLS, I don't think you need any real growth at all from your DC pension to achieve your goal. You cold put it all into eg. an index-linked gilt ladder and forget about it.

This isn't necessarily the "die with the most money" outcome, but it looks like it will achieve your income goal so long as you don't set any new longevity records.

NlghtOwl

If you have a healthy cash reserve then you may choose to have no bonds and have the rest in equities. Known as the barbell approach I believe. 

MK62

kjs31 said:

Albermarle said:

Drawdown strategies follow a similar pattern, so unlikely that the advisor would have deviated much from that.

A 50%/60% equity allocation.

Some standard average returns based on history.

Drawdown 3.5%/4% each year increasing with inflation.

By the time you are 90 there is a 95% chance the pot will not have run out and maybe well be rather large

Please note though I have simplified a complex subject discussed at length many times on this forum.

One thing you have not mentioned is charges. Often they can be quite high with this kind of company ( but I might be wrong)

Thanks. I do need to look at charges. I know I will pay a flat fee now and I don’t need to pay for ongoing advice unless I want to. I will clearly want advice when I move my pension into drawdown but not sure beyond that. 

So you think that a 60% equity allocation feels ok for a long term drawdown pot? 

I will need to read some of the other threads to fill in my knowledge gaps. 

Is there somewhere with a decent drawdown spreadsheet like the advisor was using? I’ve found simple ones where you can just put the drawdown pot in and say how much you want to drawdown each year but none that allow you to add other pensions, the state pension when it kicks in, savings etc. 

How you plan to withdraw from your pot has a bearing here too........and can range from a very simple single 60/40 split (if that's your preference) fund and a straight 3-4% initial withdrawal, index linked, to a myriad of alternatives with gradually increasing complexity.
Using a single 60/40 split fund, such as, for example, VLS60, can be quite different to using a portfolio of several funds comprising in total, 60% equities and 40% bonds.........though it can also be very similar.

Dazed_and_C0nfused

Yes tax savings interest from cash ISAs and 1k tax free allowance

Outside of your cash ISA's there is no tax free allowance for interest.  There are two 0% tax bands, although your (taxable) pension income will preclude you from using the first of these, the savings starter rate band.

You will have the savings nil rate band (up to £1,000 taxed at 0%) however this is reduced to £500 for those deemed to be higher rate taxpayers and inclusion of £1,000 of (taxable) interest would make you a higher rate payer.  Meaning only £500 of the interest would be taxed at 0%.

kjs31

Dazed_and_C0nfused said:

Yes tax savings interest from cash ISAs and 1k tax free allowance

Outside of your cash ISA's there is no tax free allowance for interest.  There are two 0% tax bands, although your (taxable) pension income will preclude you from using the first of these, the savings starter rate band.

You will have the savings nil rate band (up to £1,000 taxed at 0%) however this is reduced to £500 for those deemed to be higher rate taxpayers and inclusion of £1,000 of (taxable) interest would make you a higher rate payer.  Meaning only £500 of the interest would be taxed at 0%.

The figures are just rough and ready for now. I assume that I can draw down from my pension at the end of the tax year and can draw down the right amount to stay under the higher rate tax band as I will know what earnings and savings interest I have for the tax year by then. Just need to get the sums right. 

Albermarle

kjs31 said:

Albermarle said:

Drawdown strategies follow a similar pattern, so unlikely that the advisor would have deviated much from that.

A 50%/60% equity allocation.

Some standard average returns based on history.

Drawdown 3.5%/4% each year increasing with inflation.

By the time you are 90 there is a 95% chance the pot will not have run out and maybe well be rather large

Please note though I have simplified a complex subject discussed at length many times on this forum.

One thing you have not mentioned is charges. Often they can be quite high with this kind of company ( but I might be wrong)

Thanks. I do need to look at charges. I know I will pay a flat fee now and I don’t need to pay for ongoing advice unless I want to. I will clearly want advice when I move my pension into drawdown but not sure beyond that. 

So you think that a 60% equity allocation feels ok for a long term drawdown pot? It depends on your overall financial position and your risk tolerance. So for example if you had a lot of cash savings you might want to be more aggressive with the equity %. On the other hand if you are of a nervous disposition  you might want less. However most drawdown calculations work on historical data based around a 50%/60% equity content,

I will need to read some of the other threads to fill in my knowledge gaps. Yes do that. there are also a couple of good series of videos on YouTube. Pension Craft is one.

Is there somewhere with a decent drawdown spreadsheet like the advisor was using? I’ve found simple ones where you can just put the drawdown pot in and say how much you want to drawdown each year but none that allow you to add other pensions, the state pension when it kicks in, savings etc. Yes there are, they all have good and weak points. A couple of links below. Some other posters have made their own spreadsheets, if you are into that sort of thing.

Plan for Retirement | Retirement Planner | Planning a Retirement | RetireEasy
Guiide the Happy Retirement Designer

Pat38493

There are also a couple of well known podcasters like Meaningful Money, who have a kind of retirement planning training that you can pay for, which also includes a year of subscription to cash flow planning software that is used by financial advisers to help with their clients.  It costs a few hundred pounds to sign up but it's still cheaper than having an IFA if you want to get deep into the details.  Usually it also includes access to private forums where you can exchange with other like minded people.

Spreadsheet models are great but they don't tend to have advanced features like monte carlo or historical stress testing.

(I have no affiliation with them but I'm thinking of signing up myself).

Audaxer

kjs31 said:

Qyburn said:

How do you get tax-free income from your DB pension?

I assume the tax-free interest is from ISAs, and the DC drawdown will be an uncrystalised lump sum.

Ah, my bad, that’s not how it works with DB is it. There is a tax free lump sum of 3 times the annual pension but that will be paid at the start so just adds to the savings pot unless I spend it. 

With DB pensions there is usually a choice of a higher annual pension with no lump sum, or a lower annual pension with a tax free lump sum. It may however be that with your DB pension you have to take the lump sum, but it i something worth checking.