Will this work

scotslad

I am approaching 55 with £700000 pot.

Planning to call it a day at 55

My plan is to take 25% tax free and draw £1000 a month from it and £1000 from the remaining pot. Giving me £2000 a month tax free.

Mortgage free and could easily survive on £2000 a month.

The £1000 a month i would be taking from tax free would stop when state pension kicks in 12 years later.

Have £50000 in premium bonds for emergencies 

Advice anyone ?

Brenster

Sounds like a good plan, am sure people will suggest keeping pension invested whilst only taking some of your tax free amount, but in principal sounds like quite a simple / clear plan.
Maybe a suggestion could be to keep your pension invested for another 2 years, and use your Premium Bonds to fund the next 2 years.
Assuming your £700k made 5% a year (not unreasonable assumption) your pot could be £770k in 2 years (hopefully better)....

Albermarle

The issue is where are you going to put the tax free cash of £175K ?. In either savings or investment accounts you will almost certainly end up paying tax on it.
Probably better to just take out from the pension what tax free cash you need, and leave the rest in the pension, where it is protected from tax. 

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

You could use UFPLS rather than taking the full £125,000 tax free up front.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/flexi-access-drawdown-vs-ufpls

Marcon

scotslad said:

My plan is to take 25% tax free and draw £1000 a month from it and £1000 from the remaining pot. Giving me £2000 a month tax free.

Why? Doesn't your plan offer a full flexi-drawdown range of options such that you can take tax free cash as and when you need it rather than a hefty lump sum now? Where are you going to (re)invest it to avoid paying needless tax on the returns, given the annual limits on the amount you could put into an ISA?

ukdw

All looks quite sensible - only slight complication is tax.
1. For £1000 a year out of the pension - you will not be fully using your tax free allowance - so I would suggest going up very slightly to  £1,047.5 - to get you up to the current £12,570 limit (which may potentially increased on Weds).
2. Tax on the lump sum growth/interest - as mentioned in other posts you might want to limit your annual withdrawals to the £12k you need, plus another up to £20k to go into an ISA - which means it will take about 6 years to fully draw out the tax free cash (if your pension plan allows flexible drawdown).
3. Once you hit state pension age your tax free allowance will likely be fully used up by the state pension  - so you might probably need to fund an additional 20% tax out of your pension once you remaining tax free cash runs out.

Itsme01x

Alternatively take £16,760pa UFPLUS drawdown divided each month (£12,570 pers tax free allowance + £4,190 25% tax free drawdown).  Then top up what you need each month from cash/premium bond savings as you need it.  That way you stay invested in your DC to earn any growth (plus additional tax free allowance from any growth) but still pay no tax each year. 

12 years to 67yrs old is a long time until State Pension, so you may wish to stop withdrawal from your premium bond money before then to keep a cash buffer if that is your only cash pot, but at least start off as above?   

Bostonerimus1

You are starting with a 3.4% drawdown, which has generally worked for 30 year retirements for various stock and bond portfolios. The question is how do you intend to invest your money and how long do you expect to live. The state pension will provide you with a lot more headroom if your spending estimate is accurate.