Choices Choices

Moonwolf

Inspired by another thread I'm putting this here.  More pension details are in previous threads from me e.g. https://forums.moneysavingexpert.com/discussion/6432407/flexible-drawdown-strategies/p1

I'd be interested to hear which of the options in Phase 1 below others prefer and why?

I am 58 next month and hoping to go in the next two years.  Probably March 2025.
My big budget is £3,150 a month, after tax based on a very generous budget with a lot of fat,  although the budget is monthly there is a lot of deferred purchasing e.g. replace car/computer every 5 years, which is a big purchase not necessarily monthly.

I have DB pensions kicking in at 60, 65 and state pension at 67.  I qualify for the full new state pension "You cannot improve your pension anymore."  By the time I am 67 I should have index linked pensions including the state pension worth £35k a year in today's money.

I have a DC pot of £300,000

I also have £50,000 in savings in cash and ISAs.  Mortgage is paid off.

I have no expectation of inheriting anything, I don't need to leave anyone anything apart from
my partner who is 15 years older than me.  We both have some health problems, I've already had cancer and a pulmonary embolism, and I would be surprised if either of us lives past 85.  My partner already has £17k a year in DB pensions, will get £10k a year in spouses pension plus whatever is left of the DC pot, remember when I am 85 they will be 100.

Phase 1:  Bridging: Take income from the DC pot until all my other pensions have kicked in.  I would expect to use around half my pot.  I don't expect to work again and although I will pay £240 a month into the DC pot to 75, I'm not worried about the MPAA.

P1 Option 1: Take UFPLS of around £27,000 a year, anything else needed from savings
P1 Option 2: Take 25% actuarial reduction on the pension that kicks in at 65, reducing my early drawdown needs by about £200 a month or £3600 a year.
P1 Option 3: Use a more flexible drawdown approach taking all tax free element after using up my personal allowance.  This wouldn't save tax in the long run but would reduce drawdown requirements in the early years allowing crystallised investments to grow more (about £20k I think)
P1 Option 4: Use half the pot, or perhaps a bit more to buy a fixed term annuity for the first 8 years.  With my health problems and postcode it looks like I might be able get around the £27,000 a year and still have real terms 50% pot left at 67.

My main plans use Option 1, Option 2 looks better for most values of DC pot growth but less secure income later, Option 3 also has better growth but I lose flexibility in drawdown later if I have used my tax free allowance.  Option 4 looks quite good at the moment but by using up so much of my pot early am I more vulnerable to an early market correction?


Phase 2: Ongoing: Use up by DC pot.

P2 Option 1: Drawdown around £10k a year.  Assuming inflationary increases and pot growth of 2.5% over inflation, this has me running out at 90.  Reduce the growth and perhaps 85, add a crash, 80 or earlier.  If my partner needs care I might have to put it to this.
P2 Option 2: Rising annuity
P2 Option 3: Flat annuity

I will need to review rates, growth etc. at the time, it is too early to decide. it also depends on the option taken at Phase 1.

Phase 3: DB pensions only.

Should be OK, the fat of holidays, eating out, gym and expensive hobbies will be less and can be sacrificed if need be anyway.  £35k is still  good income if the house is paid for.  £31.5k a bit less so if I have take P1 Option 2, this is why I lean away from taking the actuarial reduction even though I might be better off overall and I don't expect to live this long.  If I need care then I can use the equity in the house.

Pat38493

Is the £3150 spend requirement for your household or just you?

On the modelling tools I've used, option 2 usually comes out better, especially if in reality you think you will spend more in the year up to SPA and less later.  On these type of situations often the risk is not running out of money in old age, but running out of money before all your guaranteed income kicks in.  Early payment of DB pensions can offer some level of protection against the worst sequencing scenarios, and sometimes so can taking PCLS and investing it on the DB parts (unless the commutation rates are very poor).

Also worth getting proper annuity quotes through an IFA if you have health risks and probability of reduced lifespan - this is often mentioned here as apparently IFAs can often actually save you money even after their fees on this type of transaction, especially where health conditions are involved.

Moonwolf

Pat38493 said:

Is the £3150 spend requirement for your household or just you?

This is just me, my partner has DB pensions of about £17,000 a year.  They pay £500 into the joint account, I pay £1,000.  All the utilities, council tax, home insurance and main shop come out of there.  There is an attached savings account with a float of about £5,000 in to cover furniture, white goods, new boiler etc and at the moment we have about £250 a month spare which goes into the float.

I am left with more but pay for holidays and eating out, and I pay for the car.  My budget is probably over egged, it is basically my current take home and while I have taken out work costs I have assumed I spend a lot more on hobbies than I do now.

Moonwolf

Pat38493 said:

Also worth getting proper annuity quotes through an IFA if you have health risks and probability of reduced lifespan - this is often mentioned here as apparently IFAs can often actually save you money even after their fees on this type of transaction, especially where health conditions are involved.

I am thinking that it might be worth getting an IFA in for this.  Just to validate everything and to help me work through the options with more sophisticated tools, but not for ongoing advice.  I have run some through Guiide and they either work for all scenarios or have me needing extra for care, not including the house equity.

Pat38493

Moonwolf said:

Pat38493 said:

Also worth getting proper annuity quotes through an IFA if you have health risks and probability of reduced lifespan - this is often mentioned here as apparently IFAs can often actually save you money even after their fees on this type of transaction, especially where health conditions are involved.

I am thinking that it might be worth getting an IFA in for this.  Just to validate everything and to help me work through the options with more sophisticated tools, but not for ongoing advice.  I have run some through Guiide and they either work for all scenarios or have me needing extra for care, not including the house equity.

There are some IFA who will look at your situation as a one off exercise for a fixed fee and basically sense check your plan or tell you if they see issues.  However you can also use an IFA just for the annuity purchase as a transactional thing.

Another option which I have taken is to sign up to a retirement planning training class online (example from Meaningful Money) - I have paid for this and I think it was worthwhile for me at least.  It costs a few hundred quid but it also includes a year of access to Voyant Go and it's still cheaper than actually using an IFA ongoing.