Retirement calculations

flopsy1973

Hi I have my company pension on the aegon platform and I used their calculator to work out if we could retire early. I have 1.2 million in assets and we want to retire at 60 with a income of 30k. We will both get full state pensions. According to the aegon calculator we are short but that sounds wrong and no explanation?

Moonwolf

At a guess it is assuming that you take a joint life annuity at 60 rather than using flexible drawdown.  In general pension companies like to find ways to tell you that you need to save more.

With drawdown, using a 3.5% safe withdrawal rate £1.2 million would allow about £42,000 a year before the state pension is taken into account.  I'd try one of the calculators talked about on here, e.g. https://guiide.co.uk/

westv

If its the one you get with RetireReady then it is very limited.
Just a total expected fund and an income figure.

Linton

flopsy1973 said:

Hi I have my company pension on the aegon platform and I used their calculator to work out if we could retire early. I have 1.2 million in assets and we want to retire at 60 with a income of 30k. We will both get full state pensions. According to the aegon calculator we are short but that sounds wrong and no explanation?

One possibility is that the Aegon pension calculator is out of date - annuity rates have risen significantly in the past couple of years.

Linton

Moonwolf said:

At a guess it is assuming that you take a joint life annuity at 60 rather than using flexible drawdown.  In general pension companies like to find ways to tell you that you need to save more.

With drawdown, using a 3.5% safe withdrawal rate £1.2 million would allow about £42,000 a year before the state pension is taken into account.  I'd try one of the calculators talked about on here, e.g. https://guiide.co.uk/

A 3.5% SWR is often said to be overoptimistic in many teads about the topic on this forum.

westv

Linton said:

flopsy1973 said:

Hi I have my company pension on the aegon platform and I used their calculator to work out if we could retire early. I have 1.2 million in assets and we want to retire at 60 with a income of 30k. We will both get full state pensions. According to the aegon calculator we are short but that sounds wrong and no explanation?

One possibility is that the Aegon pension calculator is out of date - annuity rates have risen significantly in the past couple of years.

I checked it just now. Pensions funds assume a level annuity with no survivor benefits.

westv

Linton said:

Moonwolf said:

At a guess it is assuming that you take a joint life annuity at 60 rather than using flexible drawdown.  In general pension companies like to find ways to tell you that you need to save more.

With drawdown, using a 3.5% safe withdrawal rate £1.2 million would allow about £42,000 a year before the state pension is taken into account.  I'd try one of the calculators talked about on here, e.g. https://guiide.co.uk/

A 3.5% SWR is often said to be overoptimistic in many teads about the topic on this forum.

I think a lot of the posters on here are on the very cautious side.

OldScientist

flopsy1973 said:

Hi I have my company pension on the aegon platform and I used their calculator to work out if we could retire early. I have 1.2 million in assets and we want to retire at 60 with a income of 30k. We will both get full state pensions. According to the aegon calculator we are short but that sounds wrong and no explanation?

According to https://www.williamburrows.com/calculators/annuity-tables/ you could currently buy a joint life annuity (100% benefits) at 60 years old with a 3.3% payout rate. Assuming you both have a full state pension, in the long term, you'd only need to buy income of about £7k (i.e.. 30k minus 2*SP) which would cost (at today's annuity prices) about £212k leaving you with £1m in your portfolio to a) cover the shortfall in income until 67 (roughly £168k would be needed) and b) any remaining would cover you in the long term for any expenditure beyond the £30k you mentioned.

OldScientist

Moonwolf said:

At a guess it is assuming that you take a joint life annuity at 60 rather than using flexible drawdown.  In general pension companies like to find ways to tell you that you need to save more.

With drawdown, using a 3.5% safe withdrawal rate £1.2 million would allow about £42,000 a year before the state pension is taken into account.  I'd try one of the calculators talked about on here, e.g. https://guiide.co.uk/

The 3.5% 'safe' withdrawal rate is for a 30 year retirement. The planning horizon for a couple at 60 is probably more like 35-40 years (so the withdrawal rate will be a bit less than 3.5%). I also note that 'safe' withdrawal rates are only 'safe' in the context of historical data (usually US, but the 3.5% is based on UK data) - while they are a useful guide for planning purposes, they offer absolutely no guarantee as to future and the SWR at the start of any retirement is unknown.

There is a useful calculator that uses historical UK data (and, more importantly, inflation) at https://www.2020financial.co.uk/pension-drawdown-calculator/

p00hsticks

flopsy1973 said:

Hi I have my company pension on the aegon platform and I used their calculator to work out if we could retire early. I have 1.2 million in assets and we want to retire at 60 with a income of 30k. We will both get full state pensions. According to the aegon calculator we are short but that sounds wrong and no explanation?

What do you class as 'assets' ? Is that the amount in the pension ?
If not how easy are those assets to liquidate ?

There are plenty of of pensioners out there living in houses worth many hundreds of thousands of pounds and so are asset rich on paper but still income poor. 

ukdw

About £210k of your £1.2m would bridge the 7 years between 60 and 67. Then you will only need about £7k per year on top of two state pensions - which would be a withdrawal rate of about 0.7% 

I think your pension could fund a fair bit more than £30k, - probably >£50k gross if the pension remains properly invested and you are willing to hold off on inflation increases during investment downturns.