Withdrawing up to 40% tax bracket - how long will my pension last?

beeza650

With no inheritance tax advantage of a pension now coupled with my hope I'll live beyond 75, meaning those who inherit my pension will pay income tax on it, has influenced my plan to simply withdraw from my pension up to the 40% bracket each year. What I don't spend will go in an ISA.

My main question is has anyone get a decent spreadsheet for this or some crystal ball I could borrow please?

I will get a full state pension.

My dubious s/sheet tells me if I retire at 55 with £1m then it will be all gone when I hit 100.

Is this about right? What are your views on the logic here please?

eskbanker

It'll all come down to the quality of the assumptions, including investment growth, inflation, higher rate threshold, etc.

DRS1

I have no idea how to use it but would this help?
Retirement Tax Planner · Streamlit

Marcon

beeza650 said:

With no inheritance tax advantage of a pension now coupled with my hope I'll live beyond 75, meaning those who inherit my pension will pay income tax on it, has influenced my plan to simply withdraw from my pension up to the 40% bracket each year. What I don't spend will go in an ISA.

My main question is has anyone get a decent spreadsheet for this or some crystal ball I could borrow please?

I will get a full state pension.

My dubious s/sheet tells me if I retire at 55 with £1m then it will be all gone when I hit 100.

Is this about right? What are your views on the logic here please?

The logic I don't get is why you are worried about your beneficiaries having to pay income tax (if indeed they do by the time you die), when your pension is intended to provide for you during your lifetime - a point which seems to have gone largely overlooked by many of those now fretting about possible changes to the tax regime.

If you think potential beneficiaries will need an inheritance at some unguessable time in the future, you could always consider giving them cash now rather than sticking any 'excess' withdrawals in your ISA if they are likely to be in financial need.

dunstonh

With no inheritance tax advantage of a pension now coupled with my hope I'll live beyond 75, meaning those who inherit my pension will pay income tax on it, has influenced my plan to simply withdraw from my pension up to the 40% bracket each year. What I don't spend will go in an ISA.

So, you want to avoid income tax and your solution is to pay income tax to achieve that?

Will the beneficiaries pay income tax on some or all of it?    The average retirement age in the UK is around 5 years less than state pension.    For many people, that is 5 years of withdrawals that can be made from their pension without tax.

Alternative, draw to the basic rate band and gift it to the beneficiaries on the understanding that they put it into their pensions. Therefore gaining tax relief to offset the tax you have paid.

Mark_d

Suppose you pension pot is worth £1m at age 55.  Suppose you pension pot grows at an average rate of 5% per year thereafter (after charges).  Then you'll generally get £50k per year.

If you withdraw less than £50k per year your fund will never run out.

DullGreyGuy

Mark_d said:

Suppose you pension pot is worth £1m at age 55.  Suppose you pension pot grows at an average rate of 5% per year thereafter (after charges).  Then you'll generally get £50k per year.

If you withdraw less than £50k per year your fund will never run out.

Though that also assumes you dont increase your drawings as the thresholds for tax increase and assumes you're happy effectively reducing your spending each year as your income stays static but inflation increases prices cutting your spending power. 

beeza650

Marcon said:

beeza650 said:

With no inheritance tax advantage of a pension now coupled with my hope I'll live beyond 75, meaning those who inherit my pension will pay income tax on it, has influenced my plan to simply withdraw from my pension up to the 40% bracket each year. What I don't spend will go in an ISA.

My main question is has anyone get a decent spreadsheet for this or some crystal ball I could borrow please?

I will get a full state pension.

My dubious s/sheet tells me if I retire at 55 with £1m then it will be all gone when I hit 100.

Is this about right? What are your views on the logic here please?

The logic I don't get is why you are worried about your beneficiaries having to pay income tax (if indeed they do by the time you die), when your pension is intended to provide for you during your lifetime - a point which seems to have gone largely overlooked by many of those now fretting about possible changes to the tax regime.

If you think potential beneficiaries will need an inheritance at some unguessable time in the future, you could always consider giving them cash now rather than sticking any 'excess' withdrawals in your ISA if they are likely to be in financial need.

I think we're talking at crossed purposes here - I'm not setting out to leave an inheritance - what I want is to minimise tax on any inheritance if there is any.

beeza650

dunstonh said:

With no inheritance tax advantage of a pension now coupled with my hope I'll live beyond 75, meaning those who inherit my pension will pay income tax on it, has influenced my plan to simply withdraw from my pension up to the 40% bracket each year. What I don't spend will go in an ISA.

So, you want to avoid income tax and your solution is to pay income tax to achieve that?

Will the beneficiaries pay income tax on some or all of it?    The average retirement age in the UK is around 5 years less than state pension.    For many people, that is 5 years of withdrawals that can be made from their pension without tax.

Alternative, draw to the basic rate band and gift it to the beneficiaries on the understanding that they put it into their pensions. Therefore gaining tax relief to offset the tax you have paid.

Let's assume I live past 75 and my inheritors' marginal rate of tax is 40% then transferring pension to ISA below the 40% threshold makes sense doesn't it?

You suggest an alternative but I think you've assumed I'm a lot richer than I am. I will need my pension to live off, my thought it to live on an income up to the 40% band and to save enough to achieve that.

beeza650

DullGreyGuy said:

Mark_d said:

Suppose you pension pot is worth £1m at age 55.  Suppose you pension pot grows at an average rate of 5% per year thereafter (after charges).  Then you'll generally get £50k per year.

If you withdraw less than £50k per year your fund will never run out.

Though that also assumes you dont increase your drawings as the thresholds for tax increase and assumes you're happy effectively reducing your spending each year as your income stays static but inflation increases prices cutting your spending power. 

yes exactly
I would absolutely keep up with the 40% bracket (although who knows what future taxation might look like). Also full state pension kicks in at 67 (today). The point about inflation is up to the gov really, if they don't increase the 40% bracket then yes, there'd be less to spending power.

beeza650

eskbanker said:

It'll all come down to the quality of the assumptions, including investment growth, inflation, higher rate threshold, etc.

yup...and mine says £1m works - what does yours say