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

Albermarle

beeza650 said:

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.

So in that case you need to look at the possible real growth of your pension investments. 5% minus 3% inflation ( estimated) = 2%

eskbanker

beeza650 said:

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

I haven't modelled your scenario, but my point was that you were asking if your 'dubious' spreadsheet seemed 'about right', so if you're wanting anyone to validate your thinking then you'd need to share your workings (including the parameters you've assumed)!

Triumph13

If (and it's a big if) the state pension and the tax bands all just increase in line with inflation each year, then you are talking about withdrawing about £38k a year from your £1M portfolio, increasing with inflation.  A withdrawal rate of 3.8% of your initial balance.  Assuming you have a goodly portion of equities in that portfolio, history suggests that withdrawing in that way would be unlikely to ever deplete the portfolio, but there are no guarantees.

I suggest reading up on the subject of Safe Withdrawal Rates

SouthCoastBoy

Albermarle said:

beeza650 said:

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.

So in that case you need to look at the possible real growth of your pension investments. 5% minus 3% inflation ( estimated) = 2%

Am a bit more pessimistic than that equity growth 3.5%, inflation 2.5%

beeza650

eskbanker said:

beeza650 said:

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

I haven't modelled your scenario, but my point was that you were asking if your 'dubious' spreadsheet seemed 'about right', so if you're wanting anyone to validate your thinking then you'd need to share your workings (including the parameters you've assumed)!

This runs out at 98 but is wrong because it doesn't include any tax free 25% - I'd originally (and may still do) intended to withdraw that as a lump sum and buy a nicer house.

beeza650

More realistically would be this - keep working till 55 and take a lump sum - this doesn't run out until 103

older_and_no_wiser

You need to also consider the different stages of retirement: gogo, slowgo, nogo. We don't spend at the same rate throughout our lives. 

FIREDreamer

beeza650 said:

More realistically would be this - keep working till 55 and take a lump sum - this doesn't run out until 103

Would probably take the £50k taxable withdrawal at 57 on top of the max allowable PCLS, not just the PCLS on its own?

beeza650

older_and_no_wiser said:

You need to also consider the different stages of retirement: gogo, slowgo, nogo. We don't spend at the same rate throughout our lives. 

I think I've sort of got this covered by not really modelling inflation very well in the sheet. I expect purchasing power of £69120 at 85 will be substantially less than £50,271 today and if I do run out of money there'll be a £1m home in the mix that I could downsize.

beeza650

FIREDreamer said:

beeza650 said:

More realistically would be this - keep working till 55 and take a lump sum - this doesn't run out until 103

Would probably take the £50k taxable withdrawal at 57 on top of the max allowable PCLS, not just the PCLS on its own?

Yup - just noticed that myself....runs out at 98 then.