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

Hoenir

beeza650 said:

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.

Unfortunately investment returns are erratic in nature. Might be reassuring on a spreadsheet. The reality is going to be very different. 

NedS

SouthCoastBoy said:

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%

Oh dear, why would you accept the equity risk for a 3.5% return when you can get a ~4% return from government gilts with no risk? I fear your pessimism is overdone?

SouthCoastBoy

NedS said:

SouthCoastBoy said:

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%

Oh dear, why would you accept the equity risk for a 3.5% return when you can get a ~4% return from government gilts with no risk? I fear your pessimism is overdone?

I'm hoping it is

I can't get my head round bonds/gilts, to get that 4% return don't you need to buy at point of issue otherwise there is an underlying market price  factored into the buy price?

FIREDreamer

SouthCoastBoy said:

NedS said:

SouthCoastBoy said:

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%

Oh dear, why would you accept the equity risk for a 3.5% return when you can get a ~4% return from government gilts with no risk? I fear your pessimism is overdone?

I'm hoping it is

I can't get my head round bonds/gilts, to get that 4% return don't you need to buy at point of issue otherwise there is an underlying market price  factored into the buy price?

You can buy TREASURY 4.5% 07/12/2042 (T42) under the par value of £100 meaning you have a gross redemption yield in excess of 4.5% (ignore the date of 4 September 2018 - that’s nonsense, this was priced over £150 at that date as yields were much lower).

SouthCoastBoy

FIREDreamer said:

SouthCoastBoy said:

NedS said:

SouthCoastBoy said:

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%

Oh dear, why would you accept the equity risk for a 3.5% return when you can get a ~4% return from government gilts with no risk? I fear your pessimism is overdone?

I'm hoping it is

I can't get my head round bonds/gilts, to get that 4% return don't you need to buy at point of issue otherwise there is an underlying market price  factored into the buy price?

You can buy TREASURY 4.5% 07/12/2042 (T42) under the par value of £100 meaning you have a gross redemption yield in excess of 4.5% (ignore the date of 4 September 2018 - that’s nonsense, this was priced over £150 at that date as yields were much lower).

Thks for that, so I guess I should look for gilts below par value. Are all gilts issued at par value £100

beeza650

Thanks for taking it off topic

Marcon

OP - if you're 50 now, you can't start to draw from your pension until you are 57. Not sure you've clocked that?

DRS1

eskbanker said:

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

As an actuary once said to me "The only thing you can guarantee about assumptions is that they will be wrong".

kempiejon

Rather than just using my spread sheet which looks at the one set of parameters I found there are a few modelling options out there. I have used https://firecalc.com/ others have mentioned https://www.cfiresim.com/  and  https://ficalc.app/
For those unfamiliar the idea is to runs multiple simulations based on historical data, US biased and you can tune for state pension, investment styles when you stop working etc, Rather than giving you a yes/no answer you see how likely your model would have failed using real historical data points.
Well I think that's what it does.

FIREDreamer

SouthCoastBoy said:5

FIREDreamer said:

SouthCoastBoy said:

NedS said:

SouthCoastBoy said:

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%

Oh dear, why would you accept the equity risk for a 3.5% return when you can get a ~4% return from government gilts with no risk? I fear your pessimism is overdone?

I'm hoping it is

I can't get my head round bonds/gilts, to get that 4% return don't you need to buy at point of issue otherwise there is an underlying market price  factored into the buy price?

You can buy TREASURY 4.5% 07/12/2042 (T42) under the par value of £100 meaning you have a gross redemption yield in excess of 4.5% (ignore the date of 4 September 2018 - that’s nonsense, this was priced over £150 at that date as yields were much lower).

Thks for that, so I guess I should look for gilts below par value. Are all gilts issued at par value £100

Not necessarily - but they, normal gilts, are redeemed at par value £100 and that’s the important value. No problem buying over par if the yield is acceptable in a tax advantaged account. Income is taxed but there is no CGT on gilts so taxable accounts prefer low coupon higher capital gain gilts. Higher coupon is better for ISA and SIPP as no tax on coupons or gains in those.