Check our plan - Are we ready to go?

Moodyboffin

@hugheskevi - getting back to your excellent points earlier:

It looks like I may have over-estimated the role of my DB over time (ie weekend by inflation) vs. what could be achieved through a well managed DC and the deferral of both OH's DB or our SPs. By accessing it earlier, I would preserve more of the inflation-resistant DC and SPs. I need to look into this much more closely, so thank you.

Re. position on death for my DB, the scheme states 'if you die after retirement, your spouse will receive a pension equivalent to 50% of the pension you would be receiving at the date of your death had you not taken any tax free cash or opted to surrender pension'. 'If you die before reaching your normal retirement date (ie. Nov'37), your spouse will be entitled to a pension no less than £18.9k pa. In addition, a defund of your contributions will be payable: £89.9k'.

So there seems to be a difference between pre/post NRD, although I'm not sure what the latter means, in particular if the pension has already been accessed.

Btw, really enjoyed following your recent tour of the Americas, what an amazing experience it must have been !

Moodyboffin

@Pat38493 - thank you for sharing so many insights, this is brilliant, really appreciate you taking the time!

It is reassuring to hear that the plan would work and the builds you proposed would certainly strengthen it. I have to be more comfortable with taking risks, which should be manageable with the safety net of DBs and SPs on the horizon.

As far as asset allocation is concerned, your ladder makes a great deal of sense. I had something similar a few years back but in 2022 I decided to only have Equity and MMF as I wasn't comfortable with bonds. The context is now very different, so I think I will keep MMF for the next 3 years spending (or move to cash if rates drop rapidly) and go for a blend equity/bond for ISA #2, ISA #4 and SIPP #2 based on time horizon.

The challenge now is to come out of MMF for my longer term investments (it is inevitable). In an ideal world there would be a 'nice' 30% correction tomorrow so I could buy some Global Tracker cheap, but nobody knows when it is likely to happen. It could also crash the day after I buy and take 3-5 years to come back, so I would have to accept that it could get uncomfortable at some point before it gets better.  

Re. modelling, I have used spreadsheets to build the current plan but must admit that it wasn't very sophisticated: I took into account taxation and hitting the NUMBER, but ignored growth as a function of asset type and different scenarii. I used James Shack Retirement Planner 2.0 GoogleSheet to give me a feel for the total picture, but that's about it. I have read many threads here on various simulators/software but never made the time to get into it.

Re. IFA, I hear you. Up until 2014 I was with an FA but felt that I wasn't getting enough portfolio performance for the % fees I was paying, so I decided to go on my own. It has been going pretty well since (everybody is a financial genius when the markets are up ), but I don't know what I don't know and I'm now at a critical stage, so I think I will look around. My preference would be a one-off consultation, not sure if many IFAs are keen to take that on, so we will see. I will let you know!

I'm so glad I posted my plan this morning: I received so many insightful builds in only 12 hours, this Forum is absolutely amazing, so many generous people ready to share their wisdom and help the community. Brilliant! If other readers have other builds, please share!

daveshep26

Moodyboffin said:

@Pat38493 - thank you for sharing so many insights, this is brilliant, really appreciate you taking the time!

It is reassuring to hear that the plan would work and the builds you proposed would certainly strengthen it. I have to be more comfortable with taking risks, which should be manageable with the safety net of DBs and SPs on the horizon.

As far as asset allocation is concerned, your ladder makes a great deal of sense. I had something similar a few years back but in 2022 I decided to only have Equity and MMF as I wasn't comfortable with bonds. The context is now very different, so I think I will keep MMF for the next 3 years spending (or move to cash if rates drop rapidly) and go for a blend equity/bond for ISA #2, ISA #4 and SIPP #2 based on time horizon.

The challenge now is to come out of MMF for my longer term investments (it is inevitable). In an ideal world there would be a 'nice' 30% correction tomorrow so I could buy some Global Tracker cheap, but nobody knows when it is likely to happen. It could also crash the day after I buy and take 3-5 years to come back, so I would have to accept that it could get uncomfortable at some point before it gets better.  

Re. modelling, I have used spreadsheets to build the current plan but must admit that it wasn't very sophisticated: I took into account taxation and hitting the NUMBER, but ignored growth as a function of asset type and different scenarii. I used James Shack Retirement Planner 2.0 GoogleSheet to give me a feel for the total picture, but that's about it. I have read many threads here on various simulators/software but never made the time to get into it.

Re. IFA, I hear you. Up until 2014 I was with an FA but felt that I wasn't getting enough portfolio performance for the % fees I was paying, so I decided to go on my own. It has been going pretty well since (everybody is a financial genius when the markets are up ), but I don't know what I don't know and I'm now at a critical stage, so I think I will look around. My preference would be a one-off consultation, not sure if many IFAs are keen to take that on, so we will see. I will let you know!

I'm so glad I posted my plan this morning: I received so many insightful builds in only 12 hours, this Forum is absolutely amazing, so many generous people ready to share their wisdom and help the community. Brilliant! If other readers have other builds, please share!

My view is that this seems a very well prepared plan so I’m sure you would be fine and it is important to emphasize that people should be encouraged to follow the life they want to lead.  You have a very large amount of funds in well selected tax sheltered vehicles, no loans/ debt and own outright your property.

The two less strong areas of your plan – which speak to margin of safety – are (1) poor indexation terms for the majority of your long-term guaranteed income and (2) the significant duration (pre-DB and -SP) that you will be drawing on these funds. 

I do think that you will be fine from what you have included in description and others have given really good advice all round.  Only you can tell if you are comfortable with margin of safety that will exist over many multiples of decades.

Things to consider:

Significant mitigation from some level of part-time/ consultancy work during the next 7/ 14 years would significantly alleviate the funds drawdown prior to SP;  from your age, home ownership and total fund size (ie savings rate), I am guessing you are quite high earners, so modest consultancy activity after taking some years off could still be extremely valuable for you.  Obviously you can review and only commit to this (subject to skills/ expertise staying up to date) many years down the line if desired...

As @michaels suggests a (preferably index-linked) bond ladder could well play a helpful part for you (you have a very large current pot, but weak long-term guaranteed income). (Actually I mildly disagree with MichaelS on time period – he refers to ‘bridge to SP age’ – I would encourage a bias to even longer duration (inflation risk is most acute), but you need to do the modelling)

Your children are quite young age for parents to stop receiving all earned income and there can potentially be significant calls for parental support (1st cars, round the world travelling, assistance for house deposits) – these all again would impact your margin of safety.

 

There is some interplay between a few of the above – but overall I would expect you will be fine.  Well done, you both… !!

Pat38493

Many posters here would recommend that you make sure it's an Independent financial adviser that you choose rather than an FA who is tied to a particular set of fund and regulated in a different way.

Also if it was me, I would make sure that the IFA is going to produce a full cash flow planning exercise and stress testing your portfolio i.e. a financial planner as well as an IFA.

You can also go for a cheaper option these days - a "Financial coach" - these may help you with the type of hints and planning that you have got in this thread and will be a lot cheaper than a regulated IFA, but they will not be able to recommend specific investments.

RogerPensionGuy

Opening poster sure provided lots of clear information and easy to understand, some FAs, IFAs, wealth managers and the like don't produce anything like that, great job and certainly looks like much long-term planning has well done to the OP.

Replies are also great. 

The plan looks great, but too complex for my head, I like it simple, but due such various dynamics, plan looks like it can flex and accommodate the future.

My biggest pick up and if my adding up is correct, collectively you have 438K in ISAs.

I can see augmenting cash flows at ages 52ish is tricky, but just wondering if them ISAs could be preserved or even topped up by doing other stuff, remortgaging or maybe a family loan/charge on house came in my mind, it's clunky and has possibility of upset, but maybe worth a think. 

My like of ISAs has grown and grown the last few years, in hindsight me personally, I've put too much focus on pensions and looking back my situation would of been better and way more balanced having a bigger % of investments in ISAs. 

Reference ISAs. Over these last few years we have seen negatively on personal tax allowances being frozen, CGT, Dividend Tax getting dragged down and unless the UK GDP takes off rapidly, we could see these historic tax levels last a long long time and my glass half full view may mean ISAs becoming even more valuable. 

If the government sees bigger/% inflows in to ISAs, they may well trim advantages of ISAs and make even ISAs more complicated to understand and use just like what has occurred to pensions the last many years. 

Moodyboffin

michaels said:

1) Probably missed it, but is the indexation on the DBs the same before you take them or are they fully rpi protected until then which might indicate taking them later?

2) You could 'bridge' state pension and DB using a 'index linked gilt ladder' which basically lets you remove all market and inflation risk form this part of your provision, the cost aligns with your 'keeps up with inflation' assumption - ie 15 years of index linked 12k (state pension replacement) would cost 15 x 12 = 180k from one of your money pots.  Similar for DB.

2) As mentioned above, you want to make sure you don't leave any personal allowance unused for either of you and maybe think about going higher (and moving unused 'income' to isas) to avoid higher rate tax in future.

4) Next to consider is what happens on first death where the surviving partner loses in your case the deceased's state pension and half of their DB, more of an issue for your DW on the figures - is the remainder sufficient for her?

5) And final consideration is of course estate tax where now as pension wrapped funds are probably less advantageous than unwrapped you might consider drawing out of pension quicker and then gifting/gifting from income - for me this brings up a quandary, do I take DB as early as possible as this money is not heritable (although this differs in the rare case of both dying before DKs are 23) so better to spend this before DC but at the cost of reducing long term DB which is one of the best hedges against longevity risk....

Having said all  that, I suspect if anyone does the maths it will show that 5k net pm with two personal allowances gives an extremely conservative SWR, guessing less than 2% whereas 3.25% is probably about par for an early 50s retirement.

Thank you for the builds, see below clarification/answers as appropriate:
1) My understanding is that both schemes indexation is the pre/post accessing them. Mine as per OP is a blend of the lower of RPI/5% (1/3) and 2.5%/CPI (2/3) whilst for OH is is RPI. There was a suggestion indeed to delay taking OH's as more favourable wrt inflation. I will definitely look into this.

2) Index-linked gilt ladder - I did read about this over the years but didn't get into it as felt it wasn't right for me at the time. Would you mind elaborating on this? Any specific recent threads I should get to or external resource?

Related to this, nobody so far suggested we took an annuity. What is the view on this given our circumstances? Could this be a good idea? Pros/Cons vs. index-linked gilt ladder for instance?

4) This was commented upon separately: OH should receive 50% of my DB + hers + her SP + her DC, so this  should be sufficient. That's also why I'm reluctant to pull my DB forward too much as I wouldn't want to reduce the 50% (once I have clarified 50% of 'what' precisely with the scheme). 

5) This is an important point that continues to challenge my initial view on the importance of DCs vs. my DB with poor inflation protection (=mine). I shall think about how to manage DB in that context and the point above re. OH's DC. I noted your comment on conservative SWR and need to think about it too.

Quandary is such an appropriate word given the various interdependencies. Good to know however that here it is more about optimising a situation rather than a catastrophic failure risk!