Pension plan - divide pension pot by 20?

Pat38493

roadweary said:

Cobbler_tone said:

Ultimately....if you even have the £900k in the bank at 60 (appreciate you can't transfer £900k to a bank but in theory it should be worth more in a pension), plus the state pension to come you should never run out of money.
Clearly some caveats. Your house is paid for, so your basic bills will be £x a month, probably covered by the state pension in a few years.
Your lifestyle can be tailored in terms of travel, i.e. do you intend to have 4/5 long haul first class holidays a year?

I don't see there is any risk whatsoever, apart from if you invest your money somewhere it may plummet, or start buying cars for £100k+

Then you get in the world of wanting to leave £500k left for care needs. Depending what picture you paint it'll never be enough money, hence why some people never stop working.
The one thing you do have with a pot that size is plenty of time and scope to adjust spending if needed.

I do have to keep my job and my health and work incredibly hard to get to that number, and hope pensions don't plummet due to the crazy world that we live in....but also I do appreciate how fortunate I am to be in this position......

And I've never bought a new car yet, or taken a first class flight (well my wife did pay to upgrade one leg of a journey at the airport once years back).....so I don't think there's too much risk of me doing something massively foolish....but you never can tell!

At some stage though, I will need to find an IFA I can trust.....

At some point in your retirement, it's almost certain that the value will "plummet".  However there are tried and tested strategies that you can use to manage this - for example, keeping money that you will need in the next few years in cash, and then the rest in a combination of equities and bonds.  Historically, whenever markets crashed, they always recovered again sooner or later, so the trick is to minimis selling your investments at a loss, to the largest extent possible.

Lowtrawler

roadweary said:

Lowtrawler said:

Assuming you retire at 60, you will not receive your state pension until 67. To cover those 7 years with the same income as in the next 13, you will need an extra £84k. Hence, if you genuinely want equal income for the 20 years, you would calculate (£900k less £84k = £816k)/20 = £40,800 with £12k extra for the first 7 years and state pension for the next 13 = £52,800 Gross, probably around £46k net i.e. a little under £4k per month.

However, as Pat has said, using a drawdown rate of 20 is likely to leave you with only a small pot at 80 and you may still have 20 years in front of you. If you were to use a rate of 25 instead, it would reduce the £40,800 to £32,640. Using a rate of 28.5 reduces it to £28,630. Both these approaches would still give you net income over £3k per month.

As you are looking for a simple approach, you may want to consider an annuity or annuities as the rates are currently very good. As I understand it, for £900k, you would keep £225k tax free and you could get a flat rate, single life annuity of over £47k per year or a 3% escalating annuity of over £30k per year. You could even run a fixed term annuity for the 7 years until your state pension kicks in.

Thank you - this is complex!  I had figured I would take less until 67 and/or do bits of work here and there although I appreciate that impacts tax.  I am less worried about what happens over 80 based on life expectancy of males / dementia in my family, but I know that is easy to say now.  And if having £3k per month after tax in my pocket from my private pension makes the long term outlook better, I'm sure I could make that work.

I probably would need to get a good IFA once I'm closer to making a decision (I'm 54 now).....when I've looked at the calculators online they have given quite poor numbers or I've been confused by all the options....I haven't factored my wife into these calcs yet.....

It's good you are considering things in advance. A lot of people don't plan and end up in a panic. For your pot size, a good IFA should help you work through what's right for you. Good luck.

Quorden

Sure they'll be different views on this, but James Slack's video https://www.youtube.com/watch?v=S9y8tsaZ3b4 - on how much you need to retire for different income levels is quite interesting but as he says and as comments above, they'll always be downturns and you have to plan for these.

Myself, I'm roughly where you aim to be, 58 but with a little extra in the pot, and seriously considering pulling the trigger so his video may show a bit of confirmation bias from me.

Albermarle

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 
In this case there would not be much left after 10 years.

Pat38493

Albermarle said:

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 
In this case there would not be much left after 10 years.

... especially if you encountered several years of 20% plus inflation which did happen a couple of times in the last 120 years or so, but it's very unusual - it's much more likely you would end up with way more money than you need.

SouthCoastBoy

Albermarle said:

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 
In this case there would not be much left after 10 years.

And that is why I need to carry on working, the perils of a dc pension 

barnstar2077

SouthCoastBoy said:

Albermarle said:

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 
In this case there would not be much left after 10 years.

And that is why I need to carry on working, the perils of a dc pension 

SCB, you don't need to carry on working, because your assets are so considerable that you don't need to be invested in 100% equities.  You have more cash than the Royal Mint at this point if memory serves.

Qyburn

Albermarle said:

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 

But if you literally took a 20th it would last 20 years.
Year 1 take 1/20 of the starting balance
Year 2 take 1/19 of the remaining balance
etc

FIREDreamer

SouthCoastBoy said:

Albermarle said:

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

It is a worst case scenario.
£900K / 20 = £45K pa. Each year it will have to be increased by inflation to maintain the same spending power, so after 10 years it could easily be over £60K pa .
Then lets say the day after you start taking the pension, markets crash by 30% and hardly recover for years. 
In this case there would not be much left after 10 years.

And that is why I need to carry on working, the perils of a dc pension 

Annuities have entered the chat. 🥳🥳

dunstonh

roadweary said:

dunstonh said:

Having saved quite heavily into my pension, yet the various calculators being so complex, I was thinking about just taking my project pension pot at 60 and dividing that by 20.

So, on that basis you would probably run out of money somewhere between age 70 and 95.

What do people think?

Only time will tell.   All we do know is that you would get away with it in some periods but not in others.   

It also depends on how much money you are allocating to capital expenditure items.  e.g. cars, refurbishments, boilers etc.   People often forget the unexpected costs/capital costs.

Apologies if I'm missing something very basic....but how would 900k run out in 10 years?

I was factoring in inflation and tax as any modelling should on an uncrystallised fund needing £45k p.a. net spending need.   I was taking a guess earlier at what it would likely come out at but I just ran it now on a 60% equities spread and got:

• The worst-case scenario occurred between January 1969  and January 2008 , during which you would have run out of money by the age of 75
  
• The median scenario predicts that you would have run out of money by the age of 90  based on our calculations
• The best-case scenario occurred between January 1975 and January 2014, which would have left you with £9.9m at the end of your life after adjusting for inflation. 

I have included the current state pension maximum in the modelling.  You may have more or less than that.
I did not factor in any capital expenditure. (which over 30 odd years is unlikely)

If changed to 100% cash it is worse (runs out at 88 in best case scenario).

Obviously, we have very limited info and there may be a second state pension and another pension and savings/investments etc but that information is missing on the first post.