Retirement Plans

frankfish

Afternoon

Currently starting to look at my retirement options and I 'think' it might be possible in the next 12-18 months, however would appreciate if someone could validate my assumptions.

I am 58, Mrs Fish is 55, have checked and we are both entitled to full state pension.

I am a deferred member of a couple of DB schemes, both allow me to take my pension earlier then the scheme retirement age (63 SP and 65 UU), can also take a tax free lump sum.
For SP - if I take pension at 59, would be worth £4,360 pa or £3,413 with a £23k lump sum
For UU - would be £6,890 or £5,300 with a £35k lump sum.

No urgent need for lump sum, mortgage paid but might look to help the kids get on the property ladder.

Mrs F has a couple of LGPS, both worth around £3K (tax free lump sum does not look worthwhile)

Current job has a DC plan, currently have £225k in pot and adding £1,250 each month.

Have worked out budget and calculated will need an income of around £38k pa , have factored in tax and assumed no NI to be paid.

Plan is to drawdown from DC pot until state pension kicks in, and have not ruled out some part time work.
Have assumed a DC growth of 5% - is this realistic ?

Am I missing anything ?

No set date in mind, just when my DC pot reaches a set amount.
Current DC is split across a few funds, majority is a Cash Fund, with some in Higher risk equities, as I am scared of the value dipping so close to the target , is this the best approach ? 

I will have to move my DC pot into a SIPP once I retire , any recommendations ?

Thanks

Albermarle

I will have to move my DC pot into a SIPP once I retire , any recommendations ?

A SIPP Is also a DC pension, there is no need to have a SIPP to drawdown.
However some older DC pensions may have restricted withdrawal options, so you may have to transfer to another DC pension if that is the case, which could be a SIPP type, but not necessarily. 

Current DC is split across a few funds, majority is a Cash Fund, with some in Higher risk equities, as I am scared of the value dipping so close to the target , is this the best approach ? 

The pot dipping close to retirement is more of an issue if you were planning to buy an annuity. With drawdown it normally should last many years, during which time it will probably dip a number of times.
Opinions vary but a typical drawdown type portfolio could be 60 % equities, 30% bonds, 10% cash, although many possible variations.

Have assumed a DC growth of 5% - is this realistic ?
If it as after inflation , it is too optimistic.
If it is before inflation , meaning real growth of maybe one or two percent, then probably OK.

If you bumped up the equity % to around 100% you could probably get 5% real growth in the long term, but it would be a bumpy ride.

Juno_Moneta

frankfish said:

Afternoon

…

I will have to move my DC pot into a SIPP once I retire , any recommendations ?

Thanks

I’ve used Hargreaves Lansdown for over a decade and am very happy with their SIPP service. 

AJ Bell and Fidelity are also worth a look, and of course plenty of reviews online eg

https://www.thetimes.com/money-mentor/pensions-retirement/private-pension/best-self-invested-personal-pension-sipp

bjorn_toby_wilde

For a pot size over £100k you may well be better with a provider that charges a flat fee rather than a percentage.  Monevator has a good comparison table.

Check the charges for drawdown as they also vary between providers.

Triumph13

5% real growth is definitely too optimistic if you are mainly in money market funds.  It all still looks doable though.  Two key questions.  Is the £38k pa pre tax? (so about £36k post tax) and is the 2 x £3k for Mrs Fish the amount if she takes it early or at 67?

frankfish

Thanks for the comments

Re DC growth - I have also include inflation of 2.5% which is used to increase expenses and pension payments.

The 2 * £3K is based on Mrs Fish taking it early

The £38k is pre tax

Will have a look at the providers mentioned above.

Based on my calculations I think I should have some money left in the DC pot when we both reach state pension age, this would be the 'new roof/emergency/' fund - current thinking is to try and have this at around the £100k mark but would welcome other views - don't want to keep working to build up a pot that might not be needed or taken in care home fees

dunstonh

Re DC growth - I have also include inflation of 2.5% which is used to increase expenses and pension payments.

Long term inflation in the UK is closer to 4.9%.  It's only been in the 2.x% range due to globalisation and a mainly peaceful world.    However, we appear to be in a period that is reversing globalisation and a less peaceful world.  So, using a low inflation rate may be too optimistic. 

Remember that when modelling, you tend to want to be pessimistic rather than optimistic.   Hope for the best but plan for the worst.

Have assumed a DC growth of 5% - is this realistic ?

That is not realistic either.  Growth is not straight line and there will be extended periods when there is no growth but losses.

For example, here is a decade of bonds:


None of them came close to 5%.

And here is the 10 year period at the start of the millennium with US equities:



not only nowhere near 5% a year but actually 20% down after 10 years (and over 40% down after 9 years).

SVaz

I’ve got the income I need for 5 years from 2027 in a short term money market fund, I used 3%  as a guide,  as I think interest rates will drop to maybe 3.5% with a year or so. 

My Wife is emptying her Sipp over the next 4-5 years without paying any tax and redirecting the money into a cash isa for short term and a stocks isa for longer term. 

Everything else in my Sipps is split between a global index fund and a mixed asset / volatility fund.   We will have enough in guaranteed income / savings at 67 to not have to draw from pensions if there is a prolonged crash. 

Cobbler_tone

So in summary you are suggesting the default outlook should be to plan for higher inflation and lower growth, which is the common sense approach. It’s why an inflationary proof DB is so valuable.

SVaz

If we had £15k in DB pensions and 2 state pensions coming,   all my Sipp would be in 100% equities.  I’d rather have a nice cushion for later on should one person die then the person left needs care. 

Triumph13

Okay, my back-of-a-fag-packet is as follows:
Retire next year.  £240k in DC pension by then, 11 years until wife's SP, 8 years until yours.  When all of those are on stream you have £38.7k pre tax, £36k post tax.

DC splits as £60k tax free, £180k taxable.  Aim to empty the taxable part over the 11 year period so your income will be your DBs plus an eleventh of (£180k DC + £36k from three years of SP) = £28.3k pre tax / £25.2 k post tax.  Add the £6k pa from your wife and you are £4.8k pa short of your £36k target so that has to come from your tax free lump sums.  11 x £4.8k = £52.8k to be taken from your lump sums of £60k from DC and £58k from the two DBs.  £66k of headroom.

All that assumes that the DC, etc just match inflation over the period.

Looks good to me.