Critique my retirement plan

MeteredOut

Albermarle said:

MeteredOut said:

^opm^ said:

So basically I can take £16,760 a year from my pension pots, top up to £30,000 from my ISA this runs down my pension pots as much as possible without incurring any tax, then once state pension age, which will basically use up your tax free allowance , draw a very small pension in form of annuity and pay tax on this part but the majority of my living costs will then come from my ISA money and still be tax free.

Yes, but a comment on the bit in bold.

An annuity is a specific product where you give away a pot of money in exchange for a guaranteed (taxable) income for the rest of your life (or the latter of two lives if you want to include a partner) at either a flat rate or increasing over term. You might be able to use your pension pot in drawdown to buy this.

Alternatively, you keep your pension in drawdown and each withdrawal continues to be 25% tax free, 75% taxed (assuming your state pension is effectively using up your tax free allowance).

Only if you do not take out all the 25% tax free first as many people do.
In fact with some older pensions you have to take all the 25% tax free first, before being able to take the taxable part.

Often it is a good reason to transfer out of older pensions before starting withdrawal to get more flexibility.

See the previous posts this responded to - this was in the context of the OP taking £17,760 each year, 25% tax free, 75% taxable, to utilise their tax free allowance, and not an up-front 25% PCLS.

Agree on checking the rules of each pension, and potentially transferring them into a single provider.

^opm^

Triumph13 said:

Okay, quick back-of-a-fag-packet:

I'm going to assume you split your funds between a bridging fund to take the place of the state pensions until they come on line, and long term drawdown funds from which you take a conservative 3% income.  The bridging fund I assume just keeps pace with inflation.  I'll ignore the cash as an emergency fund. Assuming 13 years to your SP and 18 to your partner's I come up with the following:

Of your £350k of DC funds you can get £250k out tax free between the TFLS and 13 years of personal allowance.  That leaves £100k in drawdown.  At 3% that gives £2.4k pa of income post tax.

Adding the £250k you got out tax free from the DC to your ISA amounts gives you £830k in total you can get at tax free.  Bridging the state pensions will cost you 13 years @ (£24k - £2.4k) then 5 years @ (£24k - £2.4k - £12k) which comes to roughly £330k. That leaves you with £500k in your tax-free drawdown fund.  At 3% that's £15k pa giving you a grand total of £39k pa from now until your partner's SP and £41.4 k afterwards (£12k x 2 from SP, £2.4k from DC, £15k from ISAs).  Survivor gets nearly £30k pa after the first death.

I'd say you're hot to trot.  Have fun!

Thanks for that detailed reply, unfortunately it has lost me a bit with your working out.

First bit in bold, £250,000 divided by 13 equals £19,230, how do I get that much out tax free as I thought max was £16,760?

Last paragraph I think I now work out

Just worked out where the £250k comes from but in that working out you are taking out the 25% TfL’s which is £87500 but if I did that then soon as I put that in a bank I am paying tax on the interest above £1000 and it would initially earn approx £3500 a year.

Triumph13

The timing of how you do it is up to you. There are many different routes you could take.  Taking the whole TFLS up front probably wouldn't be sensible and I wouldn't suggest that you did.  I just did the calculation up front to give you clear numbers for taxable vs tax free funds so that the calculations become easier.  You would only actually take it out though as fast as it could be either used to fund your spending, or stuck in an ISA.  Eg you could easily pull out all the TFLS in less than 3 years by using it to fund most of your spending and add £20k to an ISA, or you could just take your UFPLS each year with 25% tax free each time, and spread it out over 20 years or more.  Entirely up to you and the end result is the same.

The key thing in modelling retirement is to look at the overall picture, not just year by year.