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Look at my DIY plan, comments suggestions and criticism welcome
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Buying an annuity is like buying an insurance policy against living beyond a certain age. And in my case there is no need for a guarantee, I won't be around to complain if it doesn't pay off. I can cover my basic living costs for life by spending a portion of my DC fund.
Now I'm all fingers and toes crossed that the world economy and markets don't implode over the next couple of months thanks to the latest White House-based chaos.A little FIRE lights the cigar0 -
ali_bear said:Buying an annuity is like buying an insurance policy against living beyond a certain age. And in my case there is no need for a guarantee, I won't be around to complain if it doesn't pay off. I can cover my basic living costs for life by spending a portion of my DC fund.
Now I'm all fingers and toes crossed that the world economy and markets don't implode over the next couple of months thanks to the latest White House-based chaos.0 -
Yes but I have to cash-in a chunk of the DC fund and that is still largely in world equities. With the great orange one in charge things are highly volatile and a market valuation could go from good to suddenly not so good in the time it takes for a transaction to go through.A little FIRE lights the cigar0
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ali_bear said:Yes but I have to cash-in a chunk of the DC fund and that is still largely in world equities. With the great orange one in charge things are highly volatile and a market valuation could go from good to suddenly not so good in the time it takes for a transaction to go through.0
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When comparing different income approaches it is useful to, as far as possible, compare like with like.
From upthread I note that a single life RPI annuity at 60 currently pays a shade under 4.7%.
Assuming a 40 year planning horizon (according to https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 a 60 year has a 3% chance of living to 100 if male and 6% if female - the 10% level is at 96yo and 99yo for males and females, respectively),
An index-linked gilt ladder lasting 40 years currently has a payout rate of 3.5% (see https://lategenxer.streamlit.app/Gilt_Ladder ).
The UK historical SWR (i.e. constant inflation linked withdrawals from a portfolio) for a 40 year retirement was about 2.8% (see https://www.2020financial.co.uk/pension-drawdown-calculator/, I used 60% equities, 20% bonds, and 20% cash). International diversification would probably add another 20 bp or so, so call it 3.0%.
Each approach has strengths and weaknesses
1) Income from the annuity is simple, market independent, and will last a lifetime. The obvious downside is that early death will make purchase a bad decision (but one you will not be in a position to regret!). While the annuity is protected by the FSCS, severe financial problems in the UK (e.g., failure of government or banks, etc.) might lead to a reduced or complete loss of income.
2) The Index linked gilt ladder is simple in operation (but takes a bit of setting up) and income is market independent and it will leave assets (of unknown value) in the event of early death. There is a possibility of outliving the income (e.g., we have two friends over 100yo) and UK government debt default would potentially reduce income to zero.
3) The SWR from the portfolio is relatively simple in operation and may leave assets in the event of early death. There is a possibility that the portfolio will become exhausted before the end of the planning period if the actual SWR is lower than that found historically and also a (much greater) possibility that there will be large amounts of unspent funds left at death, even after a long life (this is a 'good' thing if a legacy is required and a 'bad' thing if not). I note that the SWR at the start of any retirement is unknown and unknowable.
There is nothing to prevent a retirement plan being based on more than one of the above. I also note the inflation linked floor in income provided by an annuity or ladder (and SP and DB pension) allows a variable withdrawal strategy to be adopted which in good markets allows greater income and, over time, is more efficient in spending down the portfolio.
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At the point of buying an annuity for, say 300k, at that point do I have to take 100k as TFLS?
A little FIRE lights the cigar1 -
ali_bear said:At the point of buying an annuity for, say 300k, at that point do I have to take 100k as TFLS?N. Hampshire, he/him. Octopus Intelligent Go elec & Tracker gas / Vodafone BB / iD mobile. Ripple Kirk Hill member.
2.72kWp PV facing SSW installed Jan 2012. 11 x 247w panels, 3.6kw inverter. 34 MWh generated, long-term average 2.6 Os.Not exactly back from my break, but dipping in and out of the forum.Ofgem cap table, Ofgem cap explainer. Economy 7 cap explainer. Gas vs E7 vs peak elec heating costs, Best kettle!2 -
ali_bear said:Buying an annuity is like buying an insurance policy against living beyond a certain age. And in my case there is no need for a guarantee, I won't be around to complain if it doesn't pay off. I can cover my basic living costs for life by spending a portion of my DC fund.
Now I'm all fingers and toes crossed that the world economy and markets don't implode over the next couple of months thanks to the latest White House-based chaos.
Good luck with your plans.
NB. With £1m in your workplace scheme and your relatively low basic requirement of £2k per month I think you will be absolutely fine.3 -
GenX0212 said:
NB. With £1m in your workplace scheme and your relatively low basic requirement of £2k per month I think you will be absolutely fine.
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JoeCrystal said:GenX0212 said:
NB. With £1m in your workplace scheme and your relatively low basic requirement of £2k per month I think you will be absolutely fine.I would guess 90% of questions here are around finance, which is kind of understandable, but the most important thing really about retirement is how you plan to spend your time 🤷♂️
I also agree it looks like ali_bear has zero financial concerns 😎👍Plan for tomorrow, enjoy today!2
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