Look at my DIY plan, comments suggestions and criticism welcome

ali_bear

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. 

FIREDreamer

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. 

Buying an annuity insures against the latter too.

ali_bear

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. 

Cobbler_tone

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. 

At the point anyone secures an annuity I assume the two are linked. If there is any risk that the fund may not pay for the annuity then just move it to cash at that point. I assume the two are not mutually exclusive. i.e. you secure an annuity for the 1st August but your pot plummets and you can't pay for it. If that is the case, there are ways to take that risk out of it, or at least significantly reduce it.

OldScientist

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.

ali_bear

At the point of buying an annuity for, say 300k, at that point do I have to take 100k as TFLS? 

QrizB

ali_bear said:

At the point of buying an annuity for, say 300k, at that point do I have to take 100k as TFLS? 

If you ever want a TFLS from that money, you have to take it then (or before then). If you elect not to take it, the opportunity is lost.

GenX0212

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. 

I love this forum. Every time I think I have my plan straight in my head someone offers an alternative viewpoint and I go around the whole process again. I still think the sensible answer is to have effectively guaranteed your 'basic' needs. For me that is covered by a combination of DB fund and SP (when I get there). In the interim it's using my DC fund to bridge the gap, which I am confident it is large enough to do, and hoping that there will still be enough left to continuing being 'comfortable' after SP age.

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.

JoeCrystal

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.

This. I have to agree with that. I am surprised why ali_bear hasn't retired ages ago already considering £2k per month is what a worker would take home working on little above minimum wage.

cfw1994

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.

This. I have to agree with that. I am surprised why ali_bear hasn't retired ages ago already considering £2k per month is what a worker would take home working on little above minimum wage.

Maybe this is an example of where retirement is NOT all about money 👀

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 😎👍