'Pre Retirement' - Is this a sensible plan?

RockPools

Hi, I was hoping to get a sanity check on my thoughts on trying to efficiently start withdrawals from my pension, whilst bulking up my cash ISA a bit before retiring.

Currently 53yo and able to retire at 55, otherwise will have to delay until 57 due to DOB.
Interactive Investor SIPP value is £560k (mainly VWRP and HSBC Global strategy Dynamic 50/50 ‘ish)
Cash ISA is £50k
Mortgage paid off next year.
Currently contributing £40-£60k into SIPP and £10k into ISA each year.

At some point beyond age 55, there will be personnel changes at my company that means I’d like to have the option to retire if things go south at all.  This could happen at any point between age 55-58 (or even later), so I’m thinking of doing the following to enable me to:

1. Trigger my ‘retirement’ so I can have the option to fully access my SIPP before age 57 if I need to.
2. Extract some tax free cash from the SIPP into my ISA to improve my cash balance/buffer.

So the plan is as follows:

Age 55 :
Keep working and continue contributing £40k-£60k into SIPP during the year.
Withdraw 20k tax free from SIPP and deposit into ISA, with £60k of the SIPP crystalised.
MPAA remains intact.

Age 56 (if still working):
Repeat above

Age 57 (if still working):
Repeat above

Age 58 (if still working):
Repeat above etc. etc.

If I stop working at say age 57, I should have £180k crystallised, £440k uncrystallised and £110k ISA, with potential growth on top of all the above figures. The improved ISA cash balance should help me to weather any storms during the first years of proper retirement. 

Depending on value of SIPP on retirement, I am thinking of withdrawing at a rate of 3% pa to start with, and remaining fully invested as I am now (HSBC/VWRP).  My wife (2.5 years younger than me) will probably continue to work for the first 3-4 years of my retirement, so there is a bit of a buffer there assuming she doesn't decide to stop earlier, or something changes her mind but that will be a whole other post!

Is this a sensible plan?  Any downsides?

ali_bear

Seems that you want to pay into your SIPP and withdraw from it at the same time? I can't see the point in this and part-crystallising now could reduce your options in the future. 

NoMore

The government have still not given clarity on if you can flexibly access a pension before April 2028 and then continue to do so after this date, if your still aged less than 57. You would hope so, but it has not been confirmed. I am in the same age bracket and would like clarity myself. 

RockPools

ali_bear said:

Seems that you want to pay into your SIPP and withdraw from it at the same time? I can't see the point in this and part-crystallising now could reduce your options in the future. 

Yes, I want to keep paying into the SIPP to take advantage of tax savings on the way in (more so as my contributions are ltd. company contributions) whilst removing tax free cash to build up the balance of my ISA and leave it there as a cash buffer for the early years of retirement when I start properly drawing down from my pension.

The point is the continuing tax savings while contributing to the SIPP.

RockPools

NoMore said:

The government have still not given clarity on if you can flexibly access a pension before April 2028 and then continue to do so after this date, if your still aged less than 57. You would hope so, but it has not been confirmed. I am in the same age bracket and would like clarity myself. 

It would be good to know for sure!
Even if this was take out of the equation, I would still like to build up the ISA cash buffer.

DRS1

When the mortgage is paid off presumably some money will be freed up which could go into the ISA?  Or would you be using that as part of the contribution to the SIPP?

Albermarle

You do not mention your wife's savings or pension provision ?

RockPools

DRS1 said:

When the mortgage is paid off presumably some money will be freed up which could go into the ISA?  Or would you be using that as part of the contribution to the SIPP?

The mortgage is a minimal outlay these days as we already paid off the tracker when interest rates started creeping up recently.  Just £150'ish per month each.  SIPP contribution will come wholly from income.

RockPools

Albermarle said:

You do not mention your wife's savings or pension provision ?

Wife's savings (£50k) are similar to mine and her pension is on track to be similar too when she reaches my age (currently just under £400k).  She's making large contributions from salary and saving about £10k to SIPP each year.

ali_bear

RockPools said:

... I want to keep paying into the SIPP to take advantage of tax savings on the way in (more so as my contributions are ltd. company contributions) whilst removing tax free cash to build up the balance of my ISA and leave it there as a cash buffer for the early years of retirement when I start properly drawing down from my pension.

The point is the continuing tax savings while contributing to the SIPP.

That's understood. But given you are close to retirement age I don't see any advantage of taking money out of the SIPP now and putting it in a cash ISA. You seem to have a large enough cash buffer already and you'll have plenty of cash available once you do start de-accumulating the pension. 

DT2001

What is your budget for retirement? You talk about 3% drawdown depending on the size of your portfolio - are you assuming no growth/downturn?

When you reach SPA what figure will you then be budgeting? I worked back from that point and have an ultra short bonds fund inside our SIPPS to provide an amount roughly equivalent to the SP - my OH is 7 years away from SP (unsure of when she will retire as she enjoys her work) and has 15% in near cash. This can be reduced over time as our budget is quite flexible. My aim is better long term growth at the expense of short term guaranteed income above the SP figure. Can you expand on how you intend to use your cash buffer - when do you dip into it e.g. when markets are down 10% or 25%. My current plan is to take a fixed % of the investment pots and top up from my rainy day fund but not by the full amount e.g. market down 25%, draw 25% less from growth ETFS and take 12.5% equivalent from cash fund. It’s only possible as we are ‘happy’ to adjust our budget.  IMO  it is covering the worst case scenario (any drop beyond 25% in global markets would probably be the result of a worldwide catastrophe which would curtail our overseas travel - a large component).

If you can provide more information we can hopefully help you more