'Pre Retirement' - Is this a sensible plan?

DRS1

On the cash buffer point only you can decide what is LARGE.  Some may say you are there already.  What a lot of people on here would do if taking £20k out of their pension each year to put into an ISA is to put it into the same investment it was in in the pension.  That way you get the same growth (you hope) as if it was still in the pension.

On expenditure it would be good to work it out but of course all that free time you will have after retiring may involve some unanticipated spending (unless you just make better use of the TV subscriptions!).  An easier comparison might be what the 3% withdrawal would look like against your current earnings.  Presumably it will be less but how much less?  Enough to give you second thoughts?

RockPools

DRS1 said:

On the cash buffer point only you can decide what is LARGE.  Some may say you are there already.  What a lot of people on here would do if taking £20k out of their pension each year to put into an ISA is to put it into the same investment it was in in the pension.  That way you get the same growth (you hope) as if it was still in the pension.

On expenditure it would be good to work it out but of course all that free time you will have after retiring may involve some unanticipated spending (unless you just make better use of the TV subscriptions!).  An easier comparison might be what the 3% withdrawal would look like against your current earnings.  Presumably it will be less but how much less?  Enough to give you second thoughts?

Thanks DRS1,

I do need to make that decision about putting the £20k deposits into a cash ISA v S&S ISA although either way, I think the principle of making the withdrawals seems sound so I’m pretty happy with that.

How much I really want to take each year once retired is something I’ll have to work out.

Albermarle

RockPools said:

Albermarle said:

I do not see any mention of planned expenditure ?

You see very often on this forum, people with very large war chests built up ( Like you and your wife) wondering whether they can retire, and then saying but we are not actually big spenders and will be happy with £30K a year.

In these cases the most likely scenario is not that they will run out of money, but will their coffin be big enough to fit in all the money left when they die. For example with a 3% drawdown, I would suspect there would be more than a 50% chance of dying with more than you started with, maybe a lot more. 

So the moral of the tale is make sure you have a plan to spend most of it, rather than give it all to HMRC as inheritance tax. Not as easy as it sounds if you are the careful type, as I know very well.............

Thanks Abermarle,

I didn't mention in my OP that I also have a child - it's a minor point that I neglected to include  - who will be 19yo when I retire, so there is incentive to leave something, although we have always seen the house as her inheritance.  We have also saved to an S&S ISA to help her out.

Anyway.

I must admit that I am struggling with planned expenditure beyond what I spend at the moment which is usually under £2k per month and that includes some biggish insurances (which will stop), small mortgage, lots of TV subs (that we don't really need), nice holidays so hardly living frugally. My wife probably spends about £1.5k pm. We both come from modest backgrounds where money was tight, so it's difficult for us to get into the headspace of our current earnings and it's a big reason (on top of obvious tax efficiency) for putting all recent pay increases into our pensions.  I haven't 'seen' a pay rise since 2018   

I think as I get more comfortable with retirement, I'll adjust my withdrawals upwards.

Modest background + big savings / pensions + difficulty in spending it all.
At least in this forum you will find many similar types 

HUSKYPAL

I think your plan is pretty sound, not sure why you need to take tax free lump sums now, when you can take your full 25% of SIPP value at time of retirement, unless you forecast a slump and want to take some buffer cash out?

In this case I would not invest in the same stocks/shares as your pension, otherwise they will be hit in the same way if there were a drop. I would keep a few years in a cash ISA, and invest the rest either within the SIPP or an ISA (if you want faster access), but look at diversifying your risk in the ISA. One other thing to bear in mind is recycling. You will be taking TFLS from the SIPP and continuing to pay large amounts into your SIPP. This could be seen as recycling (not suggesting it is, as you are continuing to pay what you would have anyway), so suggest you keep good records of where the cash went and when, just in case HMRC ever takes an interest.

Hoenir

HUSKYPAL said:

I think your plan is pretty sound, not sure why you need to take tax free lump sums now, when you can take your full 25% of SIPP value at time of retirement,

ISA currently has a £20k limit. Anything above this will be potentially exposed to either or/both capital gains and income tax. 

cockerWalker

The plan in principle sounds robust. I've been looking at using lump sums to fund ISA and have been surprised how few disadvantages I've been able to find. Pretty much only that ISAs and pensions are treated differently in the event one needed to access certain benefits or care. Of course, future rule changes could make this more or less feasible, but isn't that always true?
If you're taking lump sums and paying in then make sure you don't fall foul of pension recycling rules https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/pension-recycling-what-is-it-and-what-are-the-rules.

I do think a heavy cash pot and a 3% withdrawal rate is very conservative, but only you know your own capacity for risk