My retirement numbers; any advice?

LateStarter

So, here's me, 59, going to be 60 in a few months, hoping to retire somewhere between 61 and 62.I want about 30k in retirement, and this what I currently have:

• DC pensions worth approximately 500K (430k in works pension, 70k in SIPP)
• 100k in cash (about half and half NSI/ISAs)

Between employer and salary sacrifice, there's about 27k into the works pension annually. Any "extra" cash goes into the SIPP now (about 10k per year). Oh, and I need 2 more years of contributions to get full state pension (April 2027)

I'm very aware that stocks are at a record high, so I don't feel comfortable using the current DC numbers for my projections, but what else is there? I'm hoping to use the SIPP/cash to bridge until SP, and then draw about 20k pa from the works pension on top of SP.

Any thoughts, please?

Marcon

£30 gross, or after tax?

ali_bear

If you don't take any taxable pension income between your retirement and the state pension age, you'll be missing out on the income tax free allowance for those years. 

LateStarter

Marcon said:

£30 gross, or after tax?

In the first 5-6 years, I am planning to use cash/SIPP to get 30k gross, with minimum tax. SO about 15k from  cash, 15k from SIPP per year. Then see what I actually can afford, and re-evaluate at 67...

Triumph13

I'd turn it round the other way.  After tax the state pension is just under £10k, so earmark enough of your cash to fill in for that - so £60k if you retire at 61.  You then aim to take a drawdown income from your SIPP at a sustainable rate from day one.

DT2001

If you use Triumph 13’s idea (which I have adopted for my OH) then you will have £540k plus whatever you put in until retirement. As we don’t know how you are invested it is difficult. Adopting a conservative 3.2% withdrawal rate would get you close to where you want to be and take into account that the market is possibly about to have a correction. If the market is down 20% when you reach 61 do you carry on full time or is there the option of reducing your hours? The other alternative is flexing your expenditure. There is a James Shack YouTube video about doing one more year. 

You are in a good position and if you can be flexible with budget or timing retirement it is even better.

af1963

An illustration of one possible low risk option if you're worried about stock market drops:

£500k would buy a RPI-linked annuity of about 24k at age 61. Or probably better, take 25% (£125k) TFC and buy an annuity of 18k ( 17k after tax).  If you were planning to do that you could lock in the current share prices by shifting more to bonds, which should rise if annuity rates were to fall, and broadly preserve the annuity value that you can currently buy.

After SP starts, your income would then be 30K pre-tax, about 26k after tax.  

So the gaps to fill from savings are: £13k per year for 6 years before SP.  Then 4k per year.  You'd have existing 100k savings plus a 125k lump sum from which to draw this. Plus potentially two more years of 37k contributions to your pensions, plus tax relief on the SIPP contributions, some of which would generate more TFC.

You might not choose to do it this way but it shows what you could (almost) lock in right now. You'd miss out on longer term growth  if shares continued upwards, but your desired 30k income would be pretty secure,

You can then think about other choices with different levels of investment risk: whether you'd prefer to keep part of the pensions invested for longer, taking a smaller annuity up front and spending more from TFC/savings.  Or going for a level annuity which pays about 40% more up front ( while you have no state pension) but declines in value with inflation. Or a fixed term annuity for the 6 years till SPA.  Or an annuity to cover your "core" spending only.  Or avoiding annuities and just putting some or all of the pension into less volatile assets, or cash, for drawing down.

Linton

LateStarter said:

So, here's me, 59, going to be 60 in a few months, hoping to retire somewhere between 61 and 62.I want about 30k in retirement, and this what I currently have:

• DC pensions worth approximately 500K (430k in works pension, 70k in SIPP)
• 100k in cash (about half and half NSI/ISAs)

Between employer and salary sacrifice, there's about 27k into the works pension annually. Any "extra" cash goes into the SIPP now (about 10k per year). Oh, and I need 2 more years of contributions to get full state pension (April 2027)

I'm very aware that stocks are at a record high, so I don't feel comfortable using the current DC numbers for my projections, but what else is there? I'm hoping to use the SIPP/cash to bridge until SP, and then draw about 20k pa from the works pension on top of SP.

Any thoughts, please?

Shares are often at a record high since they broadly increase in value over time.  If they didn’t it would be foolish to invest in them. 

So I suggest you do base your plans on current values but you need a strategy to ensure that short term deviations from the long term trend do not prevent you maintaining a steady income.

LateStarter

ali_bear said:

If you don't take any taxable pension income between your retirement and the state pension age, you'll be missing out on the income tax free allowance for those years. 

Agreed, I'm considering taking the maximum tax free amount (25% + personal allowance) from the SIPP during the first 5-6 years, and top that up to 30k from cash - which should use about half my savings. I'll let the works pensions continue to grow over that time, and keep the remaining cash to buffer for the times there's a big dip in the market, as I'm drawing down the works pension.

Albermarle

Agreed, I'm considering taking the maximum tax free amount (25% + personal allowance) from the SIPP during the first 5-6 years.
That is quite a common strategy, usually by taking one or two UFPLS payments each year.

LateStarter

af1963 said:

An illustration of one possible low risk option if you're worried about stock market drops:

£500k would buy a RPI-linked annuity of about 24k at age 61. Or probably better, take 25% (£125k) TFC and buy an annuity of 18k ( 17k after tax).  If you were planning to do that you could lock in the current share prices by shifting more to bonds, which should rise if annuity rates were to fall, and broadly preserve the annuity value that you can currently buy.

After SP starts, your income would then be 30K pre-tax, about 26k after tax.  

So the gaps to fill from savings are: £13k per year for 6 years before SP.  Then 4k per year.  You'd have existing 100k savings plus a 125k lump sum from which to draw this. Plus potentially two more years of 37k contributions to your pensions, plus tax relief on the SIPP contributions, some of which would generate more TFC.

You might not choose to do it this way but it shows what you could (almost) lock in right now. You'd miss out on longer term growth  if shares continued upwards, but your desired 30k income would be pretty secure,

I probably will  look at using some portion of the works pension on an annuity at some point (maybe at 67, when SP kicks in, or couple of years either side, depending on annuity rates). Hopefully a few years being retired will give me  a better idea of what I'll want/need. For the years pre-SP, I've got the SIPP and cash.