10 years retired - how come finances are so good?

Sea_Shell

Bostonerimus1 said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

That is supposed to be changing for DC pensions in 2027 though.  They will become included.

I've been retired 6 years now 😲 and have found similar to OP.

Bostonerimus1

Sea_Shell said:

Bostonerimus1 said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

That is supposed to be changing for DC pensions in 2027 though.  They will become included.

I've been retired 6 years now 😲 and have found similar to OP.

It hasn't happened yet and when the changes are implemented then act accordingly which will probably mean a lot of gifting. I think bringing pensions into the estate for IHT purposes is a sensible step, but it would be very perverse to leave the IHT threshold at it's current level. It should be put at something like a million pounds.

ukdw

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

Post 2017 and age 75 and with IHT due, then I think it is fairly tax neutral whether the extra 20% drawdown possible above £30k is inside or outside the pension.

Inherited inside pension it would be 40% IHT, then probably 20%, but potentially as much as 60% more on inherited drawdown marginal tax.

Inherited Outside pension (non gifted) - it would be 20% on drawdown, then 40% IHT.

The ideal I think is 20% drawdown, then regular gifting out of excess income - (or spending!)

green_man

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

Yes, absolutely. Not so much a dilemma in my case as I need to take more than the tax free amount in any case so not danger of ‘wasting’ tax free allowance……but yes thinking out how to pay the minimum amount of tax is an important step that can make a big difference if you don’t think it through.

Bostonerimus1 said:

green_man said:

Bostonerimus1 said:

QShimrod said:

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with an equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

Yes indeed this really is my thinking in general.  My investments cover my income needs, so I have the luxury of being able to afford a large cash buffer. The buffer as much as anything is phycological and provides much piece  of mind.  No hint of panic through Covid or Energy bubble of a couple of years back. 

The most enviable part of being in your situation is being able to sit back and enjoy your retirement without having to worry about money. Now that DC pensions have largely replaced DB pensions it's an increasingly uncommon position as people simply don't save and invest enough and often manage their money very poorly.

Yes I am in a fortunate position, however it’s not down to luck….several ‘friends’ have called me lucky in various pub conversions, this annoys me somewhat…this came by spending years putting 25-30% of my salary into my pension and other long term savings into ISAs, and making all the sacrifices that entails ( less good cars, less good holidays etc). I was always just in middle income jobs so it does take sacrifice. 

german_keeper

Bostonerimus1 said:

Sea_Shell said:

Bostonerimus1 said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

That is supposed to be changing for DC pensions in 2027 though.  They will become included.

I've been retired 6 years now 😲 and have found similar to OP.

It hasn't happened yet and when the changes are implemented then act accordingly which will probably mean a lot of gifting. I think bringing pensions into the estate for IHT purposes is a sensible step, but it would be very perverse to leave the IHT threshold at it's current level. It should be put at something like a million pounds.

I think for most people it already is a million pounds isn't it? I should probably mention that I have a completely different opinion on IHT than 99% of the population and I think that a million is far too high!

green_man

german_keeper said:

Bostonerimus1 said:

Sea_Shell said:

Bostonerimus1 said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

That is supposed to be changing for DC pensions in 2027 though.  They will become included.

I've been retired 6 years now 😲 and have found similar to OP.

It hasn't happened yet and when the changes are implemented then act accordingly which will probably mean a lot of gifting. I think bringing pensions into the estate for IHT purposes is a sensible step, but it would be very perverse to leave the IHT threshold at it's current level. It should be put at something like a million pounds.

I think for most people it already is a million pounds isn't it? I should probably mention that I have a completely different opinion on IHT than 99% of the population and I think that a million is far too high!

Only a million if you have survived your spouse (and are thus using their allowance as well) and are passing the family home to a direct descendent. Otherwise it is no where near a million.

Bostonerimus1

german_keeper said:

Bostonerimus1 said:

Sea_Shell said:

Bostonerimus1 said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

That is supposed to be changing for DC pensions in 2027 though.  They will become included.

I've been retired 6 years now 😲 and have found similar to OP.

It hasn't happened yet and when the changes are implemented then act accordingly which will probably mean a lot of gifting. I think bringing pensions into the estate for IHT purposes is a sensible step, but it would be very perverse to leave the IHT threshold at it's current level. It should be put at something like a million pounds.

I think for most people it already is a million pounds isn't it? I should probably mention that I have a completely different opinion on IHT than 99% of the population and I think that a million is far too high!

I meant raising the 325k allowance up to one million. That would give a married couple a two million allowance to pass onto children not counting the house. You can argue about the amount, but if DC pensions come under the IHT umbrella then the tax free inheritance allowance should be raised and maybe even make the tax rate progressive like income tax.

Bostonerimus1

green_man said:

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

Yes, absolutely. Not so much a dilemma in my case as I need to take more than the tax free amount in any case so not danger of ‘wasting’ tax free allowance……but yes thinking out how to pay the minimum amount of tax is an important step that can make a big difference if you don’t think it through.

Bostonerimus1 said:

green_man said:

Bostonerimus1 said:

QShimrod said:

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with an equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

Yes indeed this really is my thinking in general.  My investments cover my income needs, so I have the luxury of being able to afford a large cash buffer. The buffer as much as anything is phycological and provides much piece  of mind.  No hint of panic through Covid or Energy bubble of a couple of years back. 

The most enviable part of being in your situation is being able to sit back and enjoy your retirement without having to worry about money. Now that DC pensions have largely replaced DB pensions it's an increasingly uncommon position as people simply don't save and invest enough and often manage their money very poorly.

Yes I am in a fortunate position, however it’s not down to luck….several ‘friends’ have called me lucky in various pub conversions, this annoys me somewhat…this came by spending years putting 25-30% of my salary into my pension and other long term savings into ISAs, and making all the sacrifices that entails ( less good cars, less good holidays etc). I was always just in middle income jobs so it does take sacrifice. 

I don't think luck has much to do with your situation. Thrift and long term sensible investing can produce some fantastic results. Of course you need to be in a job that allows you to save and invest aggressively and live in a country with the appropriate financial environment to make retirement possible and those factors are often about the luck of when and where you are born. I was lucky enough to be born in the 1960's in a working class family that valued education. So I got lots of encouragement to study hard and then I went to university, paid zero fees and got grant money to live on. Because of that I ended up in well paid government, academic and commercial jobs. I'd say 50% of my career was down to my hard work and skill and 50% due to the accident of my birth and being able to attend a Russell Group university free of charge, but my personal finances are pretty much just due to my thrift and common sense.

Bostonerimus1

ukdw said:

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

Post 2017 and age 75 and with IHT due, then I think it is fairly tax neutral whether the extra 20% drawdown possible above £30k is inside or outside the pension.

Inherited inside pension it would be 40% IHT, then probably 20%, but potentially as much as 60% more on inherited drawdown marginal tax.

Inherited Outside pension (non gifted) - it would be 20% on drawdown, then 40% IHT.

The ideal I think is 20% drawdown, then regular gifting out of excess income - (or spending!)

Right now DC pensions are a nice IHT loophole. If that changes then DC pensions will continue to be a great tax sheltered way of investing, but I imagine there will be a lot more interest in trusts as ways to pass on generational wealth and gifting. FYI the 7 years and low gift tax allowances need to change if DC pensions are included in the inherited taxable estate.

DT2001

green_man said:

FLinton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

Yes, absolutely. Not so much a dilemma in my case as I need to take more than the tax free amount in any case so not danger of ‘wasting’ tax free allowance……but yes thinking out how to pay the minimum amount of tax is an important step that can make a big difference if you don’t think it through.

Bostonerimus1 said:

green_man said:

Bostonerimus1 said:

QShimrod said:

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with an equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

Yes indeed this really is my thinking in general.  My investments cover my income needs, so I have the luxury of being able to afford a large cash buffer. The buffer as much as anything is phycological and provides much piece  of mind.  No hint of panic through Covid or Energy bubble of a couple of years back. 

The most enviable part of being in your situation is being able to sit back and enjoy your retirement without having to worry about money. Now that DC pensions have largely replaced DB pensions it's an increasingly uncommon position as people simply don't save and invest enough and often manage their money very poorly.

Yes I am in a fortunate position, however it’s not down to luck….several ‘friends’ have called me lucky in various pub conversions, this annoys me somewhat…this came by spending years putting 25-30% of my salary into my pension and other long term savings into ISAs, and making all the sacrifices that entails ( less good cars, less good holidays etc). I was always just in middle income jobs so it does take sacrifice. 

How are your funds split between ISAs and pensions. Sorry if I have overlooked that information.
Then the question is, where are the more volatile funds. We have not retired yet and are fairly evenly split between pensions and ISAs through circumstances not planning however I have looked at which investments I hold where. I have income that utilises most of the tax free allowance so had been thinking that I should use the BR tax band to the full. If I have more volatile funds in the pension, when they ‘dip/correct’ I can take out more units to put in an S&S ISA and then invest as inside the pension (so not selling low). If I understand your position that might work - £50k from pension, £30k income and £20k into ISA.