10 years retired - how come finances are so good?

german_keeper

Bostonerimus1 said:

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.

So close an obvious tax loophole, that as I understand it even Gideon didn't foresee, and bring in a different policy to nullify it. Seems odd to me. 

german_keeper

green_man said:

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.

An interesting situation, hence my use of the word most rather than majority or vast majority, who knows? I would still go with most but I might be wrong.  Anyway, whatever it is a gift, the recipient hasn't earned it or paid tax on it even though it is likely parents or other family have. That's why as far as I can see if we accept taxation in a civilsed society  then it is the fairest tax of all.

Yes I accept that I think very different to the vast majority. And I actually like the fact that I do 

Bostonerimus1

german_keeper said:

Bostonerimus1 said:

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.

So close an obvious tax loophole, that as I understand it even Gideon didn't foresee, and bring in a different policy to nullify it. Seems odd to me. 

I believe the DC pension tax loophole is a hold over from when DB pensions were the norm and so inheritance of remaining money wasn't an issue. When the loophole is closed the UK needs to decide how to tax inherited DC pension accumulations. Leaving things as they are is an option, but that seems perverse to me with such a big change to the tax regime and will surely be a big political talking point. Raising the IHT allowance will soften the blow for many and could be a useful tool to manage economic inequity. I imagine that this is being modeled by the Treasury and HMRC.

cfw1994

Bostonerimus1 said:

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.

Thrift and long term sensible investing.
Reminds me of the remarkable Ronald Read - https://en.m.wikipedia.org/wiki/Ronald_Read_(philanthropist) - a janitor and gas attendant who amassed $8M by the time he passed away 😜

I have no desire to be the richest in the graveyard, and the impending changes in IHT mean we have shifted our mindset to one of trying to share more with our offspring now, rather than when we have passed away….so instead of leaving the DC pot to last, we have ramped up the draws on that a little more…

ukdw

german_keeper said:

green_man said:

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.

An interesting situation, hence my use of the word most rather than majority or vast majority, who knows? I would still go with most but I might be wrong.  Anyway, whatever it is a gift, the recipient hasn't earned it or paid tax on it even though it is likely parents or other family have. That's why as far as I can see if we accept taxation in a civilsed society  then it is the fairest tax of all.

Yes I accept that I think very different to the vast majority. And I actually like the fact that I do 

I agree that IHT is fair, especially on big untaxed gains like houses, and gains within ISAs and pensions. 

But for me the  cliff edge 40% rate is the problem.

If the IHT rate was 10-20% on things like pensions and past gifts.
Balanced out by the pre age 75 pension tax free option being removed, plus removing most of the past gifts exemptions (like 7 year rule, gifting out of excess income).

I would also lower the IHT rate to 20-30% up to £10m, balanced out by removing the complicated residence nil rate band  (and most of the past gifts exemptions).

Sea_Shell

As a couple with no children, currently, on second death we'd face an IHT bill of ~£38,000

If you include pension pots, that figure increases to .... ~£180,000     !!! 


As for how our "squirrelled nuts" are doing...we started off with an overall retirement pot of £530,000 in July 2019

Since then we have spent - £125,000.   

We now have £675,000


Volatile though, month to month... 

In Oct 23 - it fell to £575,000
But by Jan 25 - it was up to £697,000



(We're only coming up 59 and 54)

green_man

german_keeper said:

green_man said:

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.

An interesting situation, hence my use of the word most rather than majority or vast majority, who knows? I would still go with most but I might be wrong.  Anyway, whatever it is a gift, the recipient hasn't earned it or paid tax on it even though it is likely parents or other family have. That's why as far as I can see if we accept taxation in a civilsed society  then it is the fairest tax of all.

Yes I accept that I think very different to the vast majority. And I actually like the fact that I do 

If you are inheriting the family home then to say you haven’t earned it is perhaps not wholly accurate. You may have spent the majority of your life in this house, paid rent when you started working, helped with maintenance, repairs, gardening, extensions etc etc.  I know I my case I have spent thousands of hours over decades working on the ‘family’ home, so there is a considerable investment financially and more significantly emotionally in said property. This applies even more so when we are taking about family farms. 

Even with more financial assets the same argument can apply but to a lesser degree. I.e you father worked away to earn enough to provide for the family, you then had to fill in, had to endure living without a father most the week etc etc.

Ok so I’m  playing devils advocate here to some degree, but it’s not typical that some random stranger is the recipient of an inheritance, in most cases the recipients do have much of their life invested in these assets in one way or another.


In other news my pot is down about 30k since I started this thread…..maybe I should just keep my big gob shut…

af1963

Sea_Shell said:

As a couple with no children, currently, on second death we'd face an IHT bill of ~£38,000

If you include pension pots, that figure increases to .... ~£180,000     !!! 

Depends on who you leave it to.  Unlimited IHT-free legacies to charities, on top of a £650k joint exemption that could go to IHT-liable individuals.

af1963

green_man said:

If you are inheriting the family home then to say you haven’t earned it is perhaps not wholly accurate. You may have spent the majority of your life in this house, paid rent when you started working, helped with maintenance, repairs, gardening, extensions etc etc.  

Isn't that what the extra 2x£175k allowances for the family home being left to descendents are there to recognise? 

And people whose parents don't own a home for them to inherit also usually help them out as they get older. It's not a transactional thing that is done in the expectation of payment.

green_man

af1963 said:

green_man said:

If you are inheriting the family home then to say you haven’t earned it is perhaps not wholly accurate. You may have spent the majority of your life in this house, paid rent when you started working, helped with maintenance, repairs, gardening, extensions etc etc.  

Isn't that what the extra 2x£175k allowances for the family home being left to descendents are there to recognise? 

And people whose parents don't own a home for them to inherit also usually help them out as they get older. It's not a transactional thing that is done in the expectation of payment.

Yes I guess that’ is one reason why the extra allowance exists, remember German Keeper is suggesting this should be lower or not exist.

Additionally you are right most do help out as parents age, again an argument supporting the emotional and financial investment in anything that is left to them.