10 years retired - how come finances are so good?

Albermarle

Bostonerimus1 said:

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.

The thread is getting a bit political, so I will comment quick before it gets closed !

If you put aside the rights and wrongs of including unused pension pots in IHT, or IHT in general.

The UK treasury needs more money,  so the hard reality is that they are not going to change the IHT rules to bring in more money, and then change them again so they do not get the windfall, beyond maybe a few tweaks.
In addition the IHT change is clearly motivating people to give money away that could well be spent in the economy, and to spend more money themselves, again which will create economic activity and a bigger tax take. 

So a win, win all round from the UK treasury point of view, and they can even make a moral argument for it as well. ( so three wins) 

I know you are not based in the UK ( not yet), but I think its point out that this change to IHT rules on pensions has largely gone under the radar, as it has been overshadowed by the huge fuss over the change in IHT rules for farmers. So no MSE Pensions forum members ( or those of similar ilk) marching down Whitehall. 

Secret2ndAccount

I have a different perspective. Reduce my income tax. Let me spend more of MY money on things that I like. Then take as much as you like once I'm dead.
If I'm worried about keeping the family home I can buy life insurance to cover its value.

Bostonerimus1

Albermarle said:

Bostonerimus1 said:

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.

The thread is getting a bit political, so I will comment quick before it gets closed !

If you put aside the rights and wrongs of including unused pension pots in IHT, or IHT in general.

The UK treasury needs more money,  so the hard reality is that they are not going to change the IHT rules to bring in more money, and then change them again so they do not get the windfall, beyond maybe a few tweaks.
In addition the IHT change is clearly motivating people to give money away that could well be spent in the economy, and to spend more money themselves, again which will create economic activity and a bigger tax take. 

So a win, win all round from the UK treasury point of view, and they can even make a moral argument for it as well. ( so three wins) 

I know you are not based in the UK ( not yet), but I think its point out that this change to IHT rules on pensions has largely gone under the radar, as it has been overshadowed by the huge fuss over the change in IHT rules for farmers. So no MSE Pensions forum members ( or those of similar ilk) marching down Whitehall. 

My US DC pensions would have been included in my estate for UK IHT under the current rules if I had moved back to the UK, so I have a bit of schadenfreude with the proposed 2027 changes. If I stay in the USA there will be no Federal IHT tax on my estate as the exclusion is currently $14M. If I move to the UK my heirs will end up with a very large inheritance tax bill as I'm far over the UK allowances and won't qualify for the extra house exemption. The UK IHT tax rules look pretty draconian when compared to the US rules.

ggmf

Non-political - fact - While the UK has a large monetary deficit (a hole that 'we' are trying to plug), that of the US, is far far larger, 

Bostonerimus1

ggmf said:

Non-political - fact - While the UK has a large monetary deficit (a hole that 'we' are trying to plug), that of the US, is far far larger, 

Yes US deficit is about 6% of GDP while UK's is about 3%. Of course the US has, or maybe had, some advantages over the UK when it comes to borrowing. I've greatly reduced the level of US bonds I own over the last year and the OP's success is certainly partially due to the run up in various US sectors reflected in global equity funds; I wonder how long that can continue.

MarlowMallard

I think the bottom line here is that the past 10 years 2015-2025 have been somewhat better than an average 10 years for the markets; the short blip for Covid bounced back quickly. If you look at some bad 10-year periods e.g. 2000-2010 or 2006-2016, it would have been a lot worse. 

Albermarle

MarlowMallard said:

I think the bottom line here is that the past 10 years 2015-2025 have been somewhat better than an average 10 years for the markets; the short blip for Covid bounced back quickly. If you look at some bad 10-year periods e.g. 2000-2010 or 2006-2016, it would have been a lot worse. 

At the start of this decade ( Jan 2020) there were many comments on the forum ( even a consensus of sorts) that the previous decade would not be repeated, and that predictions of 1% real growth only for this decade were common.
However even a standard 60:40 multi asset fund is beating that so far , despite being battered by the most negative period for bonds in a 100 years and a bout of high inflation. 

Bostonerimus1

Albermarle said:

MarlowMallard said:

I think the bottom line here is that the past 10 years 2015-2025 have been somewhat better than an average 10 years for the markets; the short blip for Covid bounced back quickly. If you look at some bad 10-year periods e.g. 2000-2010 or 2006-2016, it would have been a lot worse. 

At the start of this decade ( Jan 2020) there were many comments on the forum ( even a consensus of sorts) that the previous decade would not be repeated, and that predictions of 1% real growth only for this decade were common.
However even a standard 60:40 multi asset fund is beating that so far , despite being battered by the most negative period for bonds in a 100 years and a bout of high inflation. 

The current approach to DC pension drawdown relies on modeling of historical stock and bond market returns. A lot of the research has a very obvious US bias as that's where DC pensions started. The difficulty is that the specific markets over that next 20 or 30 years might not conform to US historical averages and that's where drawdown management and asset allocation becomes very important. The OP is retiring through a good scenario where the returns on their investments are beating historical averages and they are doing well because they have a conservative drawdown amount. That might not happen for someone retiring now and it's important to have a plan that incorporates the possibility for poor returns. When I was planning my retirement income I ran all the models and eventually decided that I wanted to decouple my retirement income from the variability of markets as much as possible so I actively looked for a job with a DB pension option, bought a property to provide income from rent and maximized my state pension options. I think it's important for everyone to have a diverse set of retirement income options with various levels of risk designed to work with their pension nest egg and drawdown requirements.

Linton

ISTM the core reason people are finding themselves unexpectedly rich after say 10 years retirement is that, reasonably enough, they plan pessimistically on all fronts.  In reality life rarely turns out completely badly.

green_man

Linton said:

ISTM the core reason people are finding themselves unexpectedly rich after say 10 years retirement is that, reasonably enough, they plan pessimistically on all fronts.  In reality life rarely turns out completely badly.

Yes certainly true in my case, however with retiring early this was (in my mind) an essential process otherwise the risk of a long retirement would just be too high.  In the years leading to retirement my planning was on a long pessimistic outlook, only when tools showed this as likely > 99% success rate did I feel confident enough to take the jump.

So based on that it’s probably no surprise that things seem ok. However in my mind it seems to have been a pretty rocky 10 years: stagnant growth in the UK; spiralling energy costs; war in Europe; inflation in double figures; high interest rates (compared with recent past); COVID; Trump lunacy.   I know there’s nearly always something happening but other than actual world wars this seems like pretty big head winds to me.