How long will my DC pot last ?

RNV

Hello, 

One of those days at work when I really really really want to get out of this trade mill.... need a bit of reality slap on my face so came here with a question....

DC work pension.  Currently ~£600k, should reach £850k (contributing ~50k via sal sac + hopefully some growth)  in 3-4 years when I'm 57 (my prior hopes/dreams to stop at 55 def seem unrealistic now). No other notable savings in my name. 

This DC pension, once in drawdown, will be used to fund my contribution to household costs & my "own" money to spend. Things like new roof/boiler/help to children through universities (if they end up there) etc will come from various other family pots /investments. 

Those with models/fag packets/crystal balls - how long will this "850k" last if drawn down 10 years x 45k (5.29%) until SP, then say 25k + SP ?

As I started with,  this is not a serious plan to quit, just a bit of a harsh reality check....

Thanks all who find time /desire to respond

JoeCrystal

Or opt for an annuity that lasts a lifetime   After all, you can get 25% tax-free lump sum so almost the maximum allowed £212,500, plus an index-linked at RPI annuity of £26,953.5 at 55 (there isn't one for 57 rate atm online). Just fire a Google Sheet or Excel and give it a go. Lacking that, pay for actual advice. 

JoeCrystal

EDIT: Of course, you may get another reality check with every Budget!

Linton

10 X £45K=£450K leaving you with £400K in your pension.  A rule of thumb is that a pension pot sensibly invested will sustainably generate 3-3.5% of inflation linked income.   That makes the income from your pension pot £12K-£14K for the rest of your life. So about £11K/year short

Note that this income is all gross. 

Is this income just for you? Do you have a spouse? What about their SP and pensions?  Do you really need a total of £45K/year until SP age and then about £37K/year? How much are you spending now after all work related expenses?

RNV

Thanks for replies.

No substance for serious (& of course paid for) advice yet - I know I do not have enough to stop paid work  - but will def. have some kind of advice later. 

 "Just for me" is in the sense of my contribution towards the joint account + my "own" money to spend (hair cuts, clothes, few more bits for children that they want rather than need), phone  etc. etc. 

We are going through £5-6k/month net as a family through our joint account at the moment - this is with mortgage (will be paid off in 2 years) & two young-ish teens and including ~1.5k joint savings towards universities/other help.  Currently, my "fair share" towards joint account is 2.5k./month. 

In about 4 years time, without mortgage but assuming same level of children's costs/help  until they leave home/get(hopefully) proper jobs we should reduce to £4.5k. So, this is how I got to a total net need figure of ~3.2k /month = ~45k gross.

Yes, my husband will have his own DC + full SP, currently is still working.

MallyGirl

Supporting kids through uni is expensive!

RNV

MallyGirl said:

Supporting kids through uni is expensive!

Yes, no illusions here. We are aiming for 100k savings dedicated to that available by the time the universities start/or not. Then, top ups as we/they go.

Albermarle

You should be aware of 'sequence of returns' risk.

During the lifetime of a 30 to 40 year drawdown, the financial markets will obviously go through many down and up periods.

However if there is a big drop in the markets that is sustained for a long period at the start of the drawdown, it has a much bigger negative effect than if it happened later . This is 'sequence of returns' risk.

Ideally if relying mainly on a DC drawdown for income, a back up cash fund is normally recommended, so the drawdown can be reduced at such times. Alternatively investments in the pensions are converted to cash well in advance of when the income will be withdrawn.

Triumph13

Looking at it the other way, as what could £850k support, after you take the TFLS you are left with £637k.  3.5% drawdown on that would be £22k a year.  Once your state pension comes on line that's £34k pa gross, £30k net.

Of the TFLS £100k goes on filling in for the state pension for ten years.  That leaves £112k from which you can probably take another £4k tax free each year to give you £34k net pa.  Not a million miles away.

MK62

RNV said:

Those with models/fag packets/crystal balls - how long will this "850k" last if drawn down 10 years x 45k (5.29%) until SP, then say 25k + SP ?

The answer to that will likely vary wildly depending on how you invest, how you structure your drawdown plan, and what returns and inflation you see (and in what sequence)..

However, as an example, with the £600k you already have, you could, today, buy IL gilt ladders which would guarantee (govt default notwithstanding) to pay out an index linked £45k pa from 2029-2039 (£400k), and an index linked £25k pa from 2039-2051 (£194k). So that would take care of the first 22 years of your retirement, taking you to 79. 
What your c£200k of further contributions will buy over the next 4 years would be an estimate - if invested today, it would buy you a further 16 years worth of index linked income, but you'll have to invest it over the next 4 years as it becomes available.....I think you'd be unlucky if you couldn't get at least 12 though, but this comes under the "crystal ball" you mentioned.

You could invest and better this considerably of course........but you could also do a lot worse too, however, you can mix and match as you see fit. Many go down the path of securing essential spending with guaranteed index linked income, with discretionary spending coming from riskier investments (ie equities etc).

RNV

Thanks all.  I was thinking there is a chance with prevailing wind and some readjusting of the £needs/wants and this gives me a 3rd party nod to that thought.  

Suppose not much  I can do now other than keep calm and carry on salary sacrificing into DC (while it lasts).

Will  re-assess at 55y.o point when can access DC (yes, I'm on the right side here for 55). If the market is similar to current, may take some TFLS and move to ISA for future "supplementary pot" and continue contributing.  

Thanks again.