Retirement advice / de-risking investment portfolio

QrizB

Edited because I'm a forgetful buffoon.

Let's forget the lump sum for now (we can factor it back in later).

You're planning to retire in 2028 and need £26k per year.

From 2028 onwards you'll have a £13k pa Classic pension, linked to CPI with no cap. You'll want another £13k pa from your SSISA.

One way to do this would be with an index-linked gilt ladder. Not something you can buy from Vanguard, but we'll cross that bridge later.

Per the tool at https://lategenxer.streamlit.app/Gilt_Ladder you could do that by moving just over £87k of your DC pension into the following gilts:

This is one of the safest way to achieve your goal; you're guaranteed to get £13k a year unless the UK government defaults on its debt repayments, at which point most other investments are also going to be shaky.

If instead you want to make use of your £40k lump sum, that's £5.5k of your £13k a year already covered. he remaining £7.5k would need a smaller gilt ladder, costing just over £50k:

I mentioned that you can't do this with Vanguard, so (if you like the idea) you'd need to make a partial transfer from Vanguard to a different platform. That's a pretty straightforward thing to do.

If you'd rather stay with Vanguard, and you're comfortable with the risk that their MMF fund might not keep up with inflation, then you cn move £91k or £51k into that fund.

QrizB

Also note you don't have to move it all immediately. You might want to adopt a five-year planning horizon, so move the investment for 2028-2030 now, then in 2026 make the additional transfer for 2031, and so on.

It depends on exactly how cautious you're feeling.

AsifM068

QrizB said:

Let's forget the lump sum for now (we can factor it back in later).

You're planning to retire in 2028 and need £26k per year. Is tat £6k before tax (gross) or after tax(net)? I'm going to assume net, but please correct me if I'm wrong.

From 2028 onwards you'll have a £13k pa Classic pension, linked to CPI with no cap. Your Classic pension will use all your Personal Allowance, so your DC pension will see an effective tax rate of 15% (as you get 25% taxfree and pay 20% on the remaining 75%). So you'll need £15300 a year, in 2025 money. I've assumed you ned this from September 2028; moving the month only makes small changes to the outcome.

One way to do this would be with an index-linked gilt ladder. Not something you can buy from Vanguard, but we'll cross that bridge later.

Per the tool at https://lategenxer.streamlit.app/Gilt_Ladder you could do that by moving just under £103k of your DC pension into the following gilts:

This is one of the safest way to achieve your goal; you're guaranteed to get £15.3k a year unless the UK government defaults on its debt repayments, at which point most other investments are also going to be shaky.

If instead you want to make use of your £40k lump sum, that's £5.5k of your £13k a year already covered. he remaining £7.5k would need £8800 a year from the gilt ladder, costing just over £59k:

Imentioned that you can't do this with Vanguard, so (if you like the idea) you'd need to make a partial transfer from Vanguard to a different SIPP platform. That's a pretty straightforward thing to do.

If you'd rather stay with Vanguard, and you're comfrtable with the risk that their STMM fund might not keep up with inflation, then to cover £91k after tax you'd need to move £107k across. To cover £50k, you'd need to move £59k.

Hi friend. You refer to a DC pension? Also, my yearly DB pension of around 13k will use up my personal allowance as you rightly say. But if I top this up yearly with ISA funds of 13K per year, the ISA funds are tax free...yes...no...not sure...help.

So to me (probably wrong!) it's 13*7 - 40K lump sum = 51K that I need to put into the MMF or similar. Where did you get to cover £91k after tax you'd need to move £107k across - I'm lost here.

I am referring to net figures.

The gilt ladder thing frightens me, so I will use a MMF I think but have some time to consider.

QrizB

AsifM068 said:

Hi friend. You refer to a DC pension?

Sorry, my mistake (again).

AsifM068

QrizB said:

AsifM068 said:

Hi friend. You refer to a DC pension?

Your Vanguard pension is a Defined Contributin (DC) pension.

AsifM068 said:

So to me (probably wrong!) it's 13*7 - 40K lump sum = 51K that I need to put into the MMF or similar. Where did you get to cover £91k after tax you'd need to move £107k across - I'm lost here.
I am referring to net figures.

If you take £13k out of your Vanguard DC pension, 25% of that will be tax-free. That's £3250. The remaining £9750 will be taxed, and if you're a 20% taxpayer that means you'll pay £1950 in tax. You will only receive £11050 of your £13k.

If instead you take £15300 from your DC pension, you'll receive 25% tax-free (£3825) and on the remaining £11475 you will pay £2295 in tax. This means you'll receive £13005, which is the £13k you need.

£15300 a year for seven years is a total of £107100.

Friend - I don't have a Vanguard DC pension. I have a Vanguard SSISA pot of 200K in the Global All Cap. How does this effect the calculations please?

Just reply in terms of the DB pension and the ISA pot please sir - I truly appreciate your help.

QrizB

I'm sorry, I'm all over the place. This is the Pensions forum and I keep assuming you're talking about pensions!

Let me go back and revise everything.

(Although, you might want to open a Vanguard pension - you'll get tax relief and be 6.25% better off?)

AsifM068

My fault my friend - no harm just pure confusion...lol.....break down your calcs clearly for me please sir.

QrizB

AsifM068 said:

My fault my friend - no harm just pure confusion...lol.....break down your calcs clearly for me please sir.

I've edited everything above.

Yes, £13k for seven years is £91k. Or, if you plan to include your £40k lump sum in your spending plans, you'll only need £51k.

However, you might (might!) want to move some of your Vanguard SSISA into a Vanguard DC pension, for the tax advantages.

I'm going to assume here that you're paid at least £27k per year, after pension contributions but before tax and NI.

This year, you could move £21.5k of your SSISA into the DC pension. You'll receive tax relief at 25%, so paying £21.5k into your new DC pension would get you an additional £5375 credited to the pension (after a few weeks delay) for a total of £26875k.

Next year you could do the same, and the year after, and (if youre still working, haven't retired) the year after that. That would give you £107500 in your new Vanguard pension, at a cost to you of (£21.5 x 4) £86000 from your SSISA.

If you then take £15300 from your new Vanguard DC pension, after tax you'll have £13k. So you can get your £13k pa (and a little bit more) by using £86k of your SSISA, not £91k. A £5k saving thanks to the tax relief!

AsifM068

QrizB said:

AsifM068 said:

My fault my friend - no harm just pure confusion...lol.....break down your calcs clearly for me please sir.

I've edited everything above.

Yes, £13k for seven years is £91k. Or, if you plan to include your £40k lump sum in your spending plans, you'll only need £51k.

However, you might (might!) want to move some of your Vanguard SSISA into a Vanguard DC pension, for the tax advantages.

I'm going to assume here that you're paid at least £27k per year, after pension contributions but before tax and NI.

This year, you could move £21.5k of your SSISA into the DC pension. You'll receive tax relief at 25%, so paying £21.5k into your new DC pension would get you an additional £5375 credited to the pension (after a few weeks delay) for a total of £26875k.

Next year you could do the same, and the year after, and (if youre still working, haven't retired) the year after that. That would give you £107500 in your new Vanguard pension, at a cost to you of (£21.5 x 4) £86000 from your SSISA.

If you then take £15300 from your new Vanguard DC pension, after tax you'll have £13k. So you can get your £13k pa (and a little bit more) by using £86k of your SSISA, not £91k. A £5k saving thanks to the tax relief!

Phew......this more makes sense to me! Will hold off on the DC pension suggestion for now and will transfer the 50K from the All Cap to the MMF ASAP.

Thank you ever so much my friend and please stay tuned for more inane questions!😃

Just a quick one - will the DB lump sum of 40K be tax free please?

QrizB

Yes, the Classic DB lump sum is tax-free.