How should I use my SIPP for a drawdown pension

generallyhappy

Hi I do not know if this is something people here could help me with or if I need to pay for advice. If so how do I go about finding someone

I was recently made redundant (aged 59). Decided that in todays job market, for an IT job and at my age. I will just take early retirement.

I have two work pensions, both index linked bringing in about £1150 a month (allowing for tax & NI). I need at least another £200 per month but would like another £600 per month.

In addition I have a SIPP worth 240K. According to my "back of an envelope" calculations, I would need a 5% drawdown (because I would be paying tax & NI on all of it) to give me approximately £1,000 before tax or a bit more than £600 a month after tax.

Obviously if I took 5% continuously, I am (hopefully) VERY likely to run out of money before I die.

Does it make sense to take 5% for seven and a half until my state pension kicks in, then stop drawing down until I start to need care then start taking a high percentage again?

Should I take a £38k lump sum (to top up my income until state pension kicks in) then just drawdown a continuous 3% until I die? I could either save the 3% once I reach state pension age for any future care costs or help my children with costs for any potential future grandchildren etc

I keep my finances separate to my husband (we each pay a share of the bills), the mortgage is paid off. Any money left in the SIPP once I die goes 98% to my husband and 1% to each of the two children - both in their 20's

Separate finances means I do not subsidise his smoking or visits to the pub and he doesn't subsidise my hobbies.

Thank you for any advice on this, it has also been really helpful to write all of this down

NoMore

You don't pay NI on pension income so neither your works pensions payments or your SIPP withdrawals will involve paying NI.

generallyhappy

Thank you, I assumed that didn't take effect until I was 67. Also did not want to make assumptions about future tax changes

El_Torro

Are you entitled to a full state pension? If not you can always pay for more years between now and when it pays out. Assuming you will get the full amount then that and your DB pensions combined should be enough, based on what you have said. So the £240k in your SIPP doesn't need to last too long.

It's good that you are taking into account care home fees, though remember that most people never go into a care home.

It looks like you have plenty of money to retire now, if that's what you want to do. Regarding withdrawing from your SIPP, I would just withdraw what you need. I don't think there's much advantage in drawing more than you spend.

Albermarle

It sounds like you have a plan. Normally you would hope a 5% drawdown would not mean you would run out of money, but clearly the chance of it happening will be higher than with a 4% one. A lot depends on how the markets behave and how it is invested. Also if there is a big market prolonged slump at the start of the withdrawal, it has a much bigger effect than one happening later. With a following wind many drawdown pots never go down, and some end up with more than when they started.

Some posters take out more than that before getting the state pension, and then reduce it when that arrives. It is a pretty standard strategy.

Bostonerimus1

You don't pay NI on your SIPP drawdown or other pensions. To have any idea about drawdown tactics we'll need to know how your SIPP is invested.

generallyhappy

https://forums.moneysavingexpert.com/discussion/comment/81868661#Comment_81868661

Yes, I am entitled to the full state pension. which is very useful.

Both my parents are paying for care , so I am preparing for that

generallyhappy

https://forums.moneysavingexpert.com/discussion/comment/81868663#Comment_81868663

Thank you it sounds like I will have a lot of flexibility which is reassuring

generallyhappy

https://forums.moneysavingexpert.com/discussion/comment/81868669#Comment_81868669

I don't know how much detail you need. I have 12 different funds pretty evenly split between them, all are medium to low risk - I'm generally quite cautious. Thank you

QrizB

Just looking at the current annuity best buy table:

https://www.hl.co.uk/retirement/annuities/best-buy-rates

£240k would buy you a lifetime RPI-linked annuity of around £10k.

Nothing you've yet said would make you a 40% taxpayer in retirement, so that would give £8k pa after tax which is £667 a month, a little more than your £600 target.

So yes, you have options.

squirrelpie

If you need £600 per month for seven years, you could just take tax-free cash from your SIPP, and worry about paying tax when you start withdrawing taxable money later. Even if the money from the SIPP was fully taxed (which it isn't), at a 20% tax rate you'd only need to take £750 a month, which is a 3.6% withdrawal rate. I think the realistic rate is 15% and at that tax rate it would be a withdrawal rate of under 3.4%. So as long as your investments aren't too cautious I think you should be OK.