Financial position retirement advice request

DjangoUnchained

64 years old

Thinking of stopping work in the new year.

My state pension kicks in within 3 years so I could draw on my savings/pension £20k a year for those years then reduce my drawings to about £12k a year and receive about£12 k state pension.

Should I draw from my pension pot for three years as the taxable part of the pension only, thus leaving the tax free portion for when I receive state pension , taking me over tax threshold?

I hope that makes sense;

Here is my information, happy to supply more if needed.

Self employed most of working life,

Gradually winding down.

I live comfortably on £20k a year.

Full state pension due in 3 years

£130k in pension pot

£170k in various fixed term accounts and isas

£50 k stocks/shares isa

House paid off

Cars paid off

No debts/loans/payments

eskbanker

Should I draw from my pension pot for three years as the taxable part of the pension only, thus leaving the tax free portion for when I receive state pension , taking me over tax threshold?

To answer the question in a rather less intolerant manner, you can't directly do what you suggest but can take 75/25 UFPLS withdrawal(s) and put the tax-free component back into a pension or ISA, as described in this thread asking a similar question:

https://forums.moneysavingexpert.com/discussion/6383988/drawdown-pension-take-taxable-income-first-and-defer-tax-free

El_Torro

You have £170k in cash and you’re happy to live on £20k a year. This suggests that you could invest a fair bit of your cash, especially since you’ll be receiving your state pension in 3 years time,

You don’t need to go crazy high risk with investments, just enough to beat inflation and give yourself some extra spending money in the future.

TheTelltaleChart

Is your pension in investments? Because if it is, you currently have c. 50% investments, 50% savings. (Allowing for some tax being payable when drawing from the pension, the £130k there is, say, worth £120k net, so that, together with £50k in S&S ISAs, would make £170k investments, the same as in savings.)

Eco_Miser

Consider deferring (delaying) your state pension: for each 9 weeks deferred your pension increases by 1% ; and since you are not drawing that pension, you can draw more of your DC pension tax-free, and stash the excess (up to £20k) in an ISA for more tax-free income or capital spending later.

DjangoUnchained

https://forums.moneysavingexpert.com/discussion/comment/82176102#Comment_82176102

thanks, i now understand that.

https://forums.moneysavingexpert.com/discussion/comment/82176284#Comment_82176284

My ISA allowances have all been maxed out over the last few years, the £170k includes cash isas, the rest is in fixed term savings approx 4.5-5% returns. i do have a stocks and shares isa with approx 47k in it, if i were to invest in a genearl trading account id be wary of the CGT complications

DjangoUnchained

thats a possibility thanks

Marcon

[Quoted post removed by Forum Team]

Might I politely suggest that perhaps you are the poster who needs to do some reading: https://www.moneysavingexpert.com/site/forum-faqs/

noting particularly:

Far from doing 'lots of reading on how pension payout works', OP has had their question answered promptly and courteously, as is their right. Given the extremely low level of pensions knowledge in the population at large, it's imperative that nobody is discouraged from posting here. Sometimes one of the problems is knowing the right question to ask, never mind getting to grips with the answer! Nobody has to reply…

MarlowMallard

Worth noting that the most tax-efficient strategy is to draw £16,760 pa from DC pension pot before you start state pension. Then 25% or £4190 is tax-free and the other £12570 is taxable, but taxed at 0% as your personal allowance. Then top-up by taking from ISAs/savings, also tax-free. If you have non-ISA bank interest you can get another £1k tax-free savings allowance; if more than £1k you need to adjust numbers a bit.

After starting state pension, your ISAs remain tax-free but the state pension eats your personal allowance so 3/4 of your pension pot will be subject to income tax.

kempiejon

https://forums.moneysavingexpert.com/discussion/comment/82177579#Comment_82177579

Squeeze all the tax allowance we can get. Isn't that £1k the personal savings allowance for basic rate tax payers, there's starting rate for savings a potential for a further £5k allowance too. https://www.moneysavingexpert.com/savings/tax-free-savings/ Then there's £500 for dividends tax free.

MarlowMallard

https://forums.moneysavingexpert.com/discussion/comment/82177608#Comment_82177608

Yes I think you're right. If you take the above £16,760 from DC pot, I believe the £4190 "tax-free cash" does not count as "income", so your "income" is just the £12570 and then you can get up to £5k bank interest untaxed as "starting rate for savings".