10 Year Plan? Am I Dreaming?

PeacefulWaters wrote: »

But if you work out a spending budget in retirement, factor in when state pensions kick in and work back from that you may find you don't need as much as you think.

State pensions might start at about the age when rental property becomes too much of a hassle. That would release capital (after CGT) to invest for income.

As an alternative way of approaching this I suggest you think about your total pot as a sinking or draw down fund rather than a fund that needs to be either annuitized or the capital preserved.


The basic rationale and approach is that you build a spreadsheet with the year in which you plan to retire incremented by 1 for each row down the first column, your opening pot size in the second column, increase it in the third column by an interest factor say 1.5%, the next column is the starting amount you intend to draw in that first year say £19k, perhaps you increase it down the column each year by say 1.5% although as you get older travels might slow down a bit. The last column is the closing balance at the end of that year which becomes the opening balance for the following year.


See how long your pot might last. It might tell you when the second of you needs to "pop off" in order not to run out of cash or it may indicate when you might consider capitilising your rental income back into a property sale in order to increase your pot.

This is our approach and I am content with it. It tells me that we "probably" have more than enough to last and we have a second property as a buffer in case we spend more.

Most advice seems to start with a presumption that you either want an annuity or leave capital after the surviving spouse dies. We hope to spend as much of it as possible whilst alive but might in fact leave a fairly decent property to be shared out.

In order to try and avoid adverse comment saying this is terribly irresponsible I am not criticising any other approach or saying my one is right for all. It is right for us and allows us to feel that we have a decent understanding of our finances and future options. I have further spreadsheets which track globally what we spend each year on stuff and what is from fixed incomes and the rest comes from the sinking fund.


Hope this give you an alternative way of thinking of the challenge.

I'm spookily close to the numbers you are talking about, even down to the estimated 'comfortable' income and I think it's possible. I am aiming to hit around the figures you are aiming for at the same age but in a shorter timescale due to large contributions over the next 3 years.

I've created a spreadsheet of annual income & capital running from age 52 to 80. First 5 rows are capital including pension pots for me & DW, any TFLS (remembering to deduct them from pots) and Cash & ISA savings.

Below that I have another set of rows for income; salaries, interest/dividends on investments, capital drawdown, DB pension (me), state pension for DW & me.

My retirement income plan basically reads like:

• drawdown £xk per year until 60 when DB pensions kick in,
• then lesser drawdown for 2 more years
• after that DW's pension pot (age 55) tops up the total pots,
• then even less drawdown (due to more investment income) until 5 years later when my SP kicks in
• then minimal drawdown for 7 years until DW SP kicks in
• then a flat income maintaining pot levels to age 80 (this could go on forever if assumptions hold)
• I've added an inheritance in there but only when my dear mum hits 101, I may need a rethink if she is around longer but seeing as that puts me at 71 I'm reasonably hopeful we could reduce our spending as it isn't huge in terms of our current planned pots.

Obviously you have to link 'interest' with capital pots and make sure any drawdowns are reflected in your capital pot values. I did allow for 80% of DW's SP to be 'free and clear' boost with me being 7 years older than her so loss of half my DB pension if I pop my clogs wouldn't affect her income much at her retirement age

Then by messing around with my drawdown totals and ensuring the capital pots kept aligned I managed to arrive at a flat rate up to age 80 we are comfortable with. It took some fiddling but I was pleasantly surprised by phasing income in this way and especially introducing the SPs that my forecast retirement income was a lot more than we originally forecast to be required.

You may find out by including SP in your planning, adding any lump sums from sales of a BTL and judicious phasing of drawdown to coincide with forecasted 'new' income streams i.e. SP, you might be able to go earlier or have more than you thought.

PS I'd suggest you ignore inflation & pay-rises and work on todays money and merely assume your pots will increase/decrease by inflation + your contribution/drawdown rate, I used 3.5% drawdown to err on the safe side.