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  • FIRST POST
    • michaels
    • By michaels 20th Oct 19, 9:32 PM
    • 22,903Posts
    • 104,737Thanks
    michaels
    What could I spend if I retired today - am I contributing too much?
    • #1
    • 20th Oct 19, 9:32 PM
    What could I spend if I retired today - am I contributing too much? 20th Oct 19 at 9:32 PM
    So I am trying to work out if I am over-provisioning now and will end up with more in retirement than I live on now.

    Approx figures
    Self full SP already qualified payable in 13 years
    DW full SP already qualified payable in 17 years
    Pension saving assets spread across ISA and DC pension 700k.

    Rule of thumb calc:
    To replace SP until it is payable will cost 9k x (17+13) = 270k [assume here that growth of funds invested will at least match inflation although I know triple lock means SP will do better than this]

    Remaining pension saving spot = 700 - 270 = 430k

    Assume safe withdrawal rate of 3.5% = 15k pa [gross, I know there are other rules and SWR but 3.5% post fees is fairly conservative?]

    So retire today and we could safely live on at least 33k pa inflation adjusted?

    Currently we live on about 33k pa and put 45k pa into pension savings. If we do this for another 5 years before retiring then the odds are on retirement we would have more pa than we are living on now?
    [Pension pot 5 x 45 = 225k more at 925k, Bridge gap to SP 2 x 5 x 9k less = 180k leaving a pot of 745k x 3.5% = 26k + 18k = 44k]

    Thanks
    Cool heads and compromise
Page 1
    • ffacoffipawb
    • By ffacoffipawb 21st Oct 19, 5:02 AM
    • 2,965 Posts
    • 2,083 Thanks
    ffacoffipawb
    • #2
    • 21st Oct 19, 5:02 AM
    • #2
    • 21st Oct 19, 5:02 AM
    So I am trying to work out if I am over-provisioning now and will end up with more in retirement than I live on now.

    Approx figures
    Self full SP already qualified payable in 13 years
    DW full SP already qualified payable in 17 years
    Pension saving assets spread across ISA and DC pension 700k.

    Rule of thumb calc:
    To replace SP until it is payable will cost 9k x (17+13) = 270k [assume here that growth of funds invested will at least match inflation although I know triple lock means SP will do better than this]

    Remaining pension saving spot = 700 - 270 = 430k

    Assume safe withdrawal rate of 3.5% = 15k pa [gross, I know there are other rules and SWR but 3.5% post fees is fairly conservative?]

    So retire today and we could safely live on at least 33k pa inflation adjusted?

    Currently we live on about 33k pa and put 45k pa into pension savings. If we do this for another 5 years before retiring then the odds are on retirement we would have more pa than we are living on now?
    [Pension pot 5 x 45 = 225k more at 925k, Bridge gap to SP 2 x 5 x 9k less = 180k leaving a pot of 745k x 3.5% = 26k + 18k = 44k]

    Thanks
    Originally posted by michaels
    Based on those figures I would work 3 more yearz (not 5) to put a little more meat on the bone and to give a safety margin.

    Alao I would draw down the original 15k from the bigger pot though and not 3.5%.

    Figures similar to mine (allowing for tax as most mine is pension and my PCLS is mostly spent) but I have a 7.5k DB currently being taken from a scheme I left in 2005 plus another 4.5k from age 60 from a scheme I left in 1992 - that one's GMP is too high to let me take it now.

    Currently drawing down 3.5% of my post PCLS pot, about 18,000 a year.

    I have exceeded LTA overall but only crystallised exactly 90% since my 55th birthday in June.

    The remaining DB is about 8% LTA then two more small pots (one taken already) before crystallising to 100% LTA leaving the rest, approx 15% LTA, until the first of ...

    (1) age 75
    (2) LTA abolished
    (3) financial need
    Last edited by ffacoffipawb; 21-10-2019 at 5:10 AM. Reason: Loads of typos
    Retired: Financial Independence achieved in June 2019.

    Cofiwch Dryweryn
    • Linton
    • By Linton 21st Oct 19, 6:45 AM
    • 11,381 Posts
    • 11,801 Thanks
    Linton
    • #3
    • 21st Oct 19, 6:45 AM
    • #3
    • 21st Oct 19, 6:45 AM
    I agree with ffac... that you are in a good position but should build up more of a safety margin. Also you need to allow for major capital expenditures, things like house repairs, car replacement, a once in a lifetime world cruise etc etc. 3 more years before retiring sounds about right, assuming your portfolio is not invested over-cautiously.

    Is your 33K expenditure before or after tax? Obviously it would help here if your pension pots are evenly split between you and your wife.
    • Triumph13
    • By Triumph13 21st Oct 19, 7:03 AM
    • 1,585 Posts
    • 2,235 Thanks
    Triumph13
    • #4
    • 21st Oct 19, 7:03 AM
    • #4
    • 21st Oct 19, 7:03 AM
    Personally I wouldn't recommend anyone retire on a particular SWR unless they have flexibility in their spending. If your current 33k already has plenty of fat and you wouldn't have a problem cutting back in a downturn then fine, go for it. If the 33k is fairly tight then I would build more of a buffer first, or have a workable plan to earn income in retirement if necessary. That flexibility is very unlikely to be needed, but you'll sleep better knowing it's there.
    There are lots of similarities to our position in 2016 - 60% savings rate, big gap to bridge. I also largely budgeted it as a bridging pot assumed to match inflation* and a 'perpetuity' pot.
    When we got to the point where it looked like it all balanced we decided to do 3 more years to give us a buffer and allow for increased spending. We bailed out after 2 and a bit years as we weren't increasing our spending, had a huge buffer and working longer no longer felt worth it. I agree with ffacoffipawb that 5 years seems too much.

    *Obviously with such a long bridging period you will need to leave some of the bridging pot in the market if you want to avoid it being eroded by inflation - a juggling act that will give you many hours of playing with spreadsheets!
    • michaels
    • By michaels 21st Oct 19, 7:18 AM
    • 22,903 Posts
    • 104,737 Thanks
    michaels
    • #5
    • 21st Oct 19, 7:18 AM
    • #5
    • 21st Oct 19, 7:18 AM
    Thanks all for your input.
    Cool heads and compromise
    • uk03878
    • By uk03878 21st Oct 19, 10:55 AM
    • 137 Posts
    • 108 Thanks
    uk03878
    • #6
    • 21st Oct 19, 10:55 AM
    • #6
    • 21st Oct 19, 10:55 AM
    I think my numbers are in effect almost exactly the same as yours
    Aged 54 and 49, full SPs at 67/68 (in fact my SP is 200 more per year than normal)
    710k in DCs and savings
    Yes I could work for a few more years - but I have seen too many people die or fall by the way side over the past few years to not take the opportunity and enough people in my village seem to cope very well with much smaller retirement money than I do
    Moving abroad (Spain or Cyprus) and also using anywhere between 50-250k of house equity might help as well
    • MacMickster
    • By MacMickster 21st Oct 19, 11:03 AM
    • 3,262 Posts
    • 10,978 Thanks
    MacMickster
    • #7
    • 21st Oct 19, 11:03 AM
    • #7
    • 21st Oct 19, 11:03 AM

    Is your 33K expenditure before or after tax? Obviously it would help here if your pension pots are evenly split between you and your wife.
    Originally posted by Linton
    I suspect from previous posts that the main pension pot is in your name rather than evenly split. If so, you need to consider what the effect would be should you be run over by a bus shortly after retirement.

    Whilst the DC pension pot in your name could be inherited by your wife it would be after a significant tax charge. You need to consider whether she would have a sufficient pot of money left to provide a satisfactory net income. Hopefully a suitable life assurance policy is in place to mitigate this.
    "When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
    • Linton
    • By Linton 21st Oct 19, 11:31 AM
    • 11,381 Posts
    • 11,801 Thanks
    Linton
    • #8
    • 21st Oct 19, 11:31 AM
    • #8
    • 21st Oct 19, 11:31 AM
    I suspect from previous posts that the main pension pot is in your name rather than evenly split. If so, you need to consider what the effect would be should you be run over by a bus shortly after retirement.

    Whilst the DC pension pot in your name could be inherited by your wife it would be after a significant tax charge. You need to consider whether she would have a sufficient pot of money left to provide a satisfactory net income. Hopefully a suitable life assurance policy is in place to mitigate this.
    Originally posted by MacMickster

    As the OP has yet to start drawdown, if he dies before 75 the whole of the DC pension pot can be taken as tax free cash. Otherwise it can be transfered as a pension in which case the tax position is much the same as if the OP had survived. So I dont see much need for a life assurance policy for a retiree with a large DC pension pot.
    • Mistermeaner
    • By Mistermeaner 21st Oct 19, 11:44 AM
    • 2,686 Posts
    • 3,202 Thanks
    Mistermeaner
    • #9
    • 21st Oct 19, 11:44 AM
    • #9
    • 21st Oct 19, 11:44 AM
    I think my numbers are in effect almost exactly the same as yours
    Originally posted by uk03878
    you might be his wife?
    Left is never right but I always am.
    • Albermarle
    • By Albermarle 21st Oct 19, 12:42 PM
    • 1,748 Posts
    • 1,125 Thanks
    Albermarle
    As the OP has yet to start drawdown, if he dies before 75 the whole of the DC pension pot can be taken as tax free cash. Otherwise it can be transfered as a pension in which case the tax position is much the same as if the OP had survived.
    This is correct but I have often wondered about the logic/thinking behind this.
    If you stay alive you can only take 25% tax free, but if you die ( before 75) then your beneficiary can take the whole lot tax free .
    Logically the pension should transfer to the beneficiary and be taxable in the normal way .
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