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  • FIRST POST
    • choi
    • By choi 14th May 19, 11:30 AM
    • 32Posts
    • 3Thanks
    choi
    Nervous Retiree
    • #1
    • 14th May 19, 11:30 AM
    Nervous Retiree 14th May 19 at 11:30 AM
    i have recently decided to close down my construction business and retire very soon
    I have completed all my projects, been paid in full by all clients and paid all suppliers and subcontractors
    I am 67

    I have around 250 k in a Pension Pot currently in an Aviva cash account
    I have personal savings of 200 k
    There is a sum of 300 k in the business

    I have seen three separate IFA and I am currently reviewing my options

    One of them is a small independent IFA who I liked the best
    He has agreed to create a plan for my retirement income
    [Are there any downsides to going with a small independent]

    I am extremely nervous about the whole process of using my capital to provide a retirement income.

    What are the best options for me to consider for a cautious investor

    I am looking to obtain an income in the region of 25 to 30k pa
    With a reasonable cash reserve for various ptojects and unexpected events

    I realise my IFA will address this issue but I value the comments received from many posters on this forum

    Notes
    I have savings I am able to use for day to day living etc for the time being
    I also have a state pension
    My wife retires in six years time

    She will have a state pension plus a teachers part pension

    We own our own home outright
    We also own a separate home which gives us about 700 per month rent before taxation

    We are both currently in good health and my wife is still working
    Our children are grown up and in well paid jobs
Page 2
    • Malthusian
    • By Malthusian 16th May 19, 11:55 AM
    • 5,754 Posts
    • 9,542 Thanks
    Malthusian
    5k is a reasonable initial fee. You can get lower (especially if you required ongoing advice). The most important thing however is whether you are comfortable with the adviser and what they propose. You can always find someone who will do the job cheaper, you can't always find someone who will do it better.

    Do you need a lifetime annuity when your wife has State Pension and occupational pension to come in later? Would that leave you with "too much" guaranteed income once those kick in (i.e. you spent too much of your pension funds on guaranteed income you won't need?)

    What if we go through another period of the kind of inflation we saw in the 70s, after you'd spent all / most of your pension fund on an annuity increasing at 3%?

    Is that a joint annuity or single you are looking at? If the latter, would you wife have sufficient income if you died?

    The protection offered by annuities comes at a very high price. Going for a 3% annuity rather than one linked to RPI suggests you are trying to keep that cost down while still keeping some protection against rising costs, but trying to keep the cost of an annuity down is like haggling in Harrods.

    None of these questions are to suggest you shouldn't buy an annuity, they are only points that should be considered. If you see an IFA they will also go through these questions to make sure it is the right decision.

    How much is the buy-to-let worth? There could be Inheritance Tax implications to consider. Spending your IHT-exempt pension fund on annuity which dies with you, when you have substantial assets outside a pension which you could spend instead, is potentially Inheritance Tax inefficient under current rules.
    • choi
    • By choi 17th May 19, 8:02 PM
    • 32 Posts
    • 3 Thanks
    choi
    Thanks Malthusian

    Some great ideas there

    I am meeting a new IFA next week so lets see what crops up

    I did think of just going with the following

    State Pension 8750.00
    Small Annuity Pension 7,000.00

    Small top up from savings
    Plus 180.00 per month from a loan debtor

    This would give me circa 350.00 per week after cash

    This could see me through for the next few years without too much hit on my savings

    I can then review in three years time aged 70

    I would put left over cash in high interest secure accounts to provide some top up to the cash withdrawals

    Hopefully inflation will not boom out of control

    I am also ok in looking for a part time job

    I know this sounds a bit pathetic so I will await your comments
    • AnotherJoe
    • By AnotherJoe 17th May 19, 8:37 PM
    • 14,328 Posts
    • 17,082 Thanks
    AnotherJoe
    Seems bang on to me if your plan is to have the most money saved up when you die.
    You dont seem to be planning to ever spent your retirement savings so what was the point of accumulating them ? The idea is to spend them. You have day to day spending easily covered by your pensions, wife's income and then her pensions. And then incredibly talking about getting another job ! What all that money you are too scared to spend for ?
    Last edited by AnotherJoe; 17-05-2019 at 9:27 PM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
  • jamesd
    I have around 250 k in a Pension Pot currently in an Aviva cash account ... I have personal savings of 200 k ... There is a sum of 300 k in the business
    Originally posted by choi
    If you were to use routine safe withdrawal rates you could expect these sorts of incomes from 750k of capital:

    1. increasing by inflation each year, commonly called the "4% rule" based on its US level: 3.2% of capital, 24k a year with a very high probability of dying richer than you start
    2. using the Guyton-Klinger rules, starting on 5% of capital, 37.5k a year and increasing with inflation, but skipping that, taking extra cuts or getting extra increases depending on the investment conditions you actually live through.

    Both of those assume 1.5% in costs and using 60-70% in shares.

    So one key question is whether you hate the ups and downs of investments so much that you want to not get an income several times higher from your money?

    Even if you want guaranteed income your annuity plan looks poor. If you defer claiming your state pension, for each year you get an extra 5.8% added to it that increases with inflation. Say you and your wife get 8.5k of state pension. If you defer for five years each and take the 8.5k from savings instead you'd spend 42.5k each to get 2.46k a year each. That's a total of 4,920 increasing with inflation for a purchase cost of 85,000. You don't have to stop at five years. You might go to ten for your wife to keep her income up after your death, say. There isn't a guarantee that this will pay out for 30 years but term life insurance can do that quite cheaply for 10-15 years if health is good.

    A 30 year guarantee doesn't seem like a good idea. Buying at 67 this means that the annuity provider has to price it to pay out for at least 30 years, as if you live to be 97. About 90% of men will be dead by that age so you're asking them to cut your annuity payment by assuming an unusually long life. A ten or twenty year guarantee and/or splitting into one annuity for you and one or your wife seems likely to be a better move. What are you trying to achieve by requiring at least 30 years of payments?
    Last edited by jamesd; 18-05-2019 at 9:26 AM.
    • justme111
    • By justme111 18th May 19, 6:35 AM
    • 3,279 Posts
    • 3,146 Thanks
    justme111
    I believe it is obvious- OP is trying to ensure he does not outlive his annuity - what if he lives till 97?
    The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers to difficult choice between two undesirable options.
    I came across so many occasions when people use the word without understanding what it means I decided to use the definition above as a signature.
  • jamesd
    I believe it is obvious- OP is trying to ensure he does not outlive his annuity - what if he lives till 97?
    Originally posted by justme111
    A normal pension annuity is a lifetime annuity that pays for as long as the person lives.

    If there's a desire to provide for a spouse a dual life annuity that pays as long as either lives can be used, or one annuity each so income is reduced when expenses drop after the first death. Or state pension deferral that's likely to be cheaper and provide full inflation protection.

    A guarantee is normally used to try to ensure at least some payment in the case of early death, to increase the value of the estate perhaps. But buying one until age 97 is late death, not early, and can be expected to significantly reduce the annuity payments.

    So I'm wondering what the purpose is, since it's likely that there are better ways to achieve that purpose.
    Last edited by jamesd; 18-05-2019 at 10:38 PM.
    • justme111
    • By justme111 18th May 19, 10:10 AM
    • 3,279 Posts
    • 3,146 Thanks
    justme111
    Ah. Apologies. My bad. I missed the bit that ot os a 3% increase guarantee that is bought .
    Basically this chap has more than enough money and it is only his fear that it is not going to be enough that is an issue. As it is impossible to guarantee anything 100% I don't think he is going to e happy no matter what
    The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers to difficult choice between two undesirable options.
    I came across so many occasions when people use the word without understanding what it means I decided to use the definition above as a signature.
    • choi
    • By choi 21st May 19, 5:37 PM
    • 32 Posts
    • 3 Thanks
    choi
    I have been in touch with my old IFA

    According to him I could go two ways

    Annuity Option

    State Pension 8750.00
    Small Annuity Pension 7,000.00
    Single 3% escalation 30 year guarantee

    Small top up from savings
    Plus 180.00 per month from a loan debtor

    This would give me circa 350.00 per week after tax

    His cost for this option to set up Annuity 0.55 %
    No other costs

    This could see me through for the next few years without too much hit on my savings
    I can then review in three years time aged 70
    I would put left over cash in high interest secure accounts to provide some top up to the cash withdrawals
    Hopefully inflation will not boom out of control
    I am also ok in looking for a part time job

    Draw Down Option

    Draw approx 3.5% giving circa 8750.00 using a cautious balanced income portfolio giving circa 4%

    There is a tax free benefit fro 25% using this

    His cost for this option to set up Drawdown 0.55 %
    Annual running cost total 1.35%

    Downside to this for me is that Annual Running Costs may eat into the pot

    I welcome all comments and well meant advice

    I find making this decision very stressful
    • JoeEngland
    • By JoeEngland 21st May 19, 6:28 PM
    • 287 Posts
    • 585 Thanks
    JoeEngland
    I have been in touch with my old IFA

    According to him I could go two ways

    Annuity Option

    State Pension 8750.00
    Small Annuity Pension 7,000.00
    Single 3% escalation 30 year guarantee

    Small top up from savings
    Plus 180.00 per month from a loan debtor

    This would give me circa 350.00 per week after tax

    His cost for this option to set up Annuity 0.55 %
    No other costs

    This could see me through for the next few years without too much hit on my savings
    I can then review in three years time aged 70
    I would put left over cash in high interest secure accounts to provide some top up to the cash withdrawals
    Hopefully inflation will not boom out of control
    I am also ok in looking for a part time job

    Draw Down Option

    Draw approx 3.5% giving circa 8750.00 using a cautious balanced income portfolio giving circa 4%

    There is a tax free benefit fro 25% using this

    His cost for this option to set up Drawdown 0.55 %
    Annual running cost total 1.35%

    Downside to this for me is that Annual Running Costs may eat into the pot

    I welcome all comments and well meant advice

    I find making this decision very stressful
    Originally posted by choi
    Presumably the 1.35% is on top of the drawdown provider's percentage fee?
    • choi
    • By choi 21st May 19, 6:44 PM
    • 32 Posts
    • 3 Thanks
    choi
    That is correct
    The 1.35%cost would include everything and' would normally be financed from capital growth'

    What concerns me is on a cautious drawdown there may not be enough capital growth to pay me and fund the 1.35% costs
    • JoeEngland
    • By JoeEngland 21st May 19, 7:12 PM
    • 287 Posts
    • 585 Thanks
    JoeEngland
    That is correct
    The 1.35%cost would include everything and' would normally be financed from capital growth'

    What concerns me is on a cautious drawdown there may not be enough capital growth to pay me and fund the 1.35% costs
    Originally posted by choi
    Sounds like a lot to me. You could set up a SIPP yourself and just pay the provider's fees which can be as little as 0.5% pa I think. The question is whether an IFA can pick a provider and funds that will generate enough extra growth to justify the extra cost.
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