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Pension pot: how much is enough?

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  • Sorry that's what I meant yeah... so if you have £999,999 at age 50 and growth took it over £1m you get stung, right? 

    I agree, jal.....
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  • crunchmancrunchman Frets: 11411
    I wouldn't take the defined benefits pension at 55 unless you are ready to stop working straight away at that point.  I don't know exactly what your salary is, but from what you have said above, you will end up paying higher rate tax on the pension income.  If you hold off until you actually stop working, you will get a bigger gross income, as you won't have the penalties for taking the pension early, and you also will pay less tax on the income.

    Even if you retire early, I would actually be tempted to get some kind of part time low stress work for a bit and avoid taking one of the pensions.  If you can hold off on taking one of the two pensions for a few years, you will get more money when you do take it.  I'm on a final salary scheme, but when I get there it will grow by 8% per year + RPI for every year I don't take it.  Not sure how it will work with yours, but an extra year or two before taking it might make a significant difference to your income.

    You don't know what the economy will do, and if you plan to have just enough, you might find it is not enough.  I'd plan to have 25% more than I think I need.  If all goes well, you will be able to afford some nice exotic holidays, or expensive guitars.  If it doesn't go well, then at least you have that bit extra.
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  • RandallFlaggRandallFlagg Frets: 13929
    Jalapeno said:
    I think he means NO.  Investment growth counts too (of the Pension pot), various Chancellors have got their fingers in our pots - starting with Gordon Brown.  The Con/Lib government cut the lifetime allowance from £1.5M to £1M.  I think you would be doing really well for £1M pot to yield a £40k/yr pension.

    This is the bit don't get. The fund I am in yeilds on average 16% a year over the last 20 years, with some years nearer 50% countered by the worst loss in a year of 33% (2008)

    £40K is only 4% of £1M, that seems a really low return. 


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  • Might also be an idea to keep savings in parallel in a S&S ISA so you can withdraw that tax-free (I know you pay tax on it going in...) in tandem with your pension. 

    Final salary is an absolute dream - I would love one of those but never gonna happen.
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  • @RandallFlagg what fund is that???? Seems too good to be true!?
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  • RandallFlaggRandallFlagg Frets: 13929
    edited January 2020
    Might also be an idea to keep savings in parallel in a S&S ISA so you can withdraw that tax-free (I know you pay tax on it going in...) in tandem with your pension. 

    Final salary is an absolute dream - I would love one of those but never gonna happen.
    I am, I have 1 S&S ISA which is my long term rainy day fund and one regular ISA for easy access savings. 


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  • RolandRoland Frets: 8590
    Roland said:
    It’s easy to focus on detailed forecasts. I don’t mean to belittle them. They were one of the building blocks of my career. However they tend to focus on “Doing it right” rather than “Doing the right thing”. Consequently they are often based on “more of the same”. 

    There is another question that you need to ask yourself: “What do I want to do with the rest of my life?”. Which leads to “How can I do that?”. My bass player wanted to have more control of his work life whilst still having money to buy equipment. He took early retirement, and immediately went back on contract doing the same type of work 3 days a week.  A former colleague retired and, last time I heard, was delivering rental cars across Scotland. It’s a nice way to see the countryside.

    In the absence of a forecast what would you recommend I use to try and predict the unknown future?, we have to use something to give a level of confidence. The above scenario uses real historical data from the last 20 years against my planned withdrawal rate. Everyone has a decision to make on when they retire based on something. I would rather it be based on some data and my own rationale than the advice of an IFA who wants me to move my pension into a fund he "manages" for a fee.

    With regards what I will do in retirement. I want out of this job asap. It pays well but the 2 hours a day driving commute grates after 16 years. I'm weary of it. I am building a list of things to do in retirement which will include maybe being a magistrate or some volunteering or get involved in local commitees/council etc. as well as many many personal things I want to achieve and do.

    I've had 2 people around me die in the last year, one at 56 and one at 66. I'm getting out of the rate race as soon as I can.

    You certainly need a forecast, particularly one which you can test scenarios against (eg different retirement dates). My point is that you should start with “What do I want to do with my life?”. 

    From what you’ve said a career change sounds very attractive, and more realistic than a sudden full stop. Maybe there’s a job closer to home which will cover your living costs until you’re ready to retire. A friend of mine bailed out of full time employment, and is living on part time work and savings until he’s eligible for his company pension, which he can’t take until he’s 65.
    Tree recycler, and guitarist with  https://www.undercoversband.com/.
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  • RandallFlaggRandallFlagg Frets: 13929
    edited January 2020
    crunchman said:
    I wouldn't take the defined benefits pension at 55 unless you are ready to stop working straight away at that point.  I don't know exactly what your salary is, but from what you have said above, you will end up paying higher rate tax on the pension income.  If you hold off until you actually stop working, you will get a bigger gross income, as you won't have the penalties for taking the pension early, and you also will pay less tax on the income.

    Even if you retire early, I would actually be tempted to get some kind of part time low stress work for a bit and avoid taking one of the pensions.  If you can hold off on taking one of the two pensions for a few years, you will get more money when you do take it.  I'm on a final salary scheme, but when I get there it will grow by 8% per year + RPI for every year I don't take it.  Not sure how it will work with yours, but an extra year or two before taking it might make a significant difference to your income.

    You don't know what the economy will do, and if you plan to have just enough, you might find it is not enough.  I'd plan to have 25% more than I think I need.  If all goes well, you will be able to afford some nice exotic holidays, or expensive guitars.  If it doesn't go well, then at least you have that bit extra.

    I've looked at this for my DB pension and there isn't a huge penalty for taking it earlier and it doesn't grow much by deferring it. Yes I will be taxed at 40% until I retire but I have factored that in. I want the tax free lump sum at 55 as we plan to do some work on the house. If I take that I have to start taking the pension, I can't take the lump sum and defer the pension unfortunately.

    So, for me, the one to defer is the DC pension which I will only take when I can satisfactorarily answer the inponderable question of how much is enough! Hopefull the fund I'm in has a good few years and I can get enough to put it beyond doubt.


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  • JalapenoJalapeno Frets: 6378
    Jalapeno said:
    I think he means NO.  Investment growth counts too (of the Pension pot), various Chancellors have got their fingers in our pots - starting with Gordon Brown.  The Con/Lib government cut the lifetime allowance from £1.5M to £1M.  I think you would be doing really well for £1M pot to yield a £40k/yr pension.

    This is the bit don't get. The fund I am in yeilds on average 16% a year over the last 20 years, with some years nearer 50% countered by the worst loss in a year of 33% (2008)

    £40K is only 4% of £1M, that seems a really low return. 


    As an Annuity that is - not via self-managed funds. The annuity yeilds are miserly at the moment.
    Imagine something sharp and witty here ......

    Feedback
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  • I've got a S&S ISA with a financial advisor (set it up when dealing with the girls' inheritance - I didn't want to be responsible for that). 0.5% fee per annum. BUT 3% fee on deposits - I thought that was a bit much!? 

    Defo working in a higher paying job full-time then going into something less stressful and for less hours later in life sounds a damn good plan.

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  • thomasross20thomasross20 Frets: 4423
    edited January 2020
    "What do I want to do with my life" is a brilliant question. So many work hard to achieve some sort of goal, e.g. some sort of financial independence but what after that? Are you really going to be ok playing guitar 8 hours a day or watching Netflix all the time? I didn't take part (I'm 35!) but we had a retirement class recently and it was largely focused on these issues and less on the money side of things.
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  • RandallFlaggRandallFlagg Frets: 13929
    edited January 2020
    Jalapeno said:
    Jalapeno said:
    I think he means NO.  Investment growth counts too (of the Pension pot), various Chancellors have got their fingers in our pots - starting with Gordon Brown.  The Con/Lib government cut the lifetime allowance from £1.5M to £1M.  I think you would be doing really well for £1M pot to yield a £40k/yr pension.

    This is the bit don't get. The fund I am in yeilds on average 16% a year over the last 20 years, with some years nearer 50% countered by the worst loss in a year of 33% (2008)

    £40K is only 4% of £1M, that seems a really low return. 


    As an Annuity that is - not via self-managed funds. The annuity yeilds are miserly at the moment.

    I'm not planning to take an annuity, as Paul Weller sang "...seems like madness to me"


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  • RandallFlaggRandallFlagg Frets: 13929
    "What do I want to do with my life" is a brilliant question. So many work hard to achieve some sort of goal, e.g. some sort of financial independence but what after that? Are you really going to be ok playing guitar 8 hours a day or watching Netflix all the time? I didn't take part (I'm 35!) but we had a retirement class recently and it was largely focused on these issues and less on the money side of things.

    I have plenty planned. Road trips around the UK staying in AirBnB to see places and towns I want to see, bird watching, model train exhibitions, a huge list of books to read, a million recipes to cook, become a magistrate, volunteering, The North Coast 500, join the gym, the list goes on...


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  • vizviz Frets: 10643
    edited January 2020
    viz said:
    You’d need a fund of 850k to give you a lump of 25% plus 25k pa if you retire at 55 with a single dc pension and don’t have any other income source or state pension. I think. 

    If you delay retirement to 65, you’d only need 600k for that income. 

    What logic are those numbers based on? What level of investment return etc?

    I'm not planning to take 25% lump sum and wife & I will have full state pensions, I have escalated todays' state pension rates accordingly assuming the triple lock increase stays in place.

    It’s based on private pension annuity returns on an example annuity provider (can’t remember which one I used).

    Obviously if you don’t take the 25% lump, the monthly payments will be higher (or to put another way, you will not need so much in the pot to achieve the same monthly income). I can do those calcs if you like. 

    Clearly you’d add the state pension on when you reach qualifying age. 
    Roland said: Scales are primarily a tool for categorising knowledge, not a rule for what can or cannot be played.
    Supportact said: [my style is] probably more an accumulation of limitations and bad habits than a 'style'.
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  • RandallFlaggRandallFlagg Frets: 13929
    viz said:
    viz said:
    You’d need a fund of 850k to give you a lump of 25% plus 25k pa if you retire at 55 with a single dc pension and don’t have any other income source or state pension. I think. 

    If you delay retirement to 65, you’d only need 600k for that income. 

    What logic are those numbers based on? What level of investment return etc?

    I'm not planning to take 25% lump sum and wife & I will have full state pensions, I have escalated todays' state pension rates accordingly assuming the triple lock increase stays in place.

    It’s based on private pension annuity returns on an example annuity provider (can’t remember which one I used).

    Obviously if you don’t take the 25% lump, the monthly payments will be higher (or to put another way, you will not need so much in the pot to achieve the same monthly income). I can do those calcs if you like. 

    Clearly you’d add the state pension on when you reach qualifying age. 

    OK thanks, I'm not going down the annuity route, it's too cautions and returns not good enough.


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  • vizviz Frets: 10643
    viz said:
    viz said:
    You’d need a fund of 850k to give you a lump of 25% plus 25k pa if you retire at 55 with a single dc pension and don’t have any other income source or state pension. I think. 

    If you delay retirement to 65, you’d only need 600k for that income. 

    What logic are those numbers based on? What level of investment return etc?

    I'm not planning to take 25% lump sum and wife & I will have full state pensions, I have escalated todays' state pension rates accordingly assuming the triple lock increase stays in place.

    It’s based on private pension annuity returns on an example annuity provider (can’t remember which one I used).

    Obviously if you don’t take the 25% lump, the monthly payments will be higher (or to put another way, you will not need so much in the pot to achieve the same monthly income). I can do those calcs if you like. 

    Clearly you’d add the state pension on when you reach qualifying age. 

    OK thanks, I'm not going down the annuity route, it's too cautions and returns not good enough.
    Does that decision need to be taken yet? I think that’s a decision you take the day you switch over from paying-in to taking-out. 
    Roland said: Scales are primarily a tool for categorising knowledge, not a rule for what can or cannot be played.
    Supportact said: [my style is] probably more an accumulation of limitations and bad habits than a 'style'.
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  • RandallFlaggRandallFlagg Frets: 13929
    edited January 2020
    viz said:
    viz said:
    viz said:
    You’d need a fund of 850k to give you a lump of 25% plus 25k pa if you retire at 55 with a single dc pension and don’t have any other income source or state pension. I think. 

    If you delay retirement to 65, you’d only need 600k for that income. 

    What logic are those numbers based on? What level of investment return etc?

    I'm not planning to take 25% lump sum and wife & I will have full state pensions, I have escalated todays' state pension rates accordingly assuming the triple lock increase stays in place.

    It’s based on private pension annuity returns on an example annuity provider (can’t remember which one I used).

    Obviously if you don’t take the 25% lump, the monthly payments will be higher (or to put another way, you will not need so much in the pot to achieve the same monthly income). I can do those calcs if you like. 

    Clearly you’d add the state pension on when you reach qualifying age. 

    OK thanks, I'm not going down the annuity route, it's too cautions and returns not good enough.
    Does that decision need to be taken yet? I think that’s a decision you take the day you switch over from paying-in to taking-out. 

    No but once you commit to annuity you lose it all in exchange for the measly return and there is nothing left for wife & kids inheritance and you lose the potential extra gains from the stock market in the good years. They buy your pot for a healthy profit based on your life expectancy.


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  • LoFiLoFi Frets: 534
    The returns on that fund have clearly been exceptional - it's a massive outlier even in its segment. However, it's a high-risk fund, and Morningstar rates its sustainability as below average even when compared to other funds of a similar risk profile. None of that means it's going to go tits-up, but as most people approach retirement, they tend to move capital into lower-risk funds (typically with a higher proportion of bonds to shares) to achieve more stability (often at the cost of growth).

    It's also worth noting that the first chart you posted has an annual draw proportional to the fund's performance in that year (or possibly some combination of recent years - it's hard to tell) - would you be comfortable significantly decreasing your income in a bad year? If not, work it out again with a constant draw.

    You also don't appear to have factored in inflation - even at a conservative 2.5%, you'll need £57K/pa in 2040 to be equivalent to your current £35K/pa.

    I've also seen the 4% figure used as a benchmark for a safe drawdown rate (including some suggesting it's too aggressive, and 3.5% is safer). I'm not an IFA (or anything like that), but I'd assume there's a reason that figure is the consensus - you're proposing just under 10%.

    I'm naturally very cautious financially, and don't want to put a dampener on your plans, but personally, there's no way I would bet my security in old-age on averaging 16% returns (and low/no inflation) for the rest of my life.
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  • spark240spark240 Frets: 2073
    @RandallFlagg what fund is that???? Seems too good to be true!?
    Indeed.....do you have the stats to back that up?


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  • vizviz Frets: 10643
    viz said:
    viz said:
    viz said:
    You’d need a fund of 850k to give you a lump of 25% plus 25k pa if you retire at 55 with a single dc pension and don’t have any other income source or state pension. I think. 

    If you delay retirement to 65, you’d only need 600k for that income. 

    What logic are those numbers based on? What level of investment return etc?

    I'm not planning to take 25% lump sum and wife & I will have full state pensions, I have escalated todays' state pension rates accordingly assuming the triple lock increase stays in place.

    It’s based on private pension annuity returns on an example annuity provider (can’t remember which one I used).

    Obviously if you don’t take the 25% lump, the monthly payments will be higher (or to put another way, you will not need so much in the pot to achieve the same monthly income). I can do those calcs if you like. 

    Clearly you’d add the state pension on when you reach qualifying age. 

    OK thanks, I'm not going down the annuity route, it's too cautions and returns not good enough.
    Does that decision need to be taken yet? I think that’s a decision you take the day you switch over from paying-in to taking-out. 

    No but once you commit to annuity you lose it all in exchange for the measly return and there is nothing left for wife & kids inheritance and you lose the potential extra gains from the stock market in the good years. They buy your pot for a healthy profit based on your life expectancy.
    Absolutely. Sure. 

    That reminds me, I’m going to give you a call when I’m ready to retire. 
    Roland said: Scales are primarily a tool for categorising knowledge, not a rule for what can or cannot be played.
    Supportact said: [my style is] probably more an accumulation of limitations and bad habits than a 'style'.
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