Retirement Strategy
Discussion
Without getting into specific figures (being a English male, I feel uncomfortable discussing money), can I just run this plan past the financial brains of PH, for you to pick holes in.
I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
It all works and makes sense. There are no rules that prevent you from doing it either.
Only thing to add is to look at sticking as much of the TFC and withdrawals as possible into an ISA so they remain tax free and any returns don't impact on your pension withdrawals within your personal allowance band.
You may also want to consider this being a stocks and shares ISA that mimics your pension portfolio and enables you to drawdown tax free returns just as you are now with your pension.
Pensions are great for accumulation, but when you get to decumulation you want to be getting your money out and into a tax free ISA before spending it!
Only thing to add is to look at sticking as much of the TFC and withdrawals as possible into an ISA so they remain tax free and any returns don't impact on your pension withdrawals within your personal allowance band.
You may also want to consider this being a stocks and shares ISA that mimics your pension portfolio and enables you to drawdown tax free returns just as you are now with your pension.
Pensions are great for accumulation, but when you get to decumulation you want to be getting your money out and into a tax free ISA before spending it!
Being that I would never want to live in London, the first thing I would do is sell the house and move to a lower house price area and release 40-50% of that equity to invest for increased income in retirement.
There are some beautiful places that give a great lifestyle at much lower living costs.
There are some beautiful places that give a great lifestyle at much lower living costs.
Storer said:
Being that I would never want to live in London, the first thing I would do is sell the house and move to a lower house price area and release 40-50% of that equity to invest for increased income in retirement.
There are some beautiful places that give a great lifestyle at much lower living costs.
Thing is, I would never want to live outside London. If I'm going to move at all at 60, it'll be to a Central London flat at circa the same price as my house. As I get older, I will probably sell the house and buy a small bungalow or a flat, to release some capital. But I will never live anywhere where I can't walk to a tube station. There are some beautiful places that give a great lifestyle at much lower living costs.
TwigtheWonderkid said:
Without getting into specific figures (being a English male, I feel uncomfortable discussing money), can I just run this plan past the financial brains of PH, for you to pick holes in.
I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
I may be wrong but I thought if you took out the 25% as one hit all the rest of it was taxed as you took it out.I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
Drumroll said:
I may be wrong but I thought if you took out the 25% as one hit all the rest of it was taxed as you took it out.
As I think he explained, the rest would be taken out annually UP TO the point it would be taxed, so no tax payable.JulianPH said:
It all works and makes sense. There are no rules that prevent you from doing it either.
Only thing to add is to look at sticking as much of the TFC and withdrawals as possible into an ISA so they remain tax free and any returns don't impact on your pension withdrawals within your personal allowance band.
You may also want to consider this being a stocks and shares ISA that mimics your pension portfolio and enables you to drawdown tax free returns just as you are now with your pension.
Pensions are great for accumulation, but when you get to decumulation you want to be getting your money out and into a tax free ISA before spending it!
Only thing to add is to look at sticking as much of the TFC and withdrawals as possible into an ISA so they remain tax free and any returns don't impact on your pension withdrawals within your personal allowance band.
You may also want to consider this being a stocks and shares ISA that mimics your pension portfolio and enables you to drawdown tax free returns just as you are now with your pension.
Pensions are great for accumulation, but when you get to decumulation you want to be getting your money out and into a tax free ISA before spending it!
PurpleMoonlight said:
It might be slightly more tax beneficial to crystallise in stages over the years rather than all at one go.
So this is the question of whether to take the entire 25% TFLS or to take portions as the time goes by (UFPLS, I think?).I've been wondering on THE best approach - if you don't NEED more of the 25%, and the pension is well invested, I guess the latter makes sense....but is open to potential future government changes (perhaps doubtful, but who knows!).
Any thoughts?
Surely the question is can you live on the 25% + £12.5k a year from now until state pension kicks in to a lifestyle you are wanting to live in?
If not you might want to either re adjust what those expectations are Or work for a few more years so that the 25%+£12.5k + what you earn on those extra years cover it.
One thing I’ve seen people do who are closing on retirement is to do some big DIY ie new kitchen bathrooms carpets sofa tv dining table etc whilst still in work with the logic being that new kit will then last you out in retirement
If not you might want to either re adjust what those expectations are Or work for a few more years so that the 25%+£12.5k + what you earn on those extra years cover it.
One thing I’ve seen people do who are closing on retirement is to do some big DIY ie new kitchen bathrooms carpets sofa tv dining table etc whilst still in work with the logic being that new kit will then last you out in retirement
Welshbeef said:
Surely the question is can you live on the 25% + £12.5k a year from now until state pension kicks in to a lifestyle you are wanting to live in?
Ignore the £12.5K a year, I won't be spending that, just getting it out tax free while I can. So I'll be living off the 25%, divided by 84, per month. I have no mortgage and I'm a pretty low maintenance guy. In conjunction with my wife's income, and she is also pretty low maintenance, we will be absolutely fine. We won't be buying any Bentleys or flying first class to a private Caribbean island, but we won't be huddled around a one bar fire wrapped in a tartan blanket, eating cold baked beans from the tin. Glad you started this Twig as I’m in a similar position.
I’ll be 56 next month and have given up work. I don’t need access to my pension pot so was aiming at leaving it where it was until I need it. However, I’d never really thought about the strategy of crystallising now and putting the lump sum and subsequent ‘annual under the tax threshold’ drawdowns into a S&S ISA to mimic the pension pot totally tax free.
Seems a very sensible strategy.
I’ll be 56 next month and have given up work. I don’t need access to my pension pot so was aiming at leaving it where it was until I need it. However, I’d never really thought about the strategy of crystallising now and putting the lump sum and subsequent ‘annual under the tax threshold’ drawdowns into a S&S ISA to mimic the pension pot totally tax free.
Seems a very sensible strategy.
TwigtheWonderkid said:
Thing is, I would never want to live outside London. If I'm going to move at all at 60, it'll be to a Central London flat at circa the same price as my house. As I get older, I will probably sell the house and buy a small bungalow or a flat, to release some capital. But I will never live anywhere where I can't walk to a tube station.
Everyone is different. Being close enough to walk to any railway/tube station would be my idea of hell. We will be moving into a place in the summer that is 300 metres from our nearest neighbour, and we own the land between them and ourselves. By far the closest we have had a neighbour in the last 35 years. Still our idea of heaven!
Storer said:
Everyone is different. Being close enough to walk to any railway/tube station would be my idea of hell. We will be moving into a place in the summer that is 300 metres from our nearest neighbour, and we own the land between them and ourselves. By far the closest we have had a neighbour in the last 35 years. Still our idea of heaven!
Yes everyone is different. I get the London thing it’s a special place - not my cup of tea but it has a buzz always about it. Then Again I love the countryside on my doorstep of the beach and desire a big plot (fields would be great
)TwigtheWonderkid said:
Without getting into specific figures (being a English male, I feel uncomfortable discussing money), can I just run this plan past the financial brains of PH, for you to pick holes in.
I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
Twig,I'm 56. Hope to go at 60. Plan is, I take my 25% tax free from my pension pot. Divide it by 84 (the number of months between retirement and getting state pension), and live off an 84th of the 25% each month. From the remaining 75% of my pension, every year take my tax free allowance (as I won't have any other income) of £12500 of whatever it increases to, for the next 7 years, and don't spend it.
When (and if) I hit 67, I'll have spend my 25%, but will have 7x£12500, plus interest from that, increases in annual allowance, and interest on the 25% I lived off since 60, so maybe about £100K, plus will start getting state pension. And I should have about 55-60% or my pension pot left untouched, and still have my house (4 bed detached in London 'burbs, no mortgage, worth circa £1m currently) to fall back on.
Am I missing a trick. Any hidden rules or tax hits that scupper my plan?
This is just my situation, my wife's situation is much clearer and is all sorted out, and she will have an income stream in excess of mine, but all money coming into the home is pooled, and always has been.
Those are tactics, but what's the strategy? Moreover, what are the objectives? From those, you'll identify strategy and then distill your enabling objectives. The tactics will then become self evident.
Ginge R said:
Twig,
Those are tactics, but what's the strategy? Moreover, what are the objectives? From those, you'll identify strategy and then distill your enabling objectives. The tactics will then become self evident.
Surely the objective is patently clear. Those are tactics, but what's the strategy? Moreover, what are the objectives? From those, you'll identify strategy and then distill your enabling objectives. The tactics will then become self evident.
Eliminate /deuce tax charges on pension pot
mikeiow said:
So this is the question of whether to take the entire 25% TFLS or to take portions as the time goes by (UFPLS, I think?).
I've been wondering on THE best approach - if you don't NEED more of the 25%, and the pension is well invested, I guess the latter makes sense....but is open to potential future government changes (perhaps doubtful, but who knows!).
Any thoughts?
Would I be correct that if you took it as uncrystalised then you could drawdown around £16,000 pa with no tax to pay (assumes tax free allowance is £12k and you have no other income )?I've been wondering on THE best approach - if you don't NEED more of the 25%, and the pension is well invested, I guess the latter makes sense....but is open to potential future government changes (perhaps doubtful, but who knows!).
Any thoughts?
A few observations:
You are letting the tax efficiency tail wag the dog and potentially reducing your future flexibility. Your plans seems to be based around your current wants and needs but you aren’t factoring in the unknown. Your outlook may change when you enter retirement or some other life event might happen that finds you needing to use more of the pot. A large withdrawal could see you paying 40 or even 45%.
20% Basic rate tax, no NI and £12k tax free allowance is historically low. I’d take full advantage while you can. Large pension pots could become an easy captive target for a future cash-strapped government.
Once you hit 67, your tax free allowance will be largely taken up by the state pension so you’ll have 55-60% remaining in the pension that you will end up paying 20 or who-knows-what percent on withdrawals.
Do you have any reason to want to retain more than 50% of the pension pot at age 67? Inheritance?
I am younger than you and have similar plans but I’m looking to withdraw as much pension as possible before triggering 40% tax. I’ll spend most of it and can invest the rest in ISAs, or Bentleys.
Another consideration is whether your pension pot could breach the lifetime allowance.
You are letting the tax efficiency tail wag the dog and potentially reducing your future flexibility. Your plans seems to be based around your current wants and needs but you aren’t factoring in the unknown. Your outlook may change when you enter retirement or some other life event might happen that finds you needing to use more of the pot. A large withdrawal could see you paying 40 or even 45%.
20% Basic rate tax, no NI and £12k tax free allowance is historically low. I’d take full advantage while you can. Large pension pots could become an easy captive target for a future cash-strapped government.
Once you hit 67, your tax free allowance will be largely taken up by the state pension so you’ll have 55-60% remaining in the pension that you will end up paying 20 or who-knows-what percent on withdrawals.
Do you have any reason to want to retain more than 50% of the pension pot at age 67? Inheritance?
I am younger than you and have similar plans but I’m looking to withdraw as much pension as possible before triggering 40% tax. I’ll spend most of it and can invest the rest in ISAs, or Bentleys.
Another consideration is whether your pension pot could breach the lifetime allowance.
Gassing Station | Finance | Top of Page | What's New | My Stuff