Lifetime allowance = £??? as annual pension
Discussion
I thought this would be a readily available question/answer, but I can't actually find anything popping up on google that answer. Assuming that the lifetime allowance stays at £1,073,100 and I decided to retire at say 60 years old with the LTA reached (so assume 30 years of pension) then is it as simple as taking the 4% principle?
So roughly £40k/year with capital more or less untouched. Obviously it could be more if we took a draw on capital as well.
Its not so much that I can't figure out the answer, I am simply surprised that it isn't something that appears on Google. Perhaps the govt and/or providers don't want to deflate our bubble, you need to save £1 million (contribute £600k which sounds marginally better) and you get £3,300/mth before tax.
Which doesn't sound very exciting or rewarding after contributing an amount which is out of reach of the vast majority.
Hmm. Have I missed something obvious?
So roughly £40k/year with capital more or less untouched. Obviously it could be more if we took a draw on capital as well.
Its not so much that I can't figure out the answer, I am simply surprised that it isn't something that appears on Google. Perhaps the govt and/or providers don't want to deflate our bubble, you need to save £1 million (contribute £600k which sounds marginally better) and you get £3,300/mth before tax.
Which doesn't sound very exciting or rewarding after contributing an amount which is out of reach of the vast majority.
Hmm. Have I missed something obvious?
No, you've not missed anything; it's a sobering fact that to support an income of just £20k a year you need to saved something like half a million by the time you retire. It's such a huge number & the vast majority of people will never get anywhere near that despite there being some efforts to educate on the need to start saving as early as you can.
Of course there are other investment vehicles (BTL etc) & if you don't mind risking running out of money before you die you can pull out more from a smaller pot.
Of course there are other investment vehicles (BTL etc) & if you don't mind risking running out of money before you die you can pull out more from a smaller pot.
BobToc said:
Think he’s asking how much one could expect to earn off the lifetime allowance at retirement (I.e. if you saved GBP 1,073,100 in today’s money at the time of retirement). I think 3.5-4.0% is a decent estimate, but honestly who knows that far out.
I think that's what is being asked but I would imagine the LTA isn't based on being able to maintain the capital.seapod said:
I thought this would be a readily available question/answer, but I can't actually find anything popping up on google that answer. Assuming that the lifetime allowance stays at £1,073,100 and I decided to retire at say 60 years old with the LTA reached (so assume 30 years of pension) then is it as simple as taking the 4% principle?
So roughly £40k/year with capital more or less untouched. Obviously it could be more if we took a draw on capital as well.
Its not so much that I can't figure out the answer, I am simply surprised that it isn't something that appears on Google. Perhaps the govt and/or providers don't want to deflate our bubble, you need to save £1 million (contribute £600k which sounds marginally better) and you get £3,300/mth before tax.
Which doesn't sound very exciting or rewarding after contributing an amount which is out of reach of the vast majority.
Hmm. Have I missed something obvious?
Nope thats about the size of it.So roughly £40k/year with capital more or less untouched. Obviously it could be more if we took a draw on capital as well.
Its not so much that I can't figure out the answer, I am simply surprised that it isn't something that appears on Google. Perhaps the govt and/or providers don't want to deflate our bubble, you need to save £1 million (contribute £600k which sounds marginally better) and you get £3,300/mth before tax.
Which doesn't sound very exciting or rewarding after contributing an amount which is out of reach of the vast majority.
Hmm. Have I missed something obvious?
£3,300 is a really decent amount, assuming you won’t have a mortgage. You won’t be paying national insurance or contributing to a pension either.
Around £2k a month ‘spare’ cash. Realistically it’s going to be difficult to spend that once you’re 80+ …. assuming you live that long.
Come to think of it, that’s my net take home now on £65k after pension, tax, NI.
Around £2k a month ‘spare’ cash. Realistically it’s going to be difficult to spend that once you’re 80+ …. assuming you live that long.
Come to think of it, that’s my net take home now on £65k after pension, tax, NI.
rossub said:
Didn’t notice the fact it was before tax though, so yeah not quite so good…
There's the possibility of a state pension on top though, The government potentially giveth, the goverernment taketh away.Worth remembering with this that 4% natural yield is far from guaranteed (so you probably want a cash buffer so you're getting 4% on rather less than £1 million).
Some people may want to consider an annuity for a guaranteed income but rates have been driven down so far that it isn't funny.
rossub said:
Around £2k a month ‘spare’ cash. Realistically it’s going to be difficult to spend that once you’re 80+ …. assuming you live that long.
Well this poster is looking at £7,500 a month for care home costs. Now others think that's high but there are plenty of them saying £3500 - £4000 a month is common.https://www.pistonheads.com/gassing/topic.asp?h=0&...
At that rate £1m will last you 11 years & while I suspect most residents won't last that long most of them won't be going in with £1m in the bank.
Probably because it isn’t that simple. Eg at 60 you crystallise 110k a year, take 27.5k tax free and 12.5k within your tax allowance leaving the other 70k still in your SIPP but crystallised, next year crystallise another 110k from your uncrystallised pot and take the same. Repeat until SPA and use your SP to cover the tax.
Mazinbrum said:
Probably because it isn’t that simple. Eg at 60 you crystallise 110k a year, take 27.5k tax free and 12.5k within your tax allowance leaving the other 70k still in your SIPP but crystallised, next year crystallise another 110k from your uncrystallised pot and take the same. Repeat until SPA and use your SP to cover the tax.
Can you choose to only drawdown the 25% tax free element of the amount you crystalised?In my head it would be 25% of the 27.5k you draw down would be tax free, and repeated in future draw downs
xeny said:
Worth remembering with this that 4% natural yield is far from guaranteed (so you probably want a cash buffer so you're getting 4% on rather less than £1 million).
A 4% cash yield is very ambitious in real terms, but should be quite achievable factoring in capital growth with a meaningful equity allocation.Mr Pointy said:
rossub said:
Around £2k a month ‘spare’ cash. Realistically it’s going to be difficult to spend that once you’re 80+ …. assuming you live that long.
Well this poster is looking at £7,500 a month for care home costs. Now others think that's high but there are plenty of them saying £3500 - £4000 a month is common.https://www.pistonheads.com/gassing/topic.asp?h=0&...
At that rate £1m will last you 11 years & while I suspect most residents won't last that long most of them won't be going in with £1m in the bank.
I don’t think it’s realistic to expect many people will put money aside all theirs lives for care home costs. Hard enough for most to save for a decent pension.
B9 said:
Can you choose to only drawdown the 25% tax free element of the amount you crystalised?
In my head it would be 25% of the 27.5k you draw down would be tax free, and repeated in future draw downs
Yes you can withdraw just the tax free amount and leave the remaining crystalised amount invested in the SIPP. In my head it would be 25% of the 27.5k you draw down would be tax free, and repeated in future draw downs
xeny said:
Just wondering, any investment returns on the crystalised amount are presumably taxable?
Just taxable at normal income tax rates when withdrawn.So you could take out £12570 from the crystallised taxable amount but this wouldn’t be taxed if you had zero other income as it falls within the standard personal allowance and you could also take out the quarter tax free of the crystallised amount.
Mr Pointy said:
despite there being some efforts to educate on the need to start saving as early as you can.
They’ve been banging that drum for decades in the pension comms world...But it all became a bit pointless around 2009 when interest rates crashed and aggregated growth expectations crashed.
Today there is no clear indicator of how a new earner starting near the bottom will ever accumulate anything.
Can’t afford to buy a house.
Pension contributions will never be vast.
Salary rises nearly a thing of the past unless in the right industries.
I worked in pension comms from 2003-2012 and by the end i was disillusioned with it all.
No wonder so many went BTL.
But then look how many are now into the “everything bubble“ looking for yield.
And also the unknown of future taxation rate applies... and you can guarantee that’ll creep up.
A pension shouldn’t be a default, it should be an advised and well understood part of retirement planning used to its optimum tax benefit for your circumstances.
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