Enjoying Retirement

[tertius]

Welshbeef said:

GT3Manthey said:

Yes and a double whammy with rising inflation too .

Not a good all round situation but then I guess over the years we have been here before and retirees have had to weather the storms & hope that inflation then decrease and their pension pot growth keeps up .

Maybe this is why it’s super important to ensure from day one you have thoroughly factored in ALL monthly costs and have some spare over.

https://news.sky.com/story/cost-of-living-crisis-inflation-hits-40-year-high-of-9-12615153
Cost of living crisis: Inflation hits 40-year high of 9%

9% now.

It makes the state pension rise that should have happened from Sept21 a now fair rate to increase.

I wonder what we will see as triple lock for Sept22 - will we see a 11% state pension rise?

But you are conflating two different issues:

1. The amount of income you need in a changing situation (in this case higher inflation, but there could any number of other causes);
2. The safe withdrawal rate if your pension under performs against your expectations

They may well both happen together but just because your electricity bill goes up doesn’t mean your safe withdrawal rate has changed.

[Welshbeef]

tertius said:

But you are conflating two different issues:

1. The amount of income you need in a changing situation (in this case higher inflation, but there could any number of other causes);
2. The safe withdrawal rate if your pension under performs against your expectations

They may well both happen together but just because your electricity bill goes up doesn’t mean your safe withdrawal rate has changed.

Inflation is 9% up 2% in a month with more to come (future energy cap) but also the input prices firms have seen will then flow out with higher prices.

And recession = pension pot reductions & reevaluation on how much to draw down this year (of discretionary)

[Carbon Sasquatch]

As someone about to retire - 6 weeks away - it is the perfect storm of massive inflation and markets falling.

You have to just step back from it & try to retain the bigger picture view and weather through it.

Yes, you want to try to minimise your withdrawals in a falling market - but I put 2 years money into cash at the start of the year - so I have 2 years for the markets to recover somewhat before it becomes a worry.

I've worked in a bonus environment for most of my life - so I'm kind of used to earning more money some years than others - retirement will be the same with investment returns - some belt tightening in bad years and don't go bonkers in the good years.

How do you make it work with energy bills - or food - or whatever increasing - the answer is the same as everyone else. Most people can't award themselves a pay rise. So unless you have a savings buffer you want to use, then adjustments will have to be made somewhere. Not ideal, but hopefully in a few years, investments will be headed to the moon and we'll be worrying about what to spend all the money on to avoid LTA issues

[GT3Manthey]

Carbon Sasquatch said:

As someone about to retire - 6 weeks away - it is the perfect storm of massive inflation and markets falling.

You have to just step back from it & try to retain the bigger picture view and weather through it.

Yes, you want to try to minimise your withdrawals in a falling market - but I put 2 years money into cash at the start of the year - so I have 2 years for the markets to recover somewhat before it becomes a worry.

I've worked in a bonus environment for most of my life - so I'm kind of used to earning more money some years than others - retirement will be the same with investment returns - some belt tightening in bad years and don't go bonkers in the good years.

How do you make it work with energy bills - or food - or whatever increasing - the answer is the same as everyone else. Most people can't award themselves a pay rise. So unless you have a savings buffer you want to use, then adjustments will have to be made somewhere. Not ideal, but hopefully in a few years, investments will be headed to the moon and we'll be worrying about what to spend all the money on to avoid LTA issues

This^^^^^^

[tighnamara]

Welshbeef said:

Inflation is 9% up 2% in a month with more to come (future energy cap) but also the input prices firms have seen will then flow out with higher prices.

And recession = pension pot reductions & reevaluation on how much to draw down this year (of discretionary)

Already mentioned above, most people withdrawing their pension have it set up for these scenarios, X amount of years in low risk / cash fund so the risk of stock market falls are managed.

Your scenario above has someone in retirement drawing money from funds fully allocated to the stock market, in most case and a well managed retirement planning this wont be the case.

[Welshbeef]

tighnamara said:

Already mentioned above, most people withdrawing their pension have it set up for these scenarios, X amount of years in low risk / cash fund so the risk of stock market falls are managed.

Your scenario above has someone in retirement drawing money from funds fully allocated to the stock market, in most case and a well managed retirement planning this wont be the case.

Challenge on this - if they have moved funds out of equity then how does the 4% work? Holding cash your losing what 8% of its value.

In my mind you need a fairly highly invested value in equity so that this gives growth which can possibly hold the total pension fund at its current value when you die whilst drawing out meaning this outside of IHT could be passed on whilst having a strong retirement.

[Carbon Sasquatch]

Welshbeef said:

Challenge on this - if they have moved funds out of equity then how does the 4% work? Holding cash your losing what 8% of its value.

In my mind you need a fairly highly invested value in equity so that this gives growth which can possibly hold the total pension fund at its current value when you die whilst drawing out meaning this outside of IHT could be passed on whilst having a strong retirement.

You need to balance the risk - stronger upside = more downside.

There are people who will advocate 100% equity and on balance you're still ahead - for the reason you quote - the good years outweigh the down years etc.

Whilst you may say holding cash is losing 8% - it's no different than working really - you've just taken your whole years salary up front and draw down on it monthly....

There isn't a universally right answer here - but like everything with investing - pick a strategy & stick with it seems the right advice. I like the cash buffer as it removes 'stupidity risk' - I'm not worried about next month or the next year so won't make rash short term decisions.

[craig1912]

I don’t have anything in cash. I’ve just upped my income to cover extra energy costs and more on holidays.
There is no one answer and it depends on a whole host of circumstances. Over a 20/30 year period I’ve taken the view, with input from IFA that the upsides will out weigh the downsides and I am probably more likely to lose out if some is kept in cash. The ratio of fund size to income taken can have a big impact here.

[Phil.]

Carbon Sasquatch said:

You need to balance the risk - stronger upside = more downside.

There are people who will advocate 100% equity and on balance you're still ahead - for the reason you quote - the good years outweigh the down years etc.

Whilst you may say holding cash is losing 8% - it's no different than working really - you've just taken your whole years salary up front and draw down on it monthly....

There isn't a universally right answer here - but like everything with investing - pick a strategy & stick with it seems the right advice. I like the cash buffer as it removes 'stupidity risk' - I'm not worried about next month or the next year so won't make rash short term decisions.

Exactly, it’s all about the long term. If you have invested well there is a good chance your funds will recover and more over time. Having access to cash/low risk investment funds or an ability to top-up your income in the poor performing years means you can weather the storms. Just needs a bit of planning.

Right now I’m not thinking about inflation or the markets, just off on a long walk in the sun which will take up most of the day

[alscar]

I transferred both a DC and a DB pension into my SIPP starting in March 20 and have just completed the last switch from a money market account.
Initially I went 50% into a mixture of funds and then pretty much the balance got transferred in monthly pro rata -with hindsight maybe not the best but was happy to do at the time.
To date currently up overall by about 10%.
I retired in Dec 21 and received my last decent good leavers bonus in May meaning for this tax year I will take out 1% of my pension pot give it take with next year upping this to a max of 2% although with some planning and VCT buys and sells I should be able to reduce this years tax bill to zero and then again in 5 years time so realistically this reduces my annual tax bill by 20% so in reality also reduces the drawdown needed.
I had always intended to use the pension pot as just that so when I die my wife can in effect continue with the same strategy ( as opposed to taking a much reduced ( by 40% ) pot.
If anything left from the pot when she dies then the kids share as part of their inheritance but inheritance was not at the forefront of my strategy.
Even allowing for a straight 50% reduction in value I reckon that puts me in the very fortunate position of having sufficient to last us for our natural lives.
As for extra utility costs I simply added a doubling into my ss when I did that last year on top of the overall +5% contingency.

[Welshbeef]

alscar said:

I transferred both a DC and a DB pension into my SIPP starting in March 20 and have just completed the last switch from a money market account.
Initially I went 50% into a mixture of funds and then pretty much the balance got transferred in monthly pro rata -with hindsight maybe not the best but was happy to do at the time.
To date currently up overall by about 10%.
I retired in Dec 21 and received my last decent good leavers bonus in May meaning for this tax year I will take out 1% of my pension pot give it take with next year upping this to a max of 2% although with some planning and VCT buys and sells I should be able to reduce this years tax bill to zero and then again in 5 years time so realistically this reduces my annual tax bill by 20% so in reality also reduces the drawdown needed.
I had always intended to use the pension pot as just that so when I die my wife can in effect continue with the same strategy ( as opposed to taking a much reduced ( by 40% ) pot.
If anything left from the pot when she dies then the kids share as part of their inheritance but inheritance was not at the forefront of my strategy.
Even allowing for a straight 50% reduction in value I reckon that puts me in the very fortunate position of having sufficient to last us for our natural lives.
As for extra utility costs I simply added a doubling into my ss when I did that last year on top of the overall +5% contingency.

You are a brave man cashing in the DB and putting all those eggs into one SIPP basket.

Hope it’s the right decision.

[craig1912]

Welshbeef said:

You are a brave man cashing in the DB and putting all those eggs into one SIPP basket.

Hope it’s the right decision.

Exactly what I did - although a personal pension not a SIPP. I don’t think it is brave, it’s part of a very long term strategy. It’s all down to individual circumstances and it’s useful to hear other peoples stories and get ideas of options.

[Welshbeef]

craig1912 said:

Exactly what I did - although a personal pension not a SIPP. I don’t think it is brave, it’s part of a very long term strategy. It’s all down to individual circumstances and it’s useful to hear other peoples stories and get ideas of options.

Ok let’s for example take one of my wife’s DB pensions from an old role king since left. Let’s use round numbers - annual at retirement age assuming no 25% draw out gives £5k a year apparently you should take that value and multiply it by 20 to give a good indication to the valuation of the DB funds value. So this would be £100k.

There is no annuity that offers £5k RPI linked and 50% to spouse for £100k.

Using those numbers what fund value what fund value was yours given to transfer. Ie I’m hoping it’s materially above £100K to cover the guaranteed elements I mention above.

[JeffreyD]

Welshbeef said:

Ok let’s for example take one of my wife’s DB pensions from an old role king since left. Let’s use round numbers - annual at retirement age assuming no 25% draw out gives £5k a year apparently you should take that value and multiply it by 20 to give a good indication to the valuation of the DB funds value. So this would be £100k.

There is no annuity that offers £5k RPI linked and 50% to spouse for £100k.

Using those numbers what fund value what fund value was yours given to transfer. Ie I’m hoping it’s materially above £100K to cover the guaranteed elements I mention above.

Whilst I understand you are using round numbers can you try and use real words so we can try and understand what you are saying?
WTF is "an old role king since left"?


You also forgot the fact that most DB pensions can't be inherited so switching to a SIPP can help with any inheritance planning.
And why only look at annuities?

[alscar]

SIPP / Personal Pension - might be a decision but a well
considered one and post extensive thinking and IFA advice - really not a brave one.
In a large range of investments is also not all eggs in one basket unless no stock market but in which case we all have far bigger worries.
DB pension also not fail safe - company failure / under funded / frozen issues etc.

[tighnamara]

Welshbeef said:

Challenge on this - if they have moved funds out of equity then how does the 4% work? Holding cash your losing what 8% of its value.

In my mind you need a fairly highly invested value in equity so that this gives growth which can possibly hold the total pension fund at its current value when you die whilst drawing out meaning this outside of IHT could be passed on whilst having a strong retirement.

I am not bright enough to be challenged

You are taking everything to extremes , yes I have seen a drop in my investments but not anything drastic. Maybe I am an optimist but the markets will stabilize and if your are invested sensibly will see recovery.

A good managed retirement plan will see you through, if required people can adjust their spend over this turbulent period.

You are quoting extremes such as people never going on holiday again............................come on

[alscar]

WB as Jeffrey said and in your numbers example I would never have considered an annuity purchase.
I would have transferred hers to a private pension but as with other debates not knowing any other personal circumstances is a tad difficult to comment on.
I don’t think there is a right answer to this as people have to be comfortable with their own decision.
Perhaps we should all bookmark for say 12 months , then 2 years then etc etc and see if we are still solvent !

[craig1912]

Welshbeef said:

Ok let’s for example take one of my wife’s DB pensions from an old role king since left. Let’s use round numbers - annual at retirement age assuming no 25% draw out gives £5k a year apparently you should take that value and multiply it by 20 to give a good indication to the valuation of the DB funds value. So this would be £100k.

There is no annuity that offers £5k RPI linked and 50% to spouse for £100k.

Using those numbers what fund value what fund value was yours given to transfer. Ie I’m hoping it’s materially above £100K to cover the guaranteed elements I mention above.

Mine was 45x but that isn’t relevant to anyones circumstance except mine. My wife got a CETV of 28x but decided to take the pension. Horses for courses.
Oh and the 20x is not a good indication of the DB valuation, it is the amount used to calculate the lifetime allowance value of the DB pension.

[tighnamara]

Welshbeef said:

Ok let’s for example take one of my wife’s DB pensions from an old role king since left. Let’s use round numbers - annual at retirement age assuming no 25% draw out gives £5k a year apparently you should take that value and multiply it by 20 to give a good indication to the valuation of the DB funds value. So this would be £100k.

There is no annuity that offers £5k RPI linked and 50% to spouse for £100k.

Using those numbers what fund value what fund value was yours given to transfer. Ie I’m hoping it’s materially above £100K to cover the guaranteed elements I mention above.

You are making figures up to suit you, lets use a real example (not round numbers) , other half has similar DB pension figure as above, was offered 40 times value.

[JeffreyD]

tighnamara said:

You are making figures up to suit you, lets use a real example (not round numbers) , other half has similar DB pension figure as above, was offered 40 times value.

This is what he does, on multiple threads.

It's really annoying, especially on a really good thread like this which is normally full of peace, harmony and hope.