Author Topic: Balancing pensions/SIPPs (etc) and ISAs (etc)  (Read 2404 times)

sea_saw

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Balancing pensions/SIPPs (etc) and ISAs (etc)
« on: July 03, 2018, 06:40:52 AM »
People who have this figured out, please explain :)

I understand if you were going to retire at 30 and live off your stash for decades before any workplace pensions / SIPPs / state pension kicked in, you'd need to have at least 25x times your expenses (or whatever multiplier you're comfortable with) so you could live off the returns indefinitely while the stash continues to grow enough to cover inflation.

On the other hand, if you were going to leave work 1 year before starting to take your pension, you wouldn't worry about that. You'd just keep enough around in savings to cover yourself for that period.

What happens for middling periods, like 5 years, 10 years, 15? Obviously personal circumstances and risk tolerances vary, but are there any generally accepted thresholds or principles?

As an illustration, my very very back-of-the-envelope, for-fun calculations have me reaching FI at 55. But if I keep contributing to my workplace pension until that age, then at 60-65ish I'll start getting a firehose of income which, while I'm sure I could find ways to enjoy, I'd previously classed as unnecessary Ė and sitting on a stash much larger than I now need to support myself. All seems a bit inefficient. Should hypothetical-me have actually quit her job 5 years earlier, with the understanding that it's okay to use some of the stash up instead of growing it?

How do you all calculate this stuff? If it was a fixed interest rate I could see how to model it, but I assume the wobbly returns of the market make you vulnerable to snowballing in the wrong direction and running out.

cerat0n1a

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #1 on: July 03, 2018, 07:05:29 AM »
I haven't done anything other than "back of the envelope" calculations (and my last monthly salary is now imminent) on the basis that I don't think a fixed 4% annual withdrawal accurately reflects my likely spending (some things like house maintenance, new cars etc. are inherently lumpy and have some scope for being delayed) and future stock market returns are equally unpredictable.

Broadly though, I aimed to get net worth excluding home above 25x expected annual spend. Getting there using pension savings is obviously much faster because as a higher rate taxpayer, I can choose to save say £10k in my pension or £6k outside my pension (pension contribution limits notwithstanding) and in fact it's even better than that because of the 12.8% NI uplift due to salary sacrifice.

So then, I simply take the number of years between my ER age and the age I can access my DC pension. That's the minimum amount I need in non-pension savings. So if I stop work at 45 and can access the pension at 55, then I need *at least* 10 years worth of spending money outside the pension within the total stash. If the income level is going to put you into the position of paying income tax on your pension when you start to withdraw, you need to take that into account too. As it turns out, I have more outside than the pension than I probably really needed, so could have got here faster if I'd contributed more aggressively in the past.

I've seen other people take a more nuanced view, using spreadsheets - I need n years of £X in ISAs and taxable accounts to take me from RE age to 55 (or 57 for younger people), then £Y from pension to take me from 55/57 to 67, then £Z from pension from 67+ to take into account state pension etc.

I'd also say that even if you're FI and don't "need" the money, it's still worth having any employer contributions associated with a pension. And, in particular, I think even if you intend to RE in your 30s (for example) and need all of your stash to be outside the pension, I still think you should contribute to the workplace pension and get the employer contribution and tax benefits.
« Last Edit: July 03, 2018, 07:09:12 AM by cerat0n1a »

cerat0n1a

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #2 on: July 03, 2018, 07:07:51 AM »
There was a useful discussion of this here:

https://the7circles.uk/savings-rate-four-pot-solution/

but it now seems to be behind a paywall.

dashuk

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #3 on: July 03, 2018, 09:45:07 AM »
Glad others are wrestling with a similar conundrum.

Probably in that middle ground. Although I think even if you were going to retire at 30 the same questions apply, because someone in a position to do that probably has a pretty good employer pension match available to them, and may also be a higher rate taxpayer as @cerat0n1a points out.

Currently mid-30s. On track to hit our 25x number including pensions at about 43yo. I'm assuming private pension age will probably be 60 by the time we get there, so maybe 17 year gap.  If we waited to have 25x in accessible ISA, it might mean working until about 51yo, then effectively doubling our income nine years later. By ~43, there will be enough in pensions that, left alone for 15 years or so, will probably be enough to completely fund us from 60 onwards.

So yeah, optimum RE point would result in almost running out of money at 59yo (and thus very vulnerable to, say, a market crash at 57/58).

TLDR: Everything above is basically "me too"

My current plan is basically the same as @cerat0n1a - 25x including pensions, excluding house, then think about whether there's enough accessible to get to pension age.

I just keep thinking of the MMM Confidence vs Money post. I think there's quite a few safety factors built in for me:

- Conservative growth projections.

- Assuming no earnings post-FIRE. If nothing else, there's always B&Q. Our expenses are such that one full-time minimum wage job would just about cover them, leaving time for 'stache recovery.

- Will be empty-nested by the time we hit the 'cashflow-critical' few years, so permanent or temporary downsizing is always an option.

- Our inaccessible 'stache includes a couple of years of two person full LISA subscription as well as pensions. I doubt we'll put any more into the LISAs, but that would be accessible in an emergency, and might cover a year or two of expenses even after losing the withdrawal penalty.

We're a long way out, so plenty of time for confidence to ebb and flow.

cerat0n1a

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #4 on: July 03, 2018, 10:16:02 AM »
- Will be empty-nested by the time we hit the 'cashflow-critical' few years, so permanent or temporary downsizing is always an option.

Yes, that's one of our safety factors. We'll be empty nested next year, so downsizing/moving away from HCOL location is always an option. I knew there was a good reason to have children in my twenties rather than later  ;-)

sea_saw

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #5 on: July 03, 2018, 10:18:05 AM »
Thanks cerat0n1a, that's super helpful.

And thanks dashuk, helpful to see another illustration. I had very similar numbers coming to working until 50s to get 25x in my ISA then my income doubling once my pension arrives. I knew it couldnít be right!

I'm only thinking very broadly as well, I don't have a particularly accurate picture of what my life will look like in 20 years (including like, children y/n?), which makes all calculations pretty much nonsense. Luckily no controversy on what I actually need to be doing I don't think - I'm a DB workplace pension, can't increase my contributions there, and am a basic rate taxpayer, so saving what I can into an ISA makes sense to me for now. I'm just trying to get a big-picture feeling for what's sensible to aim for outside the workplace pension.

cerat0n1a, hearing that you'd hold N years' expenses + a buffer to get you through N years is very heartening, and buys hypothetical-me about five fewer years in the workplace. Is it just a question of asset allocation then, depending on whether n = 5 or  10 or 15 years?

I also hadn't fully internalised that I could take my pension from age 55 (by current rules)... from my statements for my current workplace pension, that looks like a fairly bad deal, I'd have to die quite young for it to come out ahead. Which is why I assumed I had to cover myself until age 65 outside of pensions. But of course I might go through other employers over the years.

cerat0n1a

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #6 on: July 03, 2018, 11:52:49 AM »
cerat0n1a, hearing that you'd hold N years' expenses + a buffer to get you through N years is very heartening, and buys hypothetical-me about five fewer years in the workplace. Is it just a question of asset allocation then, depending on whether n = 5 or  10 or 15 years?

Well bear in mind that I am the antithesis of the spreadsheet approach to this, and that I've certainly worked longer than I needed to. So my analysis is essentially that it feels like we have more than we'll need. Partly this is because I don't really know how much our annual spend minus expensive teenagers will be and because of the realistic back-up plans of being able to extract at least 10x annual spend by downsizing our house, if necessary, or to pick up some occasional work. And of course, the emotional effects of spending ISA savings on living costs are yet to be seen.

In my case, there is no DB pension - just a DC pension + ISAs and stuff outside tax shelters. So no need to think about actuarial considerations about taking things early and lifespan. I think the minimum access age for pensions rises to 57 in 2028.  If I did have DB pensions kicking at a certain age, and/or lifetime ISAs, I might want to model it a bit more closely as the various dates approach.

RetirementInvestingToday

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #7 on: July 03, 2018, 12:55:27 PM »
I'm just a few months away from full FIRE having already given my notice.  I'm 45.

Firstly, in my calculations I assume no State Pension.

Secondly, I'm assuming I won't get access to my Private Pension until I'm 60 which is 5 years above my current access age.  Government has a habit of changing the rules and they've shown their hand a couple of times on access age in recent years.

I then check two things:
- Total wealth must enable a 2.5% withdrawal rate + expected annual investment expenses of 0.2%
- Then to determine the amount of wealth required outside of private pension wrappers I use cFIREsim (knowing that it's US based backtesting tool) but use a duration of 15 years to investigate potential worse case sequence of returns.  I want a worst case number > £0.

That means I currently have 56% of wealth outside of pension wrappers and 44% within.

never give up

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #8 on: July 03, 2018, 04:15:29 PM »
Iím assuming I wonít be able to access my work pension until 60. Iím also not counting the State Pension but assume Iíll get something, and so it essentially just acts as a safety net. Iím 41 now. Iím aiming for 25x in my pension.

I havenít a clue how 25x should work for the pre-60 period so Iím aiming to have 10x expenses by 50 plus a bit more to cover house/car expenses I.e. the expensive lumpy stuff cerat0n1a mentioned. Any growth again provides a safety net. I will also have 4-5 years worth outside of stocks as I donít need to beat inflation with this pot,or even to sustain it, just enough to get through to 60.

I also have three budgets. I base my FIRE numbers on the highest one so can cut back in times of expensive house repairs or plummeting markets.

The longer I can remain in my current job and the more I can put up with the corporate world plus reasonable market performance can bring the 50 retirement age earlier.

Playing with Fire UK

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #9 on: July 04, 2018, 01:24:31 AM »
I like the articles by the Finance Zombie on the bridge to early retirement.

I'm on the side of building big spreadsheets and playing around with how much I can cannibalise the pre-pension cash without getting to 54 and being a vagrant with a huge pension pot I can't spend. I also like the idea of remortgaging so I can spend my pension cash before the private pension access age. My focus is stopping work sooner rather than later, and I'm willing to take some risk to save a couple of years' work.

PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #10 on: July 04, 2018, 06:08:18 AM »
The only real way to do it is by burying yourself in spreadsheets and doing loads of sensitivity analysis.  I have one set of spreadsheets showing the various income streams and expected investment returns that I used to let me calculate how much I needed to accumulate to get the income I needed.  I then used those as the starting point to do cashflow and tax optimisation spreadsheets to know what I had to hold outside pensions (not too much in my case as I'm retiring at 52).   With a complex situation with DC funds becoming available at 55, DBs at 63 and 65 and SPs at 66, maturing investments, etc it really is the only way to go.  I still have the challenge of spreadsheeting how to get money from of DC lump sums and drawdown sheltered into S&S ISAs but that can wait until I've retired!
If you are budgeting for a 10 year gap before pension access then you could say 10 years spending outside the pension, or even be more aggressive and say 9 years and hope that above-inflation investment returns gives you the 10th year, but it's probably not that sensible to be holding very volatile investments in a situation like that!
My safety blanket is a fully offset offset mortgage.  If I suddenly had big unexpected expenses before I could get at the DC pension money then I'd just draw down on the mortgage and pay it off from the TFLS.  If I had the pension allowance left and was retiring earlier I would almost certainly have deliberately planned to live off mortgage money for a few years as HRT pension relief is too good to pass up.  If you run multiple current accounts and shuffle the money around by DD each month your mortgage provider shouldn't ever notice that you don't have a job any more!

dashuk

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #11 on: July 04, 2018, 06:36:54 AM »
I'm a bit wary of being able to predict, from a couple of decades out, what the willingness of banks to give a mortgage to someone who hasn't had a job for a decade might be.

Obviously that's less of an issue if you're within a few years, and a non-issue if you've already got it agreed.

PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #12 on: July 04, 2018, 09:21:30 AM »
I'm a bit wary of being able to predict, from a couple of decades out, what the willingness of banks to give a mortgage to someone who hasn't had a job for a decade might be.

Obviously that's less of an issue if you're within a few years, and a non-issue if you've already got it agreed.
The idea is that you take the mortgage out well BEFORE you hand in your notice.  That lets you live on borrowed money for some of the period pre-pension access, secure in the knowledge that the tax benefits from the pension more than outweigh the interest you pay.

skip207

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #13 on: July 04, 2018, 11:33:54 AM »
My ideal will be to have roughly the same in my SIPP, ISAs and in property when I FIRE.
I will use the SWR on the ISAs and property will generate an income.  Hopefully that will be enough to tide me over till SIPP age. (15 years between FIRE and SIPP).  The when I am getting closer to SIPP age, maybe early 50s I will start to ramp up the WR from the ISAs as the risk of failure will be much less.  Then once the SIPP kicks in probably look to liquidate the property.

dashuk

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #14 on: July 04, 2018, 12:14:50 PM »
I'm a bit wary of being able to predict, from a couple of decades out, what the willingness of banks to give a mortgage to someone who hasn't had a job for a decade might be.

Obviously that's less of an issue if you're within a few years, and a non-issue if you've already got it agreed.
The idea is that you take the mortgage out well BEFORE you hand in your notice.  That lets you live on borrowed money for some of the period pre-pension access, secure in the knowledge that the tax benefits from the pension more than outweigh the interest you pay.

I can see the benefits of that if you're a higher rate taxpayer say 8-10 years out from pension access age, planning to retire say 4-5 years out and looking to give your pension pot a massive boost with your last few years earnings.

I'm wondering about the risks and opportunity costs of holding one for the best part of 20 years, either planning to draw down throughout, or holding as a contingency to cover the last couple of years if your non-pension investments fall short.

Because unless you do hold one for that length of time then you are in the position of having to try and secure one with very little in the bank and a long time since you were last paid.

PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #15 on: July 04, 2018, 03:43:24 PM »
That's where an offset mortgage really scores.  If your house is paid off and you're still working, just take out an interest only offset mortgage and put the cash into a bank account with the same provider - zero interest to pay, but the cash is there if money gets tight in the last year's before pension access age.  No risk - other than risk of bank collapsing and even that is covered if the mortgage and associated deposit are less than £85k.  Only cost is the arrangement fee.

highlandterrier

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #16 on: July 05, 2018, 09:53:08 AM »
I like the idea of the offset mortgage, perfect in theory, but does anyone have any experience of this working in practice ? Will the bank let you keep a credit line open with no debt charges for 10 years or more ?

On original point of ISA v pensions it's a tricky one to balance. My plan is to FIRE at 51. Taking into account plausible rule changes the pensions will be accessible at 55-60, another at 60, and one at SPA.  So do you budget ISA's for 4 years expenses, 9 years, or keep some in riskier options and allow say 12 years, there is a lot to consider, and a huge disparity ?

There is no right answer, so I've set a line in the sand for 51, see what the stash is, and see how comfortable I feel. There is a danger of OMY syndrome with this approach, but with cautious projections fingers crossed it will turn into OLY syndrome. It's a good problem to have.


PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #17 on: July 05, 2018, 11:26:53 AM »
I like the idea of the offset mortgage, perfect in theory, but does anyone have any experience of this working in practice ? Will the bank let you keep a credit line open with no debt charges for 10 years or more ?

On original point of ISA v pensions it's a tricky one to balance. My plan is to FIRE at 51. Taking into account plausible rule changes the pensions will be accessible at 55-60, another at 60, and one at SPA.  So do you budget ISA's for 4 years expenses, 9 years, or keep some in riskier options and allow say 12 years, there is a lot to consider, and a huge disparity ?

There is no right answer, so I've set a line in the sand for 51, see what the stash is, and see how comfortable I feel. There is a danger of OMY syndrome with this approach, but with cautious projections fingers crossed it will turn into OLY syndrome. It's a good problem to have.
I've had basically net zero on my offset for a good 6 years with no complaints.  In reality I end up paying 50p or so interest a month as our current accounts are part of the offset arrangement and rather than keep a large working balance in there (no interest on credit balances), or mess about shifting cash to and from ISAs every day, I let it drift below net zero at times.

MarcherLady

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #18 on: July 05, 2018, 01:38:15 PM »
On original point of ISA v pensions it's a tricky one to balance. My plan is to FIRE at 51. Taking into account plausible rule changes the pensions will be accessible at 55-60, another at 60, and one at SPA.  So do you budget ISA's for 4 years expenses, 9 years, or keep some in riskier options and allow say 12 years, there is a lot to consider, and a huge disparity ?

We have various pension schemes coming on line at different times.  I have modeled it that our ISAs cover 100% of costs for x number of years, then ramps down in percentage as each pension comes in, reducing to 0% when they are all paying out. If I use the last penny in our ISAs on my 67th birthday I have won.

That's easy to calculate if you have DB pensions, trickier if they are DC. Your estimate of inflation on your spending then becomes a risk factor also. I have got around that by being extremely pessimistic in all my modelling. We are probably FI now, but (until my husband got made redundant with a juicy payoff) had intended to work for a couple more years to pad the stash a bit.

elementz_m

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #19 on: July 10, 2018, 05:34:29 AM »
The below is a simple way to demonstrate this. Not necessarily the best way, but it gets the point across. Start with some assumptions:
* Pension preferable to ISA
* At some age, x years after retirement, the goal is to just draw the interest from a pension.
* 3% growth above inflation of invested assets, paid at the end of the year.
* £3 annual spending, taken at the start of the year.
* £103 total money. So each year you spend £3 and the remainder grows back to £103.

The money in your pension needs to grow to £103 by the time you can draw down on it. So if you're one year away, you need £3 in the ISA and £100 in the pension.

For a general sum, given x years until pension, use 103/(1.03^x) for your pension amount, and the rest in ISAs to be drawn down to nothing. 103 is the total pot, 1.03 the growth above inflation.

At 10 years, £76.64 in pension.
At 20 years, £57.03
At 30 years, £42.43

sea_saw

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #20 on: July 10, 2018, 06:49:43 AM »
I see my DB pension is an even rarer beast than I imagined. Interesting, I'll try not to be too jealous ;) Actually I'm not sure DB schemes are that great for early retirees, but I can't be arsed to model it properly and find out. Hopefully nearer the time it'll all fall into place, when I have a better idea of both the amount I'll be getting in benefits and the amount I expect to need.

MarcherLady, that sounds really sensible. Must have been a fun evening with Excel :) The tapering in of multiple pensions must also help with feeling that you have a bit of wiggle room instead of a single hard deadline. 

MarcherLady

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #21 on: July 10, 2018, 07:01:41 AM »
MarcherLady, that sounds really sensible. Must have been a fun evening with Excel :)

We know how to party at Marcher Towers!

PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #22 on: July 16, 2018, 08:36:55 AM »
I see my DB pension is an even rarer beast than I imagined. Interesting, I'll try not to be too jealous ;) Actually I'm not sure DB schemes are that great for early retirees, but I can't be arsed to model it properly and find out. Hopefully nearer the time it'll all fall into place, when I have a better idea of both the amount I'll be getting in benefits and the amount I expect to need.
That depends how early you are retiring!  Retiring at 30 they wouldn't work that well as the amount needed to bridge the gap would probably last you for ever anyway.  Retiring in your 50s they are wonderful as they take away so much risk.  It's so much easier to plan how the rest of your stash will cover a fixed period of a decade or so than it is to plan for it to cover an unknown period of many decades.

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #23 on: July 16, 2018, 08:58:50 AM »
I see my DB pension is an even rarer beast than I imagined. Interesting, I'll try not to be too jealous ;) Actually I'm not sure DB schemes are that great for early retirees, but I can't be arsed to model it properly and find out. Hopefully nearer the time it'll all fall into place, when I have a better idea of both the amount I'll be getting in benefits and the amount I expect to need.
That depends how early you are retiring!  Retiring at 30 they wouldn't work that well as the amount needed to bridge the gap would probably last you for ever anyway.  Retiring in your 50s they are wonderful as they take away so much risk.  It's so much easier to plan how the rest of your stash will cover a fixed period of a decade or so than it is to plan for it to cover an unknown period of many decades.

This is very true. I'm planning to take my DB pension next year when I'm 55, and it's tremendously reassuring to know that whatever else happens, my bare bones expenses will be covered. I'm hoping that my stash will only have to cover the period until I get my state retirement pension at 67, but I won't be counting on that until nearer the time.

Two of my Millennial children are now taking an interest in long term savings. Getting the balance right between SIPPs and ISAs for them will be interesting and I'll probably get to know them a lot better in the process of having the discussions.

sea_saw

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #24 on: July 16, 2018, 09:29:11 AM »
@TartanTallulah, is your pension amount reduced by taking it at 55? If so, interesting that it might be worth it anyway, if the alternative is working longer.

@PhilB I'm sure I'll appreciate the guaranteed income when I get closer to taking it, haha :)

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #25 on: July 16, 2018, 10:10:56 AM »
@TartanTallulah, is your pension amount reduced by taking it at 55? If so, interesting that it might be worth it anyway, if the alternative is working longer.


Yes, my DB pension is reduced by 25% if I take it at 55 rather than 60, with the lump sum being reduced by rather less. It was a challenging decision between taking my DB pension early or leaving it till I'm 60 and pulling my SIPP into drawdown at 55, but I'm comfortable with it.

Working longer would be even better because fundamentally I don't have any objection to working, but my job has become untenable.

PhilB

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #26 on: July 16, 2018, 11:09:41 AM »
@TartanTallulah, is your pension amount reduced by taking it at 55? If so, interesting that it might be worth it anyway, if the alternative is working longer.


Yes, my DB pension is reduced by 25% if I take it at 55 rather than 60, with the lump sum being reduced by rather less. It was a challenging decision between taking my DB pension early or leaving it till I'm 60 and pulling my SIPP into drawdown at 55, but I'm comfortable with it.

Working longer would be even better because fundamentally I don't have any objection to working, but my job has become untenable.
It often comes down to the relative size of DB and DC schemes.  For MrsB and I, we need to leave our (relatively small) DBs until normal retirement date for them, plus SP, to be enough to cover our spending long term.  We have much more in DC schemes so it makes sense to draw these down to live off for 11 - 15 years before that.  If the situation were reversed, then we might well be considering taking some of the 'excess' value in the DBs by transferring and/or taking them early in order to preserve some of the DC funds for their flexibility / IHT shielding.

frugledoc

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #27 on: July 16, 2018, 11:34:45 AM »
@TartanTallulah, is your pension amount reduced by taking it at 55? If so, interesting that it might be worth it anyway, if the alternative is working longer.


Yes, my DB pension is reduced by 25% if I take it at 55 rather than 60, with the lump sum being reduced by rather less. It was a challenging decision between taking my DB pension early or leaving it till I'm 60 and pulling my SIPP into drawdown at 55, but I'm comfortable with it.

Working longer would be even better because fundamentally I don't have any objection to working, but my job has become untenable.

Hi TT , Iím sure you know this but the DB pension annual payment is not ďreducedĒ by 25%.

It is an actuarial adjustment to account for more years paid out on retirement.

A lot of my NHS colleagues donít seem to grasp basic NHS Pension facts

TartanTallulah

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #28 on: July 16, 2018, 03:17:00 PM »
@TartanTallulah, is your pension amount reduced by taking it at 55? If so, interesting that it might be worth it anyway, if the alternative is working longer.


Yes, my DB pension is reduced by 25% if I take it at 55 rather than 60, with the lump sum being reduced by rather less. It was a challenging decision between taking my DB pension early or leaving it till I'm 60 and pulling my SIPP into drawdown at 55, but I'm comfortable with it.

Working longer would be even better because fundamentally I don't have any objection to working, but my job has become untenable.

Hi TT , Iím sure you know this but the DB pension annual payment is not ďreducedĒ by 25%.

It is an actuarial adjustment to account for more years paid out on retirement.

A lot of my NHS colleagues donít seem to grasp basic NHS Pension facts

Yes, I was being obtusely simple but I do know how it works :-)

boyband

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #29 on: August 09, 2018, 03:12:09 PM »
Just out of interest, the 4 pot solution mentioned that is now behind a paywall, anyone know what those '4 pots' were? I'd be intrigued as I'd quite like to think about how it relates to my own spreadsheet...

twistedfirestarter

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #30 on: August 11, 2018, 01:31:06 AM »
Just out of interest, the 4 pot solution mentioned that is now behind a paywall, anyone know what those '4 pots' were? I'd be intrigued as I'd quite like to think about how it relates to my own spreadsheet...

ISA, SIPP, DB pension, Government pension

if I remember correctly

UKstache

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #31 on: August 24, 2018, 08:53:15 AM »
Thought I'd bump this up because I just found the UK tax section and have been thinking about this issue a lot. Great to hear others thought processes on which vehicles to fill first...

Sent from my Moto G (5) using Tapatalk


NearlyThere

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #32 on: August 27, 2018, 02:07:04 AM »
I like the idea of the offset mortgage, perfect in theory, but does anyone have any experience of this working in practice ? Will the bank let you keep a credit line open with no debt charges for 10 years or more ?

Yes they will. We did exactly this with First Direct. Our 10 year deal concluded in May and we decided to just pay off the mortgage in full at that time, but we put everything in there to reduce the interest paid over the first few years and when it was effectively 0 cost we added some more and drew down from that as an when needed. Sometime's we'd take a little bit more out and pay interest on that but as mentioned above, our interest charges were maybe 50p a month. Generally we kept it balanced with a little bit more than needed so we could use the current account. Beyond that everything was put into the ISA (JISA for DD), SIPP and taxable accounts in that order.

With a fully funded Offset mortgage we were saving £800+ a month interest payments that was literally redirected into our investment accounts. I do credit it somewhat to expediting our FIRE plans.

poppydog

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Re: Balancing pensions/SIPPs (etc) and ISAs (etc)
« Reply #33 on: August 29, 2018, 07:46:08 AM »
Mrs PD and me retired in April, at 63 and (nearly) 60 respectively.  We both have DB pensions and investment income from our SIPPs and ISAs.  The third bucket for our retirement income is the state pension.  Weíve examined the state pension estimates from the government and calculated the net-of-tax value of the SP when it arrives for us both in 2020 and 2024 respectively.

What weíve done over the last few years is to save up a separate ďbucketĒ of cash over the last few years to pay ourselves the equivalent of the SP until it arrives.  So in effect we will transfer seamlessly into our SP income at the time.

I guess this is a kind of bucket strategy, which we are comfortable with.

PD