Was just reading the cost of living thread and wondered how those in the early retirement space are feeling about the escalating cost of things, and the impacts that the geopolitical situation are having in reducing most SIPP pensions pots at an alarming rate.
Not too vexated tbh, petrol has obviously rocketed which impacts a little but we're not changing any plans as yet.
Was just reading the cost of living thread and wondered how those in the early retirement space are feeling about the escalating cost of things, and the impacts that the geopolitical situation are having in reducing most SIPP pensions pots at an alarming rate.
Not too vexated tbh, petrol has obviously rocketed which impacts a little but we're not changing any plans as yet.
Either way, it would help everyone who is commenting on how much money they have to live on or hope/need to live on, if they just used net figures. We can't avoid tax* and we don't all have they same circumstances so have different tax arrangements
*I'm assuming there's no billionaires living in the Caymans on STW
I've been working on my retirement plan this week, had a bit of a unpleasant change in circumstances recently meaning starting again at 45 🙁
Anyway, I've always had a loose plan to semi-retire at 60, take a part-time, low-stress job to keep me busy and out of the pub. That's no longer a possibility.
As it stands today, my mortgage will be cleared when I turn 68, my youngest will be 31 so I'll be free and clear there. I'll have a total annual income of £28,500 (two workplace pensions and state pension) which is £1946 per month after tax and £92k tax-free lump sum.
I'm not going to complain about that, my monthly costs today aside from Mortgage is £450 or so, not including food, so I'll have a modest but comfortable income and a big pile of money to use to keep myself entertained. If I get to the point I need my arse wiped for me I'll have to sell up, my Children will be taken care of financially regardless.
I really don't want to work until I'm 68 though, plus whilst all these figures should grow in line with inflation, I'm not confident that the next 22 years are going to be plain sailing. I'd like to increase my pension contributions by £500 a month within the next year or two which will allow me to semi-retire at 60 as long as the rules don't change too much.
To me, it seems a better bet to put money in the pension tax free, rather than lose 42% of it to tax and ni and then pay down the mortgage.
I'm now retired at 60 and my plan is to live off my isas until they run out and then switch over to my pension in my late 60's. I always assumed I would then take the 25% tax free lump sum and reinvest it in isa's and then draw down the pension year by year. But someone has suggested that I take £12.5k out of my pension every year from now because it is tax free as I have no other income. Does this mean I'm eating into the 25% tax free lump sum? It seems like a better suggestion because it's 12.5K which is below the yearly isa limit - I wouldn't know how to reinvest 25% of my pension because is exceeds the £20K isa limit. Thanks
To me, it seems a better bet to put money in the pension tax free, rather than lose 42% of it to tax and ni and then pay down the mortgage.
Probably. Especially if you'll take it all out at the other end at the 20% tax band.
I'm now retired at 60 and my plan is to live off my isas until they run out and then switch over to my pension in my late 60's. I always assumed I would then take the 25% tax free lump sum and reinvest it in isa's and then draw down the pension year by year. But someone has suggested that I take £12.5k out of my pension every year from now because it is tax free as I have no other income. Does this mean I'm eating into the 25% tax free lump sum? It seems like a better suggestion because it's 12.5K which is below the yearly isa limit - I wouldn't know how to reinvest 25% of my pension because is exceeds the £20K isa limit. Thanks
Currently if you take 25% tax free with each payment rather than a lump sum you can get "paid" £16760 per year without paying tax.
With Pension rule changes coming next year I understand most people are being advised to run the pension down before ISAs.
I'm not pensions advisor... but am going through the throes of doing.my sums and looking to retire early.
In terms of taking the £12.5k per year.
I think you *can* do something like that, BUT BUT BUT you have to be careful how you take it, so as to not lose the right to the 25% tax free.
I've been looking at my DC pot to use to bridge til I'm 67. As I understand it, I can take it in 1 of a few ways.
- take *up to* the 25% tax free lump sum at the start. Then the remainder as and when I want but taxed (so the first 12.5k PA is tax free. But remember if tou don't take the 25% tax free at the start, that's it, no second chances for the tax free part
- what's called 'partial encashment'. You take a segment of your total pension pot and for that segment, have it 25% tax free and the remainder taxed as per the normal. So that could allow you to take £16,666 out a year without paying any tax (25% tax free lump sum ie £4166, then the £12,500 taxed - but not really taxed as you have the £12500 annual untaxed allowance. The remainder of the pension hasn't been taken so continues to rise (or fall). Repeat each year.
- turn it to an annuity.
- leave it be for now. Not take anything.
Some pension schemes don't enable all of the possibilities, and you have to move your £££ pot to one that does. Eg my workplace one with Scottish Widows allows the 1st but not the 2nd option unless I move the pot to a different account.
What I believe you cannot do is start taking the taxable part of your pension now and leave the 25% lump to later.
This tries to explain it. Particularly see the 2 charts
Thanks robertajobb, this has completely upended my plans and geeky spreadsheet - I think in a good way!
Claudie
I've read your post a few times and still don't quite understand it, nor the one that follows. But the key thing I'd say is make sure you use your zero rate tax band allowance every year. Ie don't just use ISA income or tax free pot income in any particular year. Otherwise you'll pay more income tax later on.
I think you've got that sussed in your post but am writing it here just to be sure.
Thanks thegeneralist - I didn't have that sussed and have not been using my zero rate tax band for the last few years that I have been retired. So thank you for clarifying it. Still a bit confused about the 25% tax free lump sum vs. how long Im allowed to take £16,666 / year ...
Claudie,
You have 7 years until your state pension kicks in - so seven years of nil rate band you can use up (maybe six because you've almost certainly left it too late for this tax year). You really should be doing this.
Via UFLPS or Fexible access drawdown you can take 16,760 per year from your pension each year without paying any tax. 25% tax free and 75% taxable at zero percent. That's if you have no other taxable income obviously. When your state pension kicks in then it will use up your nil rate band all by itself so you will start to pay tax then.
Everything left in the pot continues to grow tax free and you'll still be entitled to 25% of it tax free (there is a limit but probably irrelevant here). Whether you take it all at once or continue with UFPLS/FAD is a decision you can make at the time.
Robertajob,
I think you *can* do something like that, BUT BUT BUT you have to be careful how you take it, so as to not lose the right to the 25% tax free.
.......
But remember if tou don't take the 25% tax free at the start, that's it, no second chances for the tax free part
I don't think this is right. Or I'm not understanding your point. It's not possible to take taxable income without taking a pension commencement lump sum
Robertajob,
I think you *can* do something like that, BUT BUT BUT you have to be careful how you take it, so as to not lose the right to the 25% tax free.
.......
But remember if tou don't take the 25% tax free at the start, that's it, no second chances for the tax free partI don't think this is right. Or I'm not understanding your point. It's not possible to take taxable income without taking a pension commencement lump sum
It is with UFPLS
No it isn't.
You *must* take a tax free lump sum as part of every UFPLS payment
I don't think this is right. Or I'm not understanding your point. It's not possible to take taxable income without taking a pension commencement lump sumI don't think this is right. Or I'm not understanding your point. It's not possible to take taxable income without taking a pension commencement lump sum
UFPLS isn't PCLS. It does trigger MPAA though. There is a taxable element in UFPLS as well as a tax free element so the statement above about not being able to take taxable income without triggering PCLS is incorrect.
It's possible to start with UFPLS, perhaps to bridge the gap to SPA, and take your PCLS later when the state pension is using up your annual allowance.
You have 7 years until your state pension kicks in - so seven years of nil rate band you can use up (maybe six because you've almost certainly left it too late for this tax year). You really should be doing this.
Via UFLPS or Fexible access drawdown you can take 16,760 per year from your pension each year without paying any tax. 25% tax free and 75% taxable at zero percent. That's if you have no other taxable income obviously. When your state pension kicks in then it will use up your nil rate band all by itself so you will start to pay tax then.
Everything left in the pot continues to grow tax free and you'll still be entitled to 25% of it tax free (there is a limit but probably irrelevant here). Whether you take it all at once or continue with UFPLS/FAD is a decision you can make at the time.
Totally agree with almost all of this.
I'd be tempted to contact your pension people and see if you can take a chunk ( Ie £16k) out before the end of the tax year. ( Donald could well be correct that it's too late, but worth a try)You can always chuck it in an ISA and then use it once your pension kicks in and you start to pay more tax
OK. Let me rephrase that.
It's not possible to take taxable income without taking 25% tax free at the same time.
That's a lot of acronyms, I need to do more research! Thanks again all