Industry standard quotations for living in retirement here
https://www.retirementlivingstandards.org.uk/
For annuities, the DC sum for a couple with index linked increases is about 27-30x the annual income required. This ignores the additional state pension added at 67 in my case. If you are single, or don’t want index linking, the ratio goes down to below 20x. Of course you can just take out the cash each year instead.
The minimum for a couple is £22k, so a lump sum of approx £594k, without the state pension. Comfortable would be £43k, so about the same lump sum WITH the state pension included.
IANAFA, but these standard appear in multiple places, including our own company scheme.
i wonder what percentage achieve this though, especially private sector workers. I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I’ll be 3/4 of the way there
£700,000 even with taking 25% tax free seems to be £40,000 a year... Realistically if we've all got no mortgage when we retire, so we really need more than £40,000 a year ? (That's not including any government pension either).
Lets call that £3000 a month without a mortgage, that's not bad is it ?
So I do think the early auto enrollment is a brilliant thing.
I'm an evangelist for 'people need to be saving for their retirement, and start as early as possible', and auto-enrollment is a good thing, but there is an issue with it - for many it gives a false sense of security. They see the auto-enrollment pension contributions in their payslip and think 'retirement saving done', when in actual fact the auto-enrollment minimum contribution (8%, usually 5% employer, 3% employee), which is what most will be on, is far too low to create a liveable-on pension pot in retirement.
It all comes down to financial literacy or the lack thereof. The fact is that we do not teach children about money, so they grow in to adults who do not really understand money. It's nuts.
£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).
Lets call that £3000 a month without a mortgage, that’s not bad is it ?
yes, as i say, I count myself in the lucky group. Wife's pension is minimal, but we'd be comfortable for sure. I can't imagine more than a very few get into the 7 figure pot sizes though, unless on some old established public sector schemes.
I think luck can play a big factor for sure. My pension through company is 6% (me)-12% (them) so ends up stacking up massively and puts me in a far far better postion than i ever thought i'd be in retirement. But like i say, very little of this was choice and most of it was luck and right time right place
Sorry if this is a slight aside but a question;
At 52, I can take from my private pensions at 57 right? So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?
Or, is it better to save for that lump sum outside of the private pension e.g. in ISA’s and leave that private pension intact for as long as possible?
£700,000 even with taking 25% tax free seems to be £40,000 a year
If your pot was £800k and you drew down £40k a year AND your pot continued to grow at 5% you would still have a pot of £800k when you cark it. The good news is when that pot goes to your dependents there is no tax if you die before 75 or if you are over 75 tax is treated as income for the beneficiary.
So if I was trying to save for the future, but wanted a lump sum in 5 years for something, what if anything is “triggered” by me taking the 25% at 57?
Nothing is triggered. Things only get triggered if you also take out non tax free and that only matters if you are still paying into a pension as you are limited to £10K per year rather than the standard £60K
Ok thanks Kerley. With my mortgage ending I intend to now save the former mortgage payment to pump up my retirement funds / get the best shot of retiring at 60, just wondering where the best place to put it is, leaving some flexibility for anything big e.g. the house needs a new roof type of thing.
I’m tempted to make half of that a month at least salary sacrifice with my employer to make it a bit more tax efficient.
I can’t see tax breaks for older workers coming so the alternative is punitive changes so we can’t afford to stop working…… depressing.
"Punitive changes" aren't needed, just pure general cost of living will keep most people working - bottom line, they can't afford not to.
I'm 53, and self employed, being paying into a private pension for over 30 years. I'm planning on winning the Euro Millions, and a big one too!
"£700,000 even with taking 25% tax free seems to be £40,000 a year… Realistically if we’ve all got no mortgage when we retire, so we really need more than £40,000 a year ? (That’s not including any government pension either).
Lets call that £3000 a month without a mortgage, that’s not bad is it ?"
How did you get to those numbers? Assuming you drawdown at 4% a year (some people say that's too high...) and take 25% tax free then you get £21k a year.... Not a lot to live on if you want to retire at 60 or something. I'm aiming to get to 7 figures for the two of us, but I probably wont - would need a lot of very optimistic assumptions to be true! Have been doing the half your age into your pension since mid to late twenties (more than that most years - every bonus etc).
It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) - I get paid more than he did, put more into a pension than he did, haven't gone mental with the mortgage - but still it's more than he paid. I've just resigned myself to being poorer (relative to current income as 25k a year or whatever isn't poor to a lot of people) when old.
It just seems completely unattainable to get to the standard of living my father has (mid ranking civil servant) – I get paid more than he did, put more into a pension than he did, haven’t gone mental with the mortgage – but still it’s more than he paid.
There a reason people don't have pensions like your fathers anymore and never will again. They were based on retiring at 65 and not living for another 20-30 years.
How did you get to those numbers?
From Scottish Widows and looking at my pension with 25% off and not taken....
According to their figures my pension will be worth £900k when i retire at 65 (currently £525,000), which comes in at £59,000 a year according to them.
This means your regular annual income for life in today’s money could be:
£44,100
with
£223,000as a one-off, tax-free lump sum.
I have no idea how they come up with these figures
Does the 44K per year include state pension, and what age are you dying in the calculation?
No idea 🙂
How we work out your estimate
We start with the current value of your pension.
We then add the growth you might expect between now and when you retire. This helps us show you what your pension value may be and how much you might get as an annual income.
It’s worth knowing this estimate assumes you’ll buy a regular income for life. This is also known as an annuity. The figure we show you is based on an annuity that’s guaranteed to give you an income for the rest of your life, or a minimum of five years, whichever is longer.
We can’t guarantee how much you’ll get from your pension when you retire. Things like annuity rates and tax rules could change.
You might also decide to take your pension in another way. This could be as cash or as a flexible income, which you’d take as and when you need it, instead of buying a regular income for life.
Assumptions we make
To work out your estimate, we assume:
You’ll carry on making regular payments. We assume your wage will rise over time, and so will your monthly contributions. We’ve based this assumption on the Average Weekly Earnings (AWE) index.
You’ll leave your pension invested as it is today and pay the same percentage as a charge.
Your investments perform as we expect them to. We show you three levels of performance here. But we’ve used the ‘medium’ rate of return to work out this estimate.
Any adviser charges are already included and will carry on until you retire.
We show you what the value of your pension might be in today's money. This means we account for things like a rise in the cost of living. We think this will increase by 2% each year. Put simply, this means that what £10 buys you in future will be less than what £10 buys you today.
Growth rates for each fund
Your future income will also depend on how your pension investments perform over time. That’s why we show you three possible scenarios here.
Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.
Hmmm, yes but no but. I know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement. In theory what you say is true, but in practice rarely.
< Edit to say that actually a lot of them are actually planning to retire mid fifties. Which explains why their pots aren't likely to give them high tax bracket incomes. If they worked through to 65 then I agree it is likely they will tip into the 40% marginal rate ( but still not 60% eff marginal or 45% marginal rate)>
And also, the people to which your statement does apply are likely to be well in control of their finances, and not the sort of people to which a thread like this is useful.
Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate
Totally agree
Retirement is 12-13 years away for me @48...
I have planned well from 21 so I will be OK
But has anyone experience of drawing down a pension with PIE option...? thoughts?
know stacks of people who are currently saving 40%, 60% or 45% tax but who have sod all chance of being in that bracket in retirement. In theory what you say is true, but in practice rarely.
Thisd be why I posted above - increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.
The opposite of the YOLO approach then. To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.
Not at all. It's about assessing expenses and cutting out those which aren't really adding any real value to your quality of life. Having several TV subscriptions for example; how much TV are you going to watch? A mate had over £200 a month in such until he decided to scrap them all. People can pay a fortune for Netflix, Sky, Amazon Prime, X-Box and Playstation subs. Then there's things like gym memberships that don't get used. Or owning a car when you live somewhere like London; a neighbour commented that we must be rich to be able to afford to go abroad 3-4 times a year or more. I pointed out that we still spend less on those trips per year than he does in running his car which sits outside his house for 95% of the time. This is the same guy that drives the 1.25 miles to the local leisure centre, a distance I choose to walk as it's more exercise than riding a bike even .
By being more careful and mindful about what you spend, you can actually have a better lifestyle and more fun.
Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.
There will be lots of people with small pensions that don’t take out more than the personal allowance. Easy to see a situation where you take less than 12k/year for a few years waiting for the state pension to kick in.
Annuity rates seem to have got better by a fair bit - used to be 1m bought 30k. If you retire at 68 you get the 44k as you say with 900k from the usual places. Given my family background, I suspect I'll die early enough that it doesn't make much sense to get an annuity (I def don't want to wait to 68!) so i'm planning on doing draw down and then leaving the pot to kids / wife.
Thisd be why I posted above – increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.
^^^^^^ 20% is the basic tax rate so even better.
Assuming you take the 25% tax free lump sum in stages you can crystallise and draw down £67k per year and only pay a small amount of tax:
Gross £67,000
minus £16,750 25% tax free leaving £50,250
minus personal allowance of £12,570 leaving £37,680
20% of £37,680 = £7,536 which will be your tax bill for the year, in other words just over 11% tax and of course no NI.
Worth noting that if you're at certain tax trap brackets (notably the 60% one + all the child care stuff that disappears at the same level) you're going to save a lot if you put that money into a pension (i.e. you'd be taxed at 60+% if you took it as income, but even if you're still a higher rate tax payer, you're going to be taxed at 40% when you take it out).
Agreed, that's what I said earlier.
you’re going to be taxed at 40% when you take it out
How so?
"How so?"
So if you're in the 60% tax trap (actually more than that if you have kids due to tax free child care going, and free hours being halved) you're going to be earning between 100-125k, so it's pretty unlikely (impossible?) you'll have put enough away to be drawing a pension that is large enough to hit the 45% tax rate, or even the 100k 60% rate again. So worse case you'll be withdrawing at 40% tax, and probably at the 20% rate.
Ignoring the 25% tax free amount upto c£50k can be paid without getting into 40% tax … £13k personal allowance plus £37k at 20%.., an overall rate of 15%. Anything over £50k can be taken using tax free amount to extent any left. If you are high earner tax relief at 40%- 60% to fund that or 20% for a basic rate taxpayer
Agreed. The above clarifies it.
No one's mentioned recycling. I know, it's not allowed... but it is, upto a small amount. If you recycle less than 30% of tax free cash as additional pension contributions, or take less than £7500 tax free over a 2 year period, it's allowed. (There are some other rules but those are the amounts)
So once you hit 55, ( or 57) and can access the tax free lump of your pension, you can start to draw it and recycle a small amount quite legally it seems. Do that for 3, 4, 5 years and you'll see quite a difference, particularly if you're a high rate tax payer.
.
Is that question for me kryton?
You don't have to do anything no. I'm pointing out the option to take some tax free from 55 and reinvest in a new pension. Whether that is right for you depends on the amount of tax relief you'll get on it, when you'll draw the new pension and what incomes you'll have then - ie will you end up just paying the tax later or even paying more, or will you end up better off by recycling and getting that secund chunk of tax relief. If it would work for you the crystalising isn't an issue, you take out and reinvest.
to the OP, not read any of the replies... sorry.
But retired 3 years ago at 55 and the wife at the same time aged 56.
me on a very meagre pension and the wife on local government pension after 38 years service.
1 bit of advice i can give you. take the amount you think you need to retire on, and half it.
less cash more time.
I 'banged out' of the corporate world in 2018 and 4 years ago downsized to a modern, energy efficient house on the Isle of Mull. I work part time in a shop, plus have another small business that I run from home plus have the proceeds from the house sale to subsidise our income for another 5 years until I'm 65. Despite the huge increases in food prices, we're managing to live relatively frugally and if we avoid another Liz Truss moment, my pensions should be double my present income, to the degree I'll probably want to avoid paying higher rate tax as I'll probably stick with the part-time job to give me something to do.
We get quite a few cruise ships stopping here during the summer - I can't imagine anything more insufferable than being stuck on a ship with such a bunch of people so that's definitely off, as well as driving around in a large motorhome, but I may be tempted by a small yacht to cruise up and down the west coast - I've got a chunk of shares from my old employer that have done well since I left!
Is that question for me kryton?
Nope. I was asking a subtly about crystallisation but realised I’d misunderstood the meaning of it hence removed my post.
Im with Ton. I went at 60 with a small income - and a chunk of capital ( which of course is a great safety net). I'll be better off when I hit 67 and get my state pension but its no problem to live withing my means.
Adventures do not have to be expensive
tjagainFull Member
Im with Ton. I went at 60 with a small income – and a chunk of capital ( which of course is a great safety net). I’ll be better off when I hit 67 and get my state pension but its no problem to live withing my means.Adventures do not have to be expensive
100% mate.
also on FB today, you popped up on my memories page......... when i met you on your tour. some good pictures mate
Two old farts enjoying retirement
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The Waldorf & Statler of STW 😉 😀
That theory while great, breaks down if you've had kids late in life. I'd be going a few years earlier if I hadn't.
Those of you that have retired. Is there anything you’d do differently? Or any advice to those of us still working?
