Retirement

[Shack]

I'm still a few years off from making this decisions but I'd be interested in hearing other perspectives and the options and tax implications look confusing.

Like you, I have zero interest in an annuity. Too many people were forced into them in the past. My dad got an especially bad deal from his.,

My current thinking is to avoid drawing on the private pensions for as long as possible a spend a couple of years living of savings and maybe some part-time work but still ununsure about the pros and cons of taking the maximum lump sum

I've sort of been doing what you mentioned in the last paragraph. I've always had one eye on getting the money back out of the pension as tax efficiently as possible. The more you build up in it and the closer you get to state retirement age the more difficult it becomes! I've just turned 55 and for me I think it's the right time to start taking it out. Luckily pensions are much more flexible these days and I can always pause/work a bit more if required or want to.

Unless you need the tax free lump sum to pay off a mortgage etc, then I personally would not take the maximum in one go as you are taking it out of a tax shelter and unless you then put it into an ISA (can only put 20k per year) you will have to pay tax on subsequent interest/dividends/capital gains

When I retired in January I moved a proportion of my pension (80K) into drawdown. This meant that I received 20k (25%) of this as a tax fee sum which I put into my ISA.

For the new tax year that started in April 2024 I have a £12570 tax free personal allowance, so I am withdrawing just over 1k per month from my drawdown pension account so that I don't pay any tax on this money either. This 1k is automated and paid at the end of each month just like a salary by my pension provider.

The rest of the money that I need to live on above the annual 12.5k that I take from my pension comes from ISAs/savings premium bonds.

In future years I can move another 80k from my pension into drawdown taking the tax free 20K lump sum and reinvest this into an ISA when the ISA allowance is refreshed in the next tax year.

My plan is that I will not pay a penny more income tax until I start to receive my state pension.

That's basically my thinking on this but perhaps not even take the 20k lumper and just take the increased yearly tax free allowance. So, instead of 12.5k I'd take it 15-16k still tax free. Swings and roundabouts realty. Only difference would be where the money is invested during that year (pension v ISA).

Does the crystallised 80k remain invested? Do you choose alternative funds for those if you wanted something not as volatile for example?

 

[Swindon On Tour]

I'm looking at it like What of I lost my job tomorrow
I'd just have to manage
I can afford to walk away for a bit and just rewind
Plenty of lapsed hobbies to pick back up
I had a son at 42 so he's 19 now but he'll do ok as his mother and me both have houses .

Same issue as me Mate.
Boys only 20 and 17. They don’t ask for nothing but I am feeling guilty that I am not supporting them more financially.

 

[Barista]

I've sort of been doing what you mentioned in the last paragraph. I've always had one eye on getting the money back out of the pension as tax efficiently as possible. The more you build up in it and the closer you get to state retirement age the more difficult it becomes! I've just turned 55 and for me I think it's the right time to start taking it out. Luckily pensions are much more flexible these days and I can always pause/work a bit more if required or want to.

That's basically my thinking on this but perhaps not even take the 20k lumper and just take the increased yearly tax free allowance. So, instead of 12.5k I'd take it 15-16k still tax free. Swings and roundabouts realty. Only difference would be where the money is invested during that year (pension v ISA).

Does the crystallised 80k remain invested? Do you choose alternative funds for those if you wanted something not as volatile for example?

Yes, there are a few different ways of doing it and the taking of 16k annually that you mentioned would be a good way to avoid any income tax.

For the 80k that I crystallised I get 20k as tax free lump sum and the remaining 60k stays in my pension. My provider moves it to a separate drawdown account for clarity, but not all do.
I am then free to invest this 60k just like the rest of my pension. I keep around 20k as cash as I am withdrawing 1k of it each month so I do not want any volatility on this. The other 40k I have also invested in supposedly low volatility funds that are a mixture of shares/bonds/gold and will convert to cash when I have used up the current cash reserves.

 

[a1970man]

I've sort of been doing what you mentioned in the last paragraph. I've always had one eye on getting the money back out of the pension as tax efficiently as possible. The more you build up in it and the closer you get to state retirement age the more difficult it becomes! I've just turned 55 and for me I think it's the right time to start taking it out. Luckily pensions are much more flexible these days and I can always pause/work a bit more if required or want to.

That's basically my thinking on this but perhaps not even take the 20k lumper and just take the increased yearly tax free allowance. So, instead of 12.5k I'd take it 15-16k still tax free. Swings and roundabouts realty. Only difference would be where the money is invested during that year (pension v ISA).

Does the crystallised 80k remain invested? Do you choose alternative funds for those if you wanted something not as volatile for example?

When you crystallise, you withdrawn it from the investment/protection of the pension fund.
You can then get at the 25% of what has been crystallised.

So you have £200k in a pension, you want £25k of lump sum tax free.
You crystallise £100k.
£75k drops into a savings account (probably still with the pension people) and you get £25k tax free to do with as you please.
The 75k is still tax free until you withdraw it, then it is liable to income tax (above £12500 a year usually, but let's call it £12000).
If you take £1000 a month from it and you have no other income, you don't pay tax, as your total drawn down is £12000 and under the allowance.
If you take £1500 a month from it you get taxed on the £500 at 20% so you get £1400 in your hand and you've paid £100 tax.
If you take £1000 from you drawn down fund (£75k) and £500 from you lumper (£25k) you don't pay any tax.

This leaves £100k in your pension untouched which carries on as before.

But

The £100k in your pension carries on being invested as before but as it increases your "25% tax free " increases

Lets say it goes up to £110k. You could then take your 25% from whats left and crystallise the remainder, but 25% is now worth £27.5 k
So you've ended up with £52,500 tax free instead of £50,000 if you'd taken the whole lot up front.

So the idea is to take what you need, and not take the whole amount on day one.

Obviously all of the above is just ham fisted ball park figures and is assuming your tax band and financial status, but the idea is sound.

 

[Kobayashi]

@42 sort of said what he'd do. Drawdown. I've done exactly what he said post#1576

Sorry to hear about your mate. That's terrible

He's a pragmatic fckr, what will be will be.
"Don't give me any of your sympathy pish"
Saying no to chemo, will only give him a few months apparently.

 

[Shack]

Yes, there are a few different ways of doing it and the taking of 16k annually that you mentioned would be a good way to avoid any income tax.

For the 80k that I crystallised I get 20k as tax free lump sum and the remaining 60k stays in my pension. My provider moves it to a separate drawdown account for clarity, but not all do.
I am then free to invest this 60k just like the rest of my pension. I keep around 20k as cash as I am withdrawing 1k of it each month so I do not want any volatility on this. The other 40k I have also invested in supposedly low volatility funds that are a mixture of shares/bonds/gold and will convert to cash when I have used up the current cash reserves.

So, on the 60k that remains from the 80k you crystallised, appreciate that miss then taxable when you take it out. What happens to any gains on that whilst it remains invested? Are they taxable?

When you crystallise, you withdrawn it from the investment/protection of the pension fund.
You can then get at the 25% of what has been crystallised.

So you have £200k in a pension, you want £25k of lump sum tax free.
You crystallise £100k.
£75k drops into a savings account (probably still with the pension people) and you get £25k tax free to do with as you please.
The 75k is still tax free until you withdraw it, then it is liable to income tax (above £12500 a year usually, but let's call it £12000).
If you take £1000 a month from it and you have no other income, you don't pay tax, as your total drawn down is £12000 and under the allowance.
If you take £1500 a month from it you get taxed on the £500 at 20% so you get £1400 in your hand and you've paid £100 tax.
If you take £1000 from you drawn down fund (£75k) and £500 from you lumper (£25k) you don't pay any tax.

This leaves £100k in your pension untouched which carries on as before.

But

The £100k in your pension carries on being invested as before but as it increases your "25% tax free " increases

Lets say it goes up to £110k. You could then take your 25% from whats left and crystallise the remainder, but 25% is now worth £27.5 k
So you've ended up with £52,500 tax free instead of £50,000 if you'd taken the whole lot up front.

So the idea is to take what you need, and not take the whole amount on day one.

Obviously all of the above is just ham fisted ball park figures and is assuming your tax band and financial status, but the idea is sound.

Cheers, yes I get all that. Same question as above, interested to know what happens to the 75k 'savings account' part you left in the pension, assuming you left it invested in funds? What happens with any increase in that 75k from a tax perspective when you take it out?

 

[a1970man]

So, on the 60k that remains from the 80k you crystallised, appreciate that miss then taxable when you take it out. What happens to any gains on that whilst it remains invested? Are they taxable?

Cheers, yes I get all that. Same question as above, interested to know what happens to the 75k 'savings account' part you left in the pension, assuming you left it invested in funds? What happens with any increase in that 75k from a tax perspective when you take it out?

Once you take it out of your pension pot it, the 75k would drop into a standard style savings account, probably still under the arm of the pension provider.

It's has been crystallised so won't affect your 25% anymore. It will continue to grow (albeit at a lower rate probably), so your pension might be growing at 6/7% a year and your crystallised pot may be growing at 2/3%.

Nothing gets taxed until it hits your personal bank account.

Your pension provider can probably explain this better than me.

 

[Shack]

Once you take it out of your pension pot it, the 75k would drop into a standard style savings account, probably still under the arm of the pension provider.

It's has been crystallised so won't affect your 25% anymore. It will continue to grow (albeit at a lower rate probably), so your pension might be growing at 6/7% a year and your crystallised pot may be growing at 2/3%.

Nothing gets taxed until it hits your personal bank account.

Your pension provider can probably explain this better than me.

No, it makes sense. I'd have benefitted from the tax free part and the remaining 75% in the crystallised pot is just taxable whenever I take it out. Whether it grows or reduces its irrelevant I guess (I'm with Aviva and I'm sure it can remain invested rather than just a savings account).

Appreciate the feedback. I've managed my own pension for 10+ years now so I'm pretty savvy on it generally. It's good to hear other people's experiences though once they started withdrawing it.

 

[Pnematic1]

Think you are correct on that , around 50 a switch seemed to flick and I started to focus more on time. Kids were growing up quickly and I had a greater sense of what time was left ahead of me.
Bizarre feeling and something that’s still with me now at 55. It led to me putting in plans to sell the businesses and start living in the moment .
Talking to a few others it seems quite a common thing when folk hit a certain age.

It’s the much mocked “ male menopause “. I know at lot of blokes in their 50s who have reached a career pinnacle, brought the kids up , paid or almost paid the house off… no debt.

Sounds wonderful but most have a feeling of being “ redundant “ from life or society . Hard wired to graft. , earn and raise a family - their task is almost complete and the future looks kind of desolate.

It’s tough - needs to be more discussion and hope for this because it’s real.

One lad who has a nice family , house etc without being rich - solid decent lad - told me one night he was sat home alone and suddenly burst into floods of tears . It shocked him tbh and he said he felt useless although he’d done a fantastic job by his family.

It’s more common than we think.

 

[Swindon On Tour]

It’s the much mocked “ male menopause “. I know at lot of blokes in their 50s who have reached a career pinnacle, brought the kids up , paid or almost paid the house off… no debt.

Sounds wonderful but most have a feeling of being “ redundant “ from life or society . Hard wired to graft. , earn and raise a family - their task is almost complete and the future looks kind of desolate.

It’s tough - needs to be more discussion and hope for this because it’s real.

One lad who has a nice family , house etc without being rich - solid decent lad - told me one night he was sat home alone and suddenly burst into floods of tears . It shocked him tbh and he said he felt useless although he’d done a fantastic job by his family.

It’s more common than we think.

This is spot on.
Going from little time to plenty of time needs some adjustment.

 

[JJH]

Same issue as me Mate.
Boys only 20 and 17. They don’t ask for nothing but I am feeling guilty that I am not supporting them more financially.

I think most parents feel the same. I certainly do and both my boys are in far better financial situation than I was at their ages.

 

[Barista]

So, on the 60k that remains from the 80k you crystallised, appreciate that miss then taxable when you take it out. What happens to any gains on that whilst it remains invested? Are they taxable?

Yes, any increase on the 60k will also be taxable.

 

[JAZZMANB]

I think most parents feel the same. I certainly do and both my boys are in far better financial situation than I was at their ages.

I got a slow cooker and a couple of grand from my parents estates
My son has 5 times that in a trust fund and we're still around. Its nice to give them a start but I'm not going to sweat about not having enough to leave him

 

[Matt Hopkins]

I got a slow cooker and a couple of grand from my parents estates
My son has 5 times that in a trust fund and we're still around. Its nice to give them a start but I'm not going to sweat about not having enough to leave him

Instead of getting him 5 slow cookers could you not mix it up a bit maybe an air fryer, George Formby or a toaster or something?

 

[Hair Flick]

Instead of getting him 5 slow cookers could you not mix it up a bit maybe an air fryer, George Formby or a toaster or something?

Waffle irons are the inheritance gift of the moment iirc.

 

[Flip]

If you need time to think it over, pilgrim trail stuff is excellent. Before chucking my cards in for S. America, I walked Hadrians Wall solo and it gave me the time and space to make a decision.

Did you just wild camp or are there hotels on the route?

 

[Footyboots]

It’s good there are now men only groups springing up to help people adjust to not working. It seems occupying your chattering mind is the key. As others have said we are hard wired to be hunted gatherers. Providing for our families. Having hobbies to replicate this will help.

 

[Flip]

I've ran my numbers yesterday and think I can just about retire at 55 or maybe go part time at 55 and retire at 57. My current thinking is by an annuity (for a partial bit of pension) then use some passive income streams I have as well as some other investment vehicles that my advisor should be able to help with. That is something I would highly recommend getting and paying a couple of hundred quid for in your 40s and also as you are about to retire, they are experts in this stuff and will give you the best chance of hitting your goal.

The way I see it mortgage is paid in 14 months and in four years all kids will be though Uni so after that I'll be 52 and hopefully debt free so can lump even more into the pot. Once you have your house and the kids have left its surprising how little money you need to have a season ticket and a couple of holidays a year. Like someone said on this thread you'll run out of time before you run out of money, my dad passed at 66 while still in work and at that point I made a 20 year plan of how I can get out of the rat race. I like my job and it pays well and I can pretty much do what I want but I prefer golf, guitars, holidays, gardening, reading and walking more.

 

[Pnematic1]

It’s good there are now men only groups springing up to help people adjust to not working. It seems occupying your chattering mind is the key. As others have said we are hard wired to be hunted gatherers. Providing for our families. Having hobbies to replicate this will help.

I m still with a group of lads from primary school and meet up quarterly for a pint and chat - we are mid 60s now- more are coming along who we knew years ago at secondary school or youth.

It’s not just reminiscing - a few of the lads have struggled one way or another and it does them good to chat .

I m lucky the male menopause or retirement never affected me - I m very easy going and my sense of humour ( I always see the positive or funny side ) got me through.

Thing is everyone comes to me with their issues - which I don’t mind at all tbh.

 

[SurreyMackem]

I've ran my numbers yesterday and think I can just about retire at 55 or maybe go part time at 55 and retire at 57. My current thinking is by an annuity (for a partial bit of pension) then use some passive income streams I have as well as some other investment vehicles that my advisor should be able to help with. That is something I would highly recommend getting and paying a couple of hundred quid for in your 40s and also as you are about to retire, they are experts in this stuff and will give you the best chance of hitting your goal.

The way I see it mortgage is paid in 14 months and in four years all kids will be though Uni so after that I'll be 52 and hopefully debt free so can lump even more into the pot. Once you have your house and the kids have left its surprising how little money you need to have a season ticket and a couple of holidays a year. Like someone said on this thread you'll run out of time before you run out of money, my dad passed at 66 while still in work and at that point I made a 20 year plan of how I can get out of the rat race. I like my job and it pays well and I can pretty much do what I want but I prefer golf, guitars, holidays, gardening, reading and walking more.That

These days dieing while in work sounds sad but when pensions were introduced it was an insurance against being forced to retire due to ilness or old age before you died. Now retirement appears to be the aim rather than having the health and choice to be able to continue working. I retired at 72.