Income Strategies – Measuring Retirement Success

Retirement Success

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5 Responses

  1. Avatar Sensai says:

    “These must be the same people who take out a cash ISA every year”

    Can you explain this comment please?

    • Mike Rawson Mike Rawson says:

      Using cash is a bad way of saving for retirement, and buying an annuity is a bad way of providing income in retirement.

      They both appeal to the same kind of person – the very risk-averse.

  2. Avatar David says:

    Hi Mike I’ve a question regarding organising finances in retirement but first I wanted to congratulate you on the best UK personal finance site I’ve come across and I’ve looked at alot. Unfortunately I only came across your website recently after having done much of the heavy spadework myself. However it was reassuring to get confirmation on some fundamental hygiene points rarely expressed elsewhere eg

    – US has been fundamentally overvalued for the past decade (now common knowledge) – this has ruled out Global equity funds which are ~60% US
    – Bonds have/are reaching the end of a 35-40 year bull market – so are not the low risk asset advisors would have you believe. (30 years retirement inflation risk plus capital erosion in a rising interest rate world).
    – an sensible diversification strategy is key but as with all risk management strategies – there is a cost. Also increasing correlation of equity markets makes geographic diversification less effective.

    My approach has largely been structured around equities and a cash emergency fund. The point I wanted to raise concerns how to structure funds on approaching retirement. I am fortunate to have a Defined Benefit Pension (main retirement income) but also an ISA portfolio and a Defined Contribution Pension. The ISA portfolio has to date been structured for growth and I have recently taken control of the DC Pension via a SIPP. My initial reaction was to structure the SIPP for income and to allow the ISAs to continue to generate growth.

    However on reflection (and looking at the tax implications). It seems to me that the reverse is appropriate. Income generated by ISAs are tax free whereas the SIPPs are subject to normal income tax (after the 25% tax-free lump sum is taken).

    I am surprised that what seems fairly obvious (in UK context) does not appear to be widely discussed in retirement planning forums. Or am I misunderstanding something fundamental here. Any observations greatly received and I have to say 1 last time – great website – wish I had found it sooner.

    Kind Regards
    David

    • Mike Rawson Mike Rawson says:

      Hi David,

      Thanks for the kind words. Please tell all your friends so that they don’t wander in the wilderness like you did.

      Your question is really the kind of thing that I handle via my coaching service (Financial Coaching) but the short answer is that I don’t invest for income, I just sell some investments each year to create cash I can withdraw. The search for yield can lead you astray, I think.

      The tax situation on SIPPs is often exaggerated, since you get the first 25% tax-free. So you can take out £60K a year and only pay £6.3K in tax.

      I’m more worried that SIPP rules will change before I get my money out, so I’m sticking with UFPLS and not touching my ISAs (I actually add to them each year).

      Hope that helps,

      Mike

      • Avatar David says:

        Thanks Mike and yes I will (and already do) recommend your website to friends. Understand your point that my question is more appropriate for a coaching session… rather than a short email reply (which can be mis-interpreted. Also understand your point around pension legislation and the desire to mitigate this. I suspect we come at this from opposites of the spectrum – small v large DC pots to manage – so my risk here is much less of a concern. Thanks again for your kind reply – I don’t know how you do it all !
        Regards
        David

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Income Strategies – Measuring Retirement Success

by Mike Rawson time to read: 6 min
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