Managing Withdrawals and Cash Buffers in Retirement

It’s another full show of questions, ranging from assumed growth rates for investments, to Save As You Earn schemes to retirement cash buffers, and much more besides!

Shownotes: https://meaningfulmoney.tv/QA20 

01:21  Question 1

Hi to you both.

Absolutely love the podcast and Pete's book. The information in both has made a huge difference to my understanding of what to do with my finances.

My question is about expected returns when investing in equities. If often hear people use 5% growth as a estimate to use when predicting possible future values of an investment.

But from what I can see (and I could be wrong!) The global stock market has averaged around 8-9% over the last 20 years. This obviously makes a huge difference to the total expected value when compared to 5%.

I currently have a DB scheme pension through the fire service, so I do my 'extra' investing through a S+S ISA global index fund with 100% equities which has averaged 8.5% over the last 8 years.

I am happy with a higher risk level as I have the DB pension from the Fire Service.

Am I missing something with my numbers?

Thanks again for all the great information. I have recommended you to many of my friends.

Kind Regards

James W

08:22  Question 2

Hi Pete and Roger,

Thank you so much for your contribution to making the world a better place. Your passion for sharing and educating everyone is inspiring.

I have a question about our Save As You Earn Scheme maturing this year. I'm lucky enough that (at the current price) I'll get a total return of > £20k at maturity in November. Not counting my chickens, but I'd like to plan the most tax efficient way of receiving these funds.

The SAYE provider offers a flexible ISA to receive the shares. Could I transfer enough shares for £20k into the ISA, sell and withdraw enough cash to make space to then transfer the rest of the shares to avoid any CGT?

Alternatively, could I exercise the option in March and partially transfer into an ISA across the tax year end?

Are there any other mechanisms I could use to minimise tax?

Thank you again for all of your hard work.

Priten

15:01  Question 3

Hi Team

Long time listener and YouTube viewer, heck I even watched a video when Pete wore a tie!

Your podcasts have made me change my pension default funds, increase my salary sacrifice (really affects take home pay a lot less than people think!) and generally have confidence in my future. Thank you!

Question: When I do finally decide to retire I'm planning a 1-2 year cash buffer for any market disasters that may happen.  But when would you say to use this?  The markets always move up and down a bit but should I use the cash buffer if they drop 3%, 5%, 10%?  And then if I've taken 1 years worth of income from the buffer how do I rebuild the buffer?  For example I'm targeting a pension drawdown of around £45K per year to keep below 40% tax.  But if I've just used up the buffer then I'll be taxed 40% on taking out extra to rebuild it, so why bother as any downturn is very likely to be smaller than 40%!  Wouldn't it just make sense to take out less in a downturn than get taxed 40% to rebuild a buffer?

Thanks for all the podcasts!

Simon Doig Halifax (but was in Cornwall!)

213:33  Question 4

Hi guys

Podcast question for you please:

"I've been a listener for ages, and so I have started to do the good things you suggest. I had a workplace pension (local gov DB) but now I have AVC's, a SIPP, and an S&S ISA, as well as a savings account and life insurance/ critical illness cover. Thank you.

I am making contributions monthly to my pension and ISA but the gist of my question is, is it worth it if I'm only saving small amounts?

This is the most I feel I can save without compromising my lifestyle, but it feels small. I'm 31 and so I'm prioritizing available cash in savings accounts for things like, new cars, boiler breakdowns and hopefully having a baby.

I'm saving £80 a month into my ISA & £60 a month into my pension. Occasionally I did in extra bits when I feel I can afford it. Is this worth it, is it enough? Is it not worth bothering if I'm not saving in bigger chunks?

Thanks so much - from Bianca

25:33  Question 5

Hi Pete & Roger, I have been listening to your podcast for some time and love your chat and sensible and pragmatic “advice” especially when walking my dog. I feel I’m quite knowledgeable but always pick up pearls of wisdom from you both. My wife and I have over £300k in GIAs having maximised our ISAs since around 2009. This is all in Scottish Mortgage (I’m sure you appreciate any withdrawals are 80% gains as we bought around £2). We sold all our Scottish Mortgage in ISAs near the £15 peak which was lucky and allows us to sleep at night as we are more diversified- mainly vanguard index funds. 

You have mentioned taking the CGT hit each year and moving money to ISAs however I’m not convinced that would make sense for us. Assuming we sold around £24k each of our Scottish Mortgage GIA each year that would give us around £20k each to move into our ISAs however we would pay around £4k each in tax (24% CGT rate). My thinking is that it will take a long time to make that up via better tax treatment in an ISA. So far my plan is to hang on until we are retired and can pay a lower rate of CGT on any gains plus there is a chance a future Government (not one I would vote for myself) may increase the £3k tax free allowance. Also if we left it all in the GIA as inheritance to our daughter (as we may not need it ourselves) would she potentially pay IHT on it and no CGT would ever be paid? We are 54 and hope to retire by 56.

Many thanks. Paul

32:05  Question 6

Hello Pete & Roger

Fabulous podcast and I binged Pete’s new book in one sitting-the best investment I'm ever going to make!

I love the concept of the cashflow ladder.

I’m in my early 50’s and in the University hybrid pension scheme with a great DB component and a decent projected DC pot.

I can select appropriate funds for each timeline tranche within my providers system.

When I come to access the DC component (limited to up to 4x UFPLS per year only-no FAD), the provider doesn’t allow the draw from each pot independently so it’s impossible take money only from the fund I’m targeting at that point.

The fees in the current scheme are subsidised to 0% by the scheme.

What kind of broad principles should someone weigh up when thinking about the flexibility advantage vs the cost of transfer to get that flexibility?

Thanks, Duncan