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Financial Guidance Thread

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Tom-the-eagle Flag Croydon 12 May 20 10.25pm

Originally posted by cryrst

My plan at 55
Draw 25% tax free on a pension I have which isnt live in respect of paying in atm. and pay a debt plan off ( hopefully at a discount as theyve been sold on a few times) that will save 5k over 5 years from the administration costs as that's how long will be left. Have a few quid left to do a bit around the house a nice holiday and a bit on a newer car (even on the tick as they will want sales at interest free payments after this bug). Hope still have a bit of dough about me for a few luxuries. All being well carry on working. My mortgage ends 5 years later when I'm 60 and a half.
Again as long as I can work I prob will. The bonus is knowing that if needs be I can draw down on what's left. Hopefully I can work till pension age then if I can jack in work or downgrade my wages and be comfortable then I will only pay 20% tax not 40% on any drawdowns. Although I also have a work place pension ongoing. Once I get to 55 and paid debt plan some of the spare ages I might put into that. I dont fancy getting an annuity as you only get 30 days to change your mind and any receipts count as earnings anyway. I know it can all be deferred but how much extra do you really need.
I know it's not the best plan financially but I feel at least I've got a goal to aim for.
Having been through the wringer of repossession 30 years ago and making ends meet to most degree from then I am truly looking forward to having some dough about me. Not having to look at the price tag for general things is something I've never been able to do.
Amen.

Amen to that brother

 


"It feels much better than it ever did, much more sensitive." John Wayne Bobbit

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View Goal Machine's Profile Goal Machine Flag The Cronx 13 May 20 12.40pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

My plan at 55
Draw 25% tax free on a pension I have which isnt live in respect of paying in atm. and pay a debt plan off ( hopefully at a discount as theyve been sold on a few times) that will save 5k over 5 years from the administration costs as that's how long will be left. Have a few quid left to do a bit around the house a nice holiday and a bit on a newer car (even on the tick as they will want sales at interest free payments after this bug). Hope still have a bit of dough about me for a few luxuries. All being well carry on working. My mortgage ends 5 years later when I'm 60 and a half.
Again as long as I can work I prob will. The bonus is knowing that if needs be I can draw down on what's left. Hopefully I can work till pension age then if I can jack in work or downgrade my wages and be comfortable then I will only pay 20% tax not 40% on any drawdowns. Although I also have a work place pension ongoing. Once I get to 55 and paid debt plan some of the spare ages I might put into that. I dont fancy getting an annuity as you only get 30 days to change your mind and any receipts count as earnings anyway. I know it can all be deferred but how much extra do you really need.
I know it's not the best plan financially but I feel at least I've got a goal to aim for.
Having been through the wringer of repossession 30 years ago and making ends meet to most degree from then I am truly looking forward to having some dough about me. Not having to look at the price tag for general things is something I've never been able to do.
Amen.

Cryst, a few things to consider. Please bear in mind that I know very little about your circumstances, so perhaps not all relevant.

With your initial tax-free withdrawal at 55, I would suggest drawing out only what you need/want (to clear debt, home improvements, new car etc), as opposed to all of it. Many people withdraw all if it just because they can. The mistake here is that they are taking money out of an environment where it is invested and growing tax free into a current account where it is doing nothing. You’re likely to be better off leaving it invested in the pension and drawing the rest out later when you need it. Unless you are using the pension to buy an annuity, there is no obligation to take the full 25% in one go.

You refer to drawing down if needs be. I presume you’re referring to flexi access drawdown here? If so, its important to be aware that once you with withdraw £1 of flexible income (such as drawdown), you will trigger the ‘Money Purchase Annual Allowance’ (MPAA). This means that your annual pension contribution limit will instantly reduce to £4,000 gross per tax year. If it’s your intention to increase your contributions after the debt has cleared, this might cause you a small problem.

You mention that annuity income counts as earnings. This is same as any taxable withdrawal from a pension. The same would apply if you were receiving income from drawdown.

Rather than the 30-day cooling off period, the bigger concern around annuities at present is that the low interest rate environment combined with increasing longevity is driving down rates. They are at an all time low.

To give you an idea, the best rate today for a healthy 65-year-old, on the most basic shape (no inflation linking, no guarantee period, single life) will get a 4.785% rate. Meaning a £100,000 pension will buy a guaranteed income of just £4,785 per annum.

With regards to paying only 20% tax rather than 40%, one of the key benefits of using flexi access drawdown is that you can tailor your income to suit your circumstances. Therefore, you could draw a small amount, if you wish, which keeps your total income within say the 20% basic rate threshold. With an annuity it pays a fixed amount which you cannot ever change once it has been set up – thus in your example possibly paying 40% whilst you are still working.

As a general rule, if you have any, it’s usually best to spend your non pension savings first and try to leave your pension until last. There are income tax and possible IHT benefits to this.

Additionally, if you’re still working and have enough income to cover your outgoings, you’re best off deferring any withdrawals. The pension will have more time to grow and it will buy you more income in future when you actually need it to replace your earnings. There’s no point withdrawing income, which will be taxed, if you don’t need it. Leave it invested to accumulate in a tax advantaged environment for as long as you can.

 

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View cryrst's Profile cryrst Flag The garden of England 14 May 20 5.49am Send a Private Message to cryrst Add cryrst as a friend

Originally posted by Goal Machine

Cryst, a few things to consider. Please bear in mind that I know very little about your circumstances, so perhaps not all relevant.

With your initial tax-free withdrawal at 55, I would suggest drawing out only what you need/want (to clear debt, home improvements, new car etc), as opposed to all of it. Many people withdraw all if it just because they can. The mistake here is that they are taking money out of an environment where it is invested and growing tax free into a current account where it is doing nothing. You’re likely to be better off leaving it invested in the pension and drawing the rest out later when you need it. Unless you are using the pension to buy an annuity, there is no obligation to take the full 25% in one go.

You refer to drawing down if needs be. I presume you’re referring to flexi access drawdown here? If so, its important to be aware that once you with withdraw £1 of flexible income (such as drawdown), you will trigger the ‘Money Purchase Annual Allowance’ (MPAA). This means that your annual pension contribution limit will instantly reduce to £4,000 gross per tax year. If it’s your intention to increase your contributions after the debt has cleared, this might cause you a small problem.

You mention that annuity income counts as earnings. This is same as any taxable withdrawal from a pension. The same would apply if you were receiving income from drawdown.

Rather than the 30-day cooling off period, the bigger concern around annuities at present is that the low interest rate environment combined with increasing longevity is driving down rates. They are at an all time low.

To give you an idea, the best rate today for a healthy 65-year-old, on the most basic shape (no inflation linking, no guarantee period, single life) will get a 4.785% rate. Meaning a £100,000 pension will buy a guaranteed income of just £4,785 per annum.

With regards to paying only 20% tax rather than 40%, one of the key benefits of using flexi access drawdown is that you can tailor your income to suit your circumstances. Therefore, you could draw a small amount, if you wish, which keeps your total income within say the 20% basic rate threshold. With an annuity it pays a fixed amount which you cannot ever change once it has been set up – thus in your example possibly paying 40% whilst you are still working.

As a general rule, if you have any, it’s usually best to spend your non pension savings first and try to leave your pension until last. There are income tax and possible IHT benefits to this.

Additionally, if you’re still working and have enough income to cover your outgoings, you’re best off deferring any withdrawals. The pension will have more time to grow and it will buy you more income in future when you actually need it to replace your earnings. There’s no point withdrawing income, which will be taxed, if you don’t need it. Leave it invested to accumulate in a tax advantaged environment for as long as you can.

Food for thought GM. Thanks.
Savings mmm never in a position too tbh. This and my house are those I'm afraid, possibly not alone.
My main reason to draw the full 25% and still work is to not need any extra drawdown hopefully. I know it might lose me some dollar as an investment but with all that's happening with people clearing their whole pension pots out HMG could decide to change the rules. Never say never. I will still have the existing work pension in play and (hope I get there) that should be quite tidy as well when I'm mid 60s. IF i did draw down the frozen pension does the MPAA affect the live pension contributions as it's a different investor? That's certainly a consideration against drawdown at any time if it does. I Genuinely appreciate any advice and take on board suggestions professionals give me. Boilers I know, clearly finance is not my best subject
I suppose having a plan is at least a start point to be tweaked as like the present global situation it can change at any time.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 14 May 20 9.51am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

Food for thought GM. Thanks.
Savings mmm never in a position too tbh. This and my house are those I'm afraid, possibly not alone.
My main reason to draw the full 25% and still work is to not need any extra drawdown hopefully. I know it might lose me some dollar as an investment but with all that's happening with people clearing their whole pension pots out HMG could decide to change the rules. Never say never. I will still have the existing work pension in play and (hope I get there) that should be quite tidy as well when I'm mid 60s. IF i did draw down the frozen pension does the MPAA affect the live pension contributions as it's a different investor? That's certainly a consideration against drawdown at any time if it does. I Genuinely appreciate any advice and take on board suggestions professionals give me. Boilers I know, clearly finance is not my best subject
I suppose having a plan is at least a start point to be tweaked as like the present global situation it can change at any time.

You're welcome, I'm always happy to share some wisdom if I can help. You're certainly not alone with the savings, but it's good that you have a couple of pensions. Many have neither.

It's very rarely a good idea to clear out an entire pension pot, and it's a big worry that people are still doing this. Unless there is debt to clear, it's rather senseless as you get taxed heavily to withdraw it all as a lump sum and it's no longer invested once in a current account.

In answer to your question, yes, if you withdraw taxable income from your frozen pension, it will trigger the MPAA and effect the contribution limit to your live pension. To add some clarity, taking the 25% tax free cash is fine, it's only the taxable income that will trigger it.

Once you're closer to age 55, I think you'd benefit from speaking with an IFA. They'd save you some tax and guide you down the most suitable route to meet your objectives.

Anyway, I know where to come if my boiler packs in

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 14 May 20 11.59am Send a Private Message to Goal Machine Add Goal Machine as a friend

Non pension related, interesting to see that Hargreaves Lansdown (largest direct to customer fund platform), shares shot up 8.6% yesterday, the best performer in the FTSE 100.

This is off the announcement that they picked up 94,000 new clients, with a record £4 billion of new investments in the first four months of 2020.

Good to see that many are making use of this unique opportunity to buy investments on the cheap. Markets have recovered by around 30% since its lowest on 23rd March, so there's still time to get in.

 

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View Bexley Eagle's Profile Bexley Eagle Flag Bexley Kent 14 May 20 1.21pm Send a Private Message to Bexley Eagle Add Bexley Eagle as a friend

I would argue the markets rebounded too far to quickly, fuelled by Governments flooding the markets with liquidity. Corporate earnings this year and perhaps next will be decimated. Market tends to look 12/18 months ahead. Long term charts suggest Ftse could test 2008 low of sub 4000. If it does that would be the time to get the wheel barrow out.
As for the view that the stock market is a mugs game, it certainly is for day traders. Stats would suggest that less that 10% day traders make money over an extended period of time. However those that take a longer term view and do a little research can make money. There are many well respected posters on financial bulletin boards and Twitter that have been around for decades. Their views are definitely worth following. However they are out numbered 10 fold by the pump and dump merchants.
I have been a successful buy and hold investor for over 30 years. It is certainly worth the effort.

 

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View JohnB's Profile JohnB Flag 14 May 20 4.40pm Send a Private Message to JohnB Add JohnB as a friend

Originally posted by Goal Machine

Non pension related, interesting to see that Hargreaves Lansdown (largest direct to customer fund platform), shares shot up 8.6% yesterday, the best performer in the FTSE 100.

This is off the announcement that they picked up 94,000 new clients, with a record £4 billion of new investments in the first four months of 2020.

Good to see that many are making use of this unique opportunity to buy investments on the cheap. Markets have recovered by around 30% since its lowest on 23rd March, so there's still time to get in.

With the exception of what HL pulled with the Woodford funds - Dampier, his wife and Gardhouse selling over £6.5m of their holdings a week before it was suspended and then later wound down - they have been a great platform for me to use to invest in. Very easy to use and low fees.

I have several funds with them and can just set up regular saving as little as £25 a month into each fund. I view it as a long term game in the hope that in 15 years I'll be sitting on a chunky portfolio that is all under ISA stocks and shares.

 

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View chris123's Profile chris123 Flag hove actually 14 May 20 4.48pm Send a Private Message to chris123 Add chris123 as a friend

Originally posted by JohnB

With the exception of what HL pulled with the Woodford funds - Dampier, his wife and Gardhouse selling over £6.5m of their holdings a week before it was suspended and then later wound down - they have been a great platform for me to use to invest in. Very easy to use and low fees.

I have several funds with them and can just set up regular saving as little as £25 a month into each fund. I view it as a long term game in the hope that in 15 years I'll be sitting on a chunky portfolio that is all under ISA stocks and shares.

Some of the investments were not liquid.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 14 May 20 7.44pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by Bexley Eagle

I would argue the markets rebounded too far to quickly, fuelled by Governments flooding the markets with liquidity. Corporate earnings this year and perhaps next will be decimated. Market tends to look 12/18 months ahead. Long term charts suggest Ftse could test 2008 low of sub 4000. If it does that would be the time to get the wheel barrow out.
As for the view that the stock market is a mugs game, it certainly is for day traders. Stats would suggest that less that 10% day traders make money over an extended period of time. However those that take a longer term view and do a little research can make money. There are many well respected posters on financial bulletin boards and Twitter that have been around for decades. Their views are definitely worth following. However they are out numbered 10 fold by the pump and dump merchants.
I have been a successful buy and hold investor for over 30 years. It is certainly worth the effort.

You may well be right Bexley. Something which has stuck with me was when a close friend of mine, who is very senior in large unnamed global asset manager, once told me that “I spend my life speaking with intelligent analysts about financial forecasts, but the truth is none of them actually have a clue what is going to happen”.

I believe its best to take the simple view that short term it will be volatile and long term you will almost certainly win, and substantially too. You’ve just got to ride out the roller coaster.

It’s best to buy when cheap, although behavioural finance theory suggests that investors are irrational and actually buy when markets have peaked.

No one knows what will happen tomorrow, and when it does happen, its almost instantly priced into the markets. It’s difficult for an active investor to find value. This supports your view on day trading/active investment approach, of which I tend to agree.

The passive vs active debate will never end, but there seems to be little evidence of active funds consistently outperforming passive funds. It’s hard to justify the additional charges of an active fund.

Anyone like yourself who has bought and held for 30 years will have done extremely well. I’d guess you’ve made 6/7 times your initial investment over that period?

It really is a myth that stock market investing is risky. I’m not aware of any diversified fund that has produced negative returns over a long period. The biggest risk is holding cash long term as its spending power depreciates against inflation, yet the majority chose to do it. It’s a guaranteed loss.

 

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View cryrst's Profile cryrst Flag The garden of England 14 May 20 10.05pm Send a Private Message to cryrst Add cryrst as a friend

Originally posted by Goal Machine

You may well be right Bexley. Something which has stuck with me was when a close friend of mine, who is very senior in large unnamed global asset manager, once told me that “I spend my life speaking with intelligent analysts about financial forecasts, but the truth is none of them actually have a clue what is going to happen”.

I believe its best to take the simple view that short term it will be volatile and long term you will almost certainly win, and substantially too. You’ve just got to ride out the roller coaster.

It’s best to buy when cheap, although behavioural finance theory suggests that investors are irrational and actually buy when markets have peaked.

No one knows what will happen tomorrow, and when it does happen, its almost instantly priced into the markets. It’s difficult for an active investor to find value. This supports your view on day trading/active investment approach, of which I tend to agree.

The passive vs active debate will never end, but there seems to be little evidence of active funds consistently outperforming passive funds. It’s hard to justify the additional charges of an active fund.

Anyone like yourself who has bought and held for 30 years will have done extremely well. I’d guess you’ve made 6/7 times your initial investment over that period?

It really is a myth that stock market investing is risky. I’m not aware of any diversified fund that has produced negative returns over a long period. The biggest risk is holding cash long term as its spending power depreciates against inflation, yet the majority chose to do it. It’s a guaranteed loss.

Cash is what people feel comfortable with. It does depreciate it's worth but it's there and accessible and the losses are minimal in the small picture. The big picture of the future has been shown to be very short for some recently, sadly. In the case of cash familiarity breeds comfort not contempt. I mean bank accounts etc not just on the hip.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 15 May 20 11.59am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by cryrst

Cash is what people feel comfortable with. It does depreciate it's worth but it's there and accessible and the losses are minimal in the small picture. The big picture of the future has been shown to be very short for some recently, sadly. In the case of cash familiarity breeds comfort not contempt. I mean bank accounts etc not just on the hip.

You're right, cash does have its place which is day to day liquidity, emergency fund and short term savings. It it however, totally unsuitable for long term savings.

I think the school education system is missing basic financial awareness in the curriculum. I know people who are campaigning to bring it in. With a simple understanding of investment principles and risk, we would be a far more affluent nation with less burden on the state.

 

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Tom-the-eagle Flag Croydon 15 May 20 12.24pm

Originally posted by Goal Machine

You're right, cash does have its place which is day to day liquidity, emergency fund and short term savings. It it however, totally unsuitable for long term savings.

I think the school education system is missing basic financial awareness in the curriculum. I know people who are campaigning to bring it in. With a simple understanding of investment principles and risk, we would be a far more affluent nation with less burden on the state.


Agree 100%

You learn more about finance from reading Rich Dad, Poor Dad or Richest man in Babylon than in you’re entire school life.

Most people still follow outdated principles set by their parents or grandparents which are now not really applicable.

Since we left the gold standard and became a currency due to inflation there is pretty much no point now in savings.

It’s all about investments. Buy assets, not liabilities!

 


"It feels much better than it ever did, much more sensitive." John Wayne Bobbit

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