When will you run out of money if you take £50,000 a year from a £1m pot, and how can you make it last longer? I demonstrate this using easy to understand cash flow modelling software.
TIMESTAMPS:
0:00 Start
1:12 How Long Will £1m Last On £50k A Year?
3:30 Flexi-Access Drawdown vs Lump Sum Withdrawal
4:20 How You Can Make Money Last Longer In Retirement
6:35 Working Out How To Make Money Last For Life
🚀🚀 HOW TO MAKE MONEY LAST LONGER IN RETIREMENT 🚀🚀
If you want to know how to make money last longer in retirement, or you’ve asked ‘when will my money run out?’… this is essential viewing for you. 🤔 👁👁
In this video I explain how to retire with 1 million pounds on £50,000 income for life in the most tax efficient way. 💸💸💸
I demonstrate:
✅ How inflation affects investments, and how you can increase your income every year without running out too soon.
✅ How tax affects investments
✅ How to avoid tax in retirement
This is done with the help of my Voyant cash flow modelling software. 📈📈📈
Whether it is a 1 million retirement or not, it’s important to know how much is enough for retirement.
This channel provides information on UK retirement planning and investing for tax efficient financial independence. Be sure to subscribe for weekly videos!
ASSUMPTIONS USED IN CASH FLOW MODEL:
Base Plan & ‘Four Buckets’ Scenario:
– Inflation rate is 2%
– Property growth rate is 2.5%
– Investment return on pensions and other wrappers is 5% net
– Maximum state pension paid from age 67
Four Buckets Scenario:
– Each wrapper has £250,000 invested
– GIA has base value of £187,500
– Offshore bond is new investment with base value of £250,000
**** DISCLAIMER ****
The content in this video is provided for information and entertainment purposes. It should not be construed as direct or indirect financial advice. You must throughly research any potential financial or investment decision and fully understand the risks before taking it. If in doubt, you should seek individual advice from a professional adviser.
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LEARN MORE ABOUT: Retirement Pension Plans
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1 Million Retirement: A 50k Income For Life
Retirement is a phase of life that many of us look forward to. It’s a time when we can finally relax and enjoy the fruits of our labor. However, it’s important to plan for retirement financially to ensure a comfortable and worry-free life.
One common rule of thumb suggests that one would need to save around 25 times their annual expenses to comfortably retire. This rule is known as the 4% rule. It means that if you spend $50,000 a year in retirement, you would need a retirement nest egg of $1 million.
But what does this mean for generating a $50k income for life?
The 4% rule is based on the assumption that if you withdraw 4% of your retirement savings annually, adjusted for inflation, it should last for approximately 30 years. In this case, if you retire with $1 million, you can safely withdraw $40,000 (4% of $1 million) each year, adjusted for inflation.
However, it’s essential to note that the 4% rule is not applicable in every situation. Economic conditions, healthcare costs, unexpected expenses, and inflation can all impact the longevity of your retirement savings. Therefore, building a diversified retirement portfolio is crucial to ensure financial stability throughout retirement.
Here are a few strategies to consider in order to make your $1 million retirement generate a $50,000 annual income for life:
1. Save and invest wisely: Start saving for retirement as early as possible to take advantage of compound interest. Investing in a mix of stocks, bonds, and other assets can provide the potential growth needed to generate a sustainable income stream.
2. Consider annuities: Annuities are insurance contracts that guarantee a regular income for life. By purchasing an annuity with a portion of your retirement savings, you can secure a fixed income stream to meet your desired retirement income.
3. Embrace passive income streams: Explore opportunities to generate passive income during retirement. Rental properties, dividend-paying stocks, or even starting a small business can provide additional income to supplement your retirement savings.
4. Control spending: Stretching your retirement savings to last a lifetime requires careful budgeting and monitoring of expenses. It’s important to create a realistic retirement budget and be mindful of unnecessary expenses to avoid running out of money prematurely.
5. Continuously monitor and adjust: Regularly review your retirement plan to ensure it aligns with your changing needs and goals. Consult a financial advisor to assess your investment performance, adjust your portfolio allocation, and make any necessary changes to secure your financial future.
While a $1 million retirement may seem like a substantial amount, proper planning and execution are crucial to turn it into a sustainable $50,000 annual income for life. Remember, everyone’s financial situation is unique, so it’s essential to assess your personal circumstances and consult with professionals to develop a tailored retirement strategy.
So, start planning for your 1 million retirement today, and secure a comfortable and worry-free future.
Hi Chris have you ever done a video on a person with a lump some in the bank after tax looking to retire at 55
Would be interesting to see an update to this video with the recent rule changes to LTA and the impact from CGT reduced allowance.
One million quite in a decnt income IT like LWDB or CTY will give you a tax paid yield of around £40,000 pa
Hi guys,
Even maxing my yearly pension contributions to £40000, I can simply not get my gross income lower than £60,000 (though it's close). Therefore I am losing 100% of child benefit each year. Thousands.
My cunning plan is to make £0 pension contribution in year 1 (actually to simply do the least amount possible to max employers contribution, but let's not complicate this message!), then in year 2 use BOTH year's annual allowance (annual allowance carried forward), so 80k of contributions. This means on year 2 I'll be bringing home < £50,000 and can claim the full child allowance for that year. Rinse and repeat!
That's the theory,
What da'ya' reckon? No-one seems to know if this is cool?
Hi Chris, Can you do a video on how to protect your savings for example in a Vanguard stocks and shares ISA if you have more than £85k invested. eg: How do we ensure we don;t lose everything if they go out of business?
Question … can you take your 25% tax free draw down and throw that into something tax efficient to keep you away from the LTA, but also allow you to keep making money on it?
How do I get £1million pounds? I can’t afford that
And the Government have just started to reduce the tax free allowance on dividends down to £500 in the next two years, I wonder what will be next. Taxing ISA's
How? Marry a rich woman!
Great video, Chris. On pensions, I’m looking to partially transfer my workplace pension into my Vanguard SIPP as the fees are much lower and I can manage it with more freedom. I’m wondering if you had an option on the following conundrum – Would it be advisable to immediately invest into my chosen fund or just as cash and buy into the market over time – just in case the market has changed or the worst by the time the transfer is carried out? I’m leaning towards going 50-50 and pound cost averaging the remaining half over the next few months. Any thoughts would be appreciated!
Hi Chris. Yet again, this is absolutely top notch content. I have one question. In the base case, the capital starts to run out about 5 years after the LTA charge. As the pot would have been significantly over the LTA threshold to warrant the chunky LTA charge, how can the capital start to run out as soon as 5 years later? I feel I must be missing something obvious. Peter.
Hi Chris, been loving the vids recently, never disappoint. Quick question, can just 'anyone' pay money (up to the 20,000 limit/yr) in2 my ISA account and I still withdraw on it completely tax free? Many thanks… jj
Another great video. Mine is split between pensions and Isas (with some in individual shares on a free platform for a bit of a punt and to try and raise as much as I can to put in my Isa each year)
I like the new intro! Very professional!
Great advice. I have money in property and in pensions. Split appears to work well with a passive rental income from the property and at some point I will sell, pay capital gains, and have cash to spend and invest and leave my pension pot investments to keep growing. I plan to retire at 58 in 4 years by which time I will have paid another 100k to 120k into my pension. I should have about 1.2M when I retire plus extra at 65 and 67 when my final salary and government schemes pay out. I just need to take care on tax matters!
Great video again Chris! Looks like I need to research some offshore investment bonds . Does this voyant tool you use come in a “home user” version ?
If I hold £1.4 million in a pot with RSA how do I transfer it into these tax pots after I retire ?
Hi Chris. I have a hypothetical question; If my total income was 40K salary + 15K from a defined benefit pension i.e. 5K into the 40% tax bracket) and I paid 5K into a SIPP, would I be able to claim 40% tax relief on the 5K SIPP payment or is this somehow classed as pension recycling?
Like the video. The last twenty years I've tried to follow something similar with 55/45 ISA pension split, in retirement I don't have to pay tax. I've never seen the value of having much more than £400,000 to £500,000 in a pension you just paying back what you have been given that's only my opinion.
Great communicator as always Chris and helpful to see the benfits tax planning across different 'pots' can bring. My main challenge is that I am knowingly overweight in my Pension pot because even with the LTA risks I have it is difficult to turn down £25,140 pension contributions with a marginal tax rate of 62% on that contribution if I took it as income (63.25% from next tax year). Would be helpful to have your thoughts or a video on the scenario you would want to see to give up that 63.25% tax boost and instead put that post tax cash of ~£9.2k to work somewhere else – ISAs, VCTs, etc. Can that ever be a sensible decision?
Hi Chris, fantastic video as always. One question for you. I have maximised my ISA and pension. Where should I focus next? Trading account? Venture capital trusts /EIS? Property? Off shore bonds (which I still not fully understand even after watching your videos)? Your views are very welcome!!
Hi Chris, great video once again. Please could you do a video demonstrating the benefits of pension planning as a couple. For example, take a married couple. If one contributes significantly more money to their pension than the other then they may be in a situation where one of the pension pots is say £1m and the other pot is £200k at retirement. Let's assume they share income from these pots. Will total tax paid over their retirement be more than if they planned their contributions so that their pots were similar size (£600k each)?
Another great video. My only comment t would be that I expect to spend less per year at 85 compared with 55 to 65. There would be less world travel and at some point you might not even be allowed to drive etc. I’d be interested in seeing any statistics on how spending patterns drop off in later years. There might be an age (say 75) that you don’t give yourself an annual inflationary increase. The result would mean that your pot lasts longer than shown in your graphs. I’m no expert by the way… I just feel that I’ll spend less in my later years. However I have never seen any statistics to back this up.
Great video as ever. I’m a bit confused by your crystallise gradually vs. all at the start graph comparison though. What is assumed to have happened with that £250K tax free lump sum in the “crystallise all at start” option? Has it been invested in the same equity/bonds split as the crystallised pot, but just in a GIA? How are the withdrawals split between that and the crystallised pot? I’m trying to understand how the tax is calculated in that scenario…
I'll be watching this a couple of times, only 18 months away from 55 and ja bit over LTA
Brilliant example of how to good advice is priceless . Only downside of not using all pension pot is other assets are taxable on 2nd death were pension isn’t.
Private pension= free 25 pence per pound invested! Why would you not do this???
Hi, when you say maximise your pension and ISA first, what do you define as maximising your pension? Only making contributions that your employer matches or something else?
Have more than a million in a pension and the tax man wallops you