retirement planning for contractors...
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    Default retirement planning for contractors...

    Below is a basic retirement plan.
    It would be interesting to get any views...


    The goal is for a retirement income of approx 20k (that's compared with the average of 14k today)

    Income made up as follows:

    [1] state pension

    INCOME = 6-6.5k average


    [2] Company / private pension from previous employment (many contractors have these from permie days)

    INCOME = 4k - 5K.

    Needs an equivalent purchase fund of approx 75-100k.


    ----------------------------------------------------------------------------------
    The income above should be pretty much tax-free as it's within the and 10% band.
    ----------------------------------------------------------------------------------



    [3] ISAs (Mix of cash/stocks and shares)

    INCOME = 5k.

    This would be a fund of 100k, generating approx 5% annual tax-free return.
    Much of this money,except for the cash, might have been invested in stocks and shares / equities earlier on for growth.

    [4] Direct investment / Self Invested Personal Pension (SIPP)

    INCOME = 5k (shares or equity unit trusts/Investment Trusts/ETF's/Bonds/Property etc etc).

    Once again 100K producing approx 5K return per annum
    (Dividend income is free of additional tax and any top up is covered by the CGT tax free allowance.)


    ************************************************** ******************
    So, in a nutshell you need 3 pots of approx 100K returning 5K per year
    and your state pension to make about 20K per year
    ************************************************** ******************

    (This 20k income will be below the threshold at which you are deemed well-off and start losing your age allowance, assuming age allowance is around by the time we retire!)

    Ofcourse everyones circumstances will be different. If you don't have the Company / private pension from previous employment
    Then you can start a SIPP (in [2] above) and use Direct Investment for [4] (or double up on the ISAs [3]
    which would take about 20 years of max contributions).


    =============
    Points to be aware of:

    1 - Taxable income in retirement above 20,100 increases your tax burden.

    For every 2 above 20,100, your age allowance is reduced by 1.
    *** Income from ISAs does not count towards your taxable income.
    (savings account interest goes towards the 20,100 so dont be too heavy in cash).

    2 - age allowances increase annually. So this 10k target could well be 15k in 10 years time and age allowance reduction 25k. Work in real terms (with inflation taken into account) to keep yourself on track.

    3 - pension tax relief at 22% is valuable in this case as you get 22% going in but pay nothing or just 10% coming out.

    - You also get 25% tax free lump sum on retirement

    - And ... you reduce your corporation tax liability without affecting the tax/ni contributions

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    What makes you think that you will get a state pension in 20 years time if you already have provisions?

    What makes you think you can live off 20K/yr in 20 years time?

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    add in 3% inflation

    so for the equivalent of 20 grand then you need approx 40 grand in 20 years time
    Author of the best seller "How to get Poor quickly"

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    Twenty grand is quite a lot if your retired. Your commuting, work, housing costs would all be less. As long as you can heat/elec/council tax a place your living cheaply.

    Have you factored in this house you bought for 30k and are going to tell for 12million?

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    Quote Originally Posted by Pondlife View Post
    What makes you think that you will get a state pension in 20 years time if you already have provisions?

    What makes you think you can live off 20K/yr in 20 years time?
    Any government that abolished state pension for those who have bothered to make additional retirement provisions would be voted out. Also there would be no incentive to provide for your own retirement if it meant no state pension.

    the 20K per year goes up with compound interest/re-investment of dividends...

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    Quote Originally Posted by BlasterBates View Post
    add in 3% inflation

    so for the equivalent of 20 grand then you need approx 40 grand in 20 years time
    Yes - but if he's starting from the basis of 20 grand income available in today's money from today's value of his investments, then you would hope his investment growth would keep pace with inflation, so it's fine to look at it in today's money given that assumption.

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    anyh thoughts on the pension / ISA / direct investment mix. Mine is a 3rd for each...

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    I'd put property in equation also stocks can be volatile, so make sure your ISA nad SIPP have different portfolios

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    It's all about moving abroad in retirement! My folks are out of the country for the 181+ days and don't pay tax on their pensions.

    I'm not investing anything into traditional pensions anymore (have a few grand in an old company one). My retirement will be between a few buy2lets and traditional investments, I should hopefully be retired way before company pensions allow to be payed out (it's 55 right?).

    Step 1: Retire
    Step 2: Flog house and move abroad.
    Step 3: Live like a king in a cheap place.

    Alternative:
    All my investments F*** up and I'm sweeping the streets in east london at 70.

    Could be worse!

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    Quote Originally Posted by Mehmeh View Post
    It's all about moving abroad in retirement! My folks are out of the country for the 181+ days and don't pay tax on their pensions.
    How's that work? Generally they would be liable to UK tax (if they are actual pensions) though relief may be obtained under any DTA for anywhere they are actually resident.

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