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