Draw down on investments - help!

[icameonholidaybyaccident]

I’m having a bit of a crisis of confidence. I’ve got a £200k portfolio made up of:

• private pension of £73k (I can’t put more in right now and can’t drawdown from the pension for about 3 years yet) and
• other stocks and shares of about £127k (mainly ISA).

I’m trying to understand how this whole portfolio will work in terms of me withdrawing £15k pa over the next 10 years, which I’ll need to do to supplement my part-time income (health issues prevent full-time). I’ve used the Which pension drawdown calculator and with settings of middling growth for their ‘adventurous’ portfolio profile (mainly stocks and shares) it says I can drawdown £15k pa for 10yrs and still have about £157k in the fund at the end of that 10yrs. Does this sound right or have I totally misunderstood this?
I need to make some decisions based on this in the next few days so any advice would be amazing. Thank you!

I think those calculations are about right if you’re calculating it in line with the ‘4% rule’, which has been the standard that advisors have used historically. According to a number of sources, that rate is now considered to be too conservative and they’re working on 5.5% approx. In that case, you’ll have closer to £200k left after 10 years.

Bear in mind the changes to IHT and pensions that are being introduced in the next couple of years. That’ll affect whether you take from the pension or the ISA as they’ll be treated differently for IHT purposes. You’d need to speak to an IFA about that to manage it properly.

Is the 15k you need before or after tax? If you are still working part time then I am guessing you might be a basic rate tax payer, this means you may need to pay 20% tax on anything you take out of your pension after you have taken the 25% tax free. There is no NI on this though. Anything you take out of your ISA is tax free but if you have any outside of an ISA in stocks and shares you will have to account for the tax if you sell them.
The which calculator doesn’t work out the tax for you.
You will also need to account for inflation which I would assume to be around 3% per annum.
The adventurous growth rate may not be appropriate for investments you need to sell in the short term. Anything you need in say the next 5 years would need to be in a safer investment to avoid getting caught out by a short term stock market drop just before you drawdown. Safer investments don’t return as much as more risky ones so you will need to take that into account as well.

If I were you I would drawdown from the ISA and leave your pension alone for now whilst you are still working. Using the right investments your ISA might last 10 years (depending on whether or not you take 15k every year or increase it a bit every year to account for inflation) and you can leave your pension to grow at a better rate in more adventurous investments thus increasing your 25% tax free amount.

Please note this is not advice but just what I would do in your situation.

OP has stated she’s 3 years from drawing her pension, so that isn’t an option anyway. Whatever she takes now will be from the ISA, so tax free.