User Guide to Tideway’s Income in Retirement Calculator
About the Calculator
Tideway’s Income In Retirement Calculator allows an individual or couple to model their projected income in retirement starting with the capital balances available to them at outset in the three most commonly used investment accounts:
- SIPPs or Personal Pensions
- Individual Savings Accounts (ISA)
- General Investment Accounts
Using the amount entered in each investment account the calculator will show how the funds could be invested for a medium risk investor across each account. It then estimates and adds the pre and post state pension age income available, pre and post-tax for a given level of capital consumption by age 90.
The calculator is a guidance and planning tool only and should not be construed as advice to invest in any particular investment or investment account. The incomes shown are estimates and in practice will be subject to varying investment returns and varying tax rates over time.
Understanding the three outputs
Output 1 shows how your funds might be invested across a range of asset classes each providing a different function in the portfolio:
| Investment Asset Class | Purpose in the portfolio |
| Short Dated Bonds These are funds investing in listed corporate bonds issued by large, mainly UK companies with known interest payments and relatively short terms to anticipated maturity, usually less than 5 years |
To stabilise the portfolio and provide low risk returns and a buffer to cover withdrawals over and above the income generated by the portfolio after fees |
| High Yield Bonds These are funds invested in listed corporate bonds with longer terms to maturity, usually 5-10 years. |
To make predictable longer-term returns based on fixed interest payments from loans to large companies where returns are above inflation after fees |
| Alternatives These are funds invested in things like infrastructure, real estate, green energy projects usually via liquid listed companies trading on the major stock markets |
To provide diversification away from equity and bond markets and to generate combined income and capital gains ahead of the rate of inflation after fees |
| Equity Income These are funds investing in the shares of worldwide companies listed on major stock markets whose shares offer attractive and growing dividend income whilst also offering the possibility of capital growth |
To generate attractive and growing income payments with the possibility of additional capital gains and total long term returns ahead of inflation after fees |
| Equity Growth These are funds investing in worldwide companies listed on major stock markets whose shares offer attractive prospects for capital growth |
To generate capital gains with long-term total returns ahead of inflation after fees |
Output 2 shows how the various investment assets could be allocated across the investment accounts held in the most tax efficient way whilst retaining a sensible overall mix to meet the needs of a medium risk investor investing for the long term.
Output 3 shows the amount of income that could be reasonably drawn from your accounts based on the level of capital consumption you select and are prepared to accept by age 90.
The income is shown at levels before and after your state pension commences and before and after the estimated tax you would pay on your investment returns and income withdrawals.
You can recalculate for more or less capital consumption, or different balances in the various accounts by changing the input boxes and then clicking the ‘calculate’ button.
Assumptions
The calculator:
- Uses the rates of return that Tideway predicts for its medium risk Stable Return Three portfolio, currently 2% after adjusting for inflation and after an allowance for all fees. Note that by adjusting for inflation the calculator is showing income levels that should be able to increase each year in line with inflation.
- Allocates to a multi asset portfolio that Tideway would typically be recommended to an investor with a medium appetite and capacity for investment risk and investing on a long-term basis. Investors with different objectives and risk assessments may be better suited to different asset allocations which may also result in lower rates of return.
- Assumes you have no other income apart from the state pension income and the income from the pension accounts entered in to the calculator.
- Uses marginal tax rates from tax year 19/20 to calculate the tax on pension withdrawals and that ISA and GIA returns.
- Uses age 90 for capital consumption calculations.
Limitations
- For larger GIA’s, for example more than £500,000 there could be tax payable on capital gains, bond interest and dividends where these exceed the nil rate allowances for each of these taxable elements. In this case the calculator will understate the level of tax due in the predicted income. The use of offshore bonds can help those with larger amounts to invest who have ‘maxed out’ on pensions and ISAs to defer tax into the future.
- For larger pension accounts in excess £1m and the Life Time Allowance (LTA), the calculator will underestimate the tax due on pension withdrawals on excess funds above the LTA limit.
Important Warnings
- Your capital would be at risk to investment markets in the portfolio used in this calculator.The value of investments and the income they produce are both subject to investment performance which cannot be guaranteed.
- The rates of returned are used for illustrative purposes only and cannot be guaranteed.
- The calculator offers simplified guidance. Tideway strongly recommend you receive detailed and personalised advice from a qualified and authorised adviser before making investment decisions.
- Tax rates and rules will vary in years to come, the calculator uses current rates and rules as a proxy for future tax liabilities which in practice will likely change.
- Tideway cannot be held responsible for any investment losses based on investment decisions made using this calculator without personalised advice from one of Tideway’s advisers.
Tideway Wealth Management Ltd
107 Leadenhall Street
London EC3A 4AF
+44 (0)20 3143 6100
info@tidewayinvestment.co.uk
© Tideway Investment Group 2020