Dividend drawdown - is it a faff?

[Gilgongo]

I'm looking at (partially) living off dividends from my porfolio once I retire - perhaps about £25K. I just want to check I've got the mechanics right.

My wife and I have dividends coming in the following proportions:

MyISA 63%
My SIPP 15%
My SIPP 15%
Her SIPP 4.6%
Her ISA 2%

(Oh does BBCode table formatting not work here?)

So if I retired, I'd assume we'd use our existing cash buffer to live off in the first year while letting the divis build up, then exfiltrate the various pools of cash in those account above, and repeat. Is that right?

I suppose for a once annual operation, that's not too hard. Bit of a faff though.

[Dod101]

I'm looking at (partially) living off dividends from my porfolio once I retire - perhaps about £25K. I just want to check I've got the mechanics right.

My wife and I have dividends coming in the following proportions:

MyISA 63%
My SIPP 15%
My SIPP 15%
Her SIPP 4.6%
Her ISA 2%

(Oh does BBCode table formatting not work here?)

So if I retired, I'd assume we'd use our existing cash buffer to live off in the first year while letting the divis build up, then exfiltrate the various pools of cash in those account above, and repeat. Is that right?

I suppose for a once annual operation, that's not too hard. Bit of a faff though.

It is not a faff at all. I have been doing just that for the last 25 years or so. Have a dividend collection bank account which can act as a buffer. Collect ISA dividends tax free at least quarterly. Most ISA and SIPP managers pay very little interest and there is no point in leaving them within the wrappers if you intend to withdraw them anyway. Bear in mind that dividends are likely to arise in lumps. For instance for me anyway, I get only modest dividends for the first three or four months of the year, then May brings a deluge so you need to be able to spread them over the year. The SIPP is I confess a bit of a faff but I do not know if you can ask for regular amounts to be paid every month or quarterly or what. Since it is intended as a pension I imagine most managers will do that and of course deduct tax either via PAYE or at the basic rate and you reclaim or otherwise re self assessment. I take funds from my SIPP only once a year and not every year to avoid that sort of thing. I instruct them as a one off payment. I would though if I were you seek to combine your two SIPPs. That must be a bit of a faff from the point of view of investing and just general admin.

Anyway that is what I do and it works well enough once you get used to it. Do what with some experience though works best for you. There is no right or wrong.

Meanwhile as you appear not to be retired yet, leave the dividends to be reinvested for the time being. You will feel better if you retain a cash buffer if you are relying on dividends for income so I would try not to touch it. There might be another 2020 before long and you may need to use it to tide you over.

Dod

[kempiejon]

I have an ISA with Halifax that has the following options for dividend handling,
Automatic Dividend Reinvestment
Hold In Account
Pay Away Immediately
Pay Away 6-Monthly
My SIPP is with Hargreaves Lansdown, they appear to offer, hold, reinvest or pay out. I'm still accumulating so not sure what the specific options on pay out are. My plan currently is extract the full 25% when I start taking the pension and then annually, towards the end of the tax year, to assess available income and to withdraw, reinvest surplus or sell to top up income as per my needs and financial position.

Doesn't look any more onerous than other decisions of tax planning, buying or selling than I've been engaged in to accumulate.

[BullDog]

No faff involved. I accrue dividends throughout the year in ISA and SIPP. For the first time this March I drew down the accrued dividends. The ISA drawdown was a simple request in the app. The SIPP drawdown was a bit more involved since it was a first drawdown. So a couple of forms to fill in. March 2024 when I repeat the drawdown it will be a simple request in the app for both ISA and SIPP drawdown. The platform I use is II.

[Gilgongo]

OK good - so at least I do undertstand it correctly. And yes, agree it doesn't seem like too much hassle really.

Looking at the percentages too, I might in fact combines the two SIPPs as Dod suggests. So making drawdown things a bit simpler as well as getting slightly more peace of mind in the event that one provider runs aground in some way.

[DrFfybes]

Quite easy, although with iibrdn you have to send them a secure message asking them to do it rather than it being an online selection (divi reinvest or not is an online option, but 'paid out' isn't!). When you create the scure message it asks you to specify which account you are messaging about, so you select that particular one. However this selection isn't actually passed over to the message, so make sure you mention it in the text or they might try to set ALL you accounts to 'paid out', including the ISA you didn't want to touch.

Paul

[kempiejon]

Looking at the percentages too, I might in fact combines the two SIPPs as Dod suggests. So making drawdown things a bit simpler as well as getting slightly more peace of mind in the event that one provider runs aground in some way.

With 2 SIPPs if it's fraud or other catastrophic collapse from which your funds are never recovered you've lost half your money. If it's admin or other hiccup half your money is suspended but you keep access to the other portion and hopefully that first tranche later on. You might double your risk but halve the negative outcomes. I have 3 providers for my investments, 3 x ISAs and perhaps open a 2nd SIPP.

[Arborbridge]

I'm looking at (partially) living off dividends from my porfolio once I retire - perhaps about £25K. I just want to check I've got the mechanics right.

My wife and I have dividends coming in the following proportions:

MyISA 63%
My SIPP 15%
My SIPP 15%
Her SIPP 4.6%
Her ISA 2%

(Oh does BBCode table formatting not work here?)

So if I retired, I'd assume we'd use our existing cash buffer to live off in the first year while letting the divis build up, then exfiltrate the various pools of cash in those account above, and repeat. Is that right?

I suppose for a once annual operation, that's not too hard. Bit of a faff though.

I'm more or less doing what the others are doing. I have an account - let's call it the "header tank" - into which dividends are paid. From this account, I draw a regular monthly amount just like a salary, which goes into a normal current account. It's all automatic and not a faff.

If the header tank builds up a large surplus - which hopefully it will - you can turn off the dividend tap every few months, or whenever you think it appropriate. The dividends stay in their original broker accounts in that case, for re-investment giving you resilience for later.

In my case, I keep a buffer in the header-tank of about 4 months which will see me over the worst periods of the year when not many dividends are paid.

As regards the security aspect, I have one SIPP and three ISAs with different providers. Choose big ones eg Bell, Halifax, HL etc, and they are hardly likely to lose your money.


Arb.

[nmdhqbc]

i was waiting for someone with more knowledge on the topic to get into this but in case no-one does... i believe there are some tax mitigation decisions you may want to look into. maybe only take out of SIPP's enough to keep yourselves not paying any or just basic rate tax. or maybe don't take any out at all if you have plenty outside of the SIPP's and want to keep as much as you can outside of your estate for inheritance tax. or if like me you want to get all the cash out of the SIPP's ASAP and the dividends paid within them is less than the personal allowance + 25% you can take out more than the dividends and re-buy the investments you sell to do that in your ISA's.

[kempiejon]

i was waiting for someone with more knowledge on the topic to get into this but in case no-one does... i believe there are some tax mitigation decisions you may want to look into. maybe only take out of SIPP's enough to keep yourselves not paying any or just basic rate tax. or maybe don't take any out at all if you have plenty outside of the SIPP's and want to keep as much as you can outside of your estate for inheritance tax. or if like me you want to get all the cash out of the SIPP's ASAP and the dividends paid within them is less than the personal allowance + 25% you can take out more than the dividends and re-buy the investments you sell to do that in your ISA's.

I have similar thoughts about maximising my ISAs, making tax efficient SIPP contributions, tax reclaims, staying below thresholds, inheritance tax and SIPPS and other wrinkles. These are very hung on ones personal situation and might be edging into the faff territory mentioned. My tax planning has saved/gained me plenty I expect to continue this into drawdown but it's more work than plain ol' investing to grow the pot or retirement dividend drawdown.

[nmdhqbc]

I have similar thoughts about maximising my ISAs, making tax efficient SIPP contributions, tax reclaims, staying below thresholds, inheritance tax and SIPPS and other wrinkles. These are very hung on ones personal situation and might be edging into the faff territory mentioned. My tax planning has saved/gained me plenty I expect to continue this into drawdown but it's more work than plain ol' investing to grow the pot or retirement dividend drawdown.

i'm just making sure the op is aware of the considerations. faff for no gain is different to faff for gain so they may decide to go for some faff or not. wither way best to enlighten them as much as possible so they can make an informed choice. i think it was worth mentioning. and if their choice is to not take anything out of the SIPP's that could be considered less faff for them.

[Gilgongo]

i'm just making sure the op is aware of the considerations. faff for no gain is different to faff for gain so they may decide to go for some faff or not.

Point taken, although in my case the amount taken from the SIPP - later combined with state pension - won't put me into taxable territory (and I think we can use marriage allowance if necessary). Most of the income will be from ISAs.

[AshleyW]

I have a 10 Investment Trust ISA income portfolio with IWeb. Dividends paid out as soon as they arrive. The only faff is that their portfolio has to be managed as it comprises of 10 actively managed investments and managers change and occasionally the IT’s ethos changes so maybe there are IT substitutions every few years. A bit of faff but far less worry than my drawdown portfolio when market downturns cause worries about just how much I should take out.

[nmdhqbc]

Point taken, although in my case the amount taken from the SIPP - later combined with state pension - won't put me into taxable territory (and I think we can use marriage allowance if necessary). Most of the income will be from ISAs.

my point goes both ways though. you might want to take more out rather than less... like me for instance. i don't care about inheritance tax so i want as much as possible out of the SIPP with zero tax asap. so i will be taking out more than the dividends paid from the SIPP and getting it into the ISA. so i'll be selling some to pay out that amount from the SIPP. gets the cash out so that if one day i have much higher care costs i won't have to pay tax on the suddenly higher withdrawals much later in life. worst case scenario planning for running down capital right at the end of life. and the year the SIPP is finally empty the admin gets even easier with no faffing on the SIPP. just ISA automatic withdrawals of dividends.

[Urbandreamer]

Point taken, although in my case the amount taken from the SIPP - later combined with state pension - won't put me into taxable territory (and I think we can use marriage allowance if necessary). Most of the income will be from ISAs.

Just to clarify.
State pension is £10600 and triple locked (will rise)
The personal Allowance is £12570 and fixed for the next 3 years.

It sounds like you may not be taking very much from your SIPP at all, if you wish to avid tax (once you claim SP). Indeed it won't be that long before the SP exceeds the personal allowance if the situation continues.

Re "marriage allowance", I thought that you were concerned about "faff". Have you considered how you will manage your affairs and claim that allowance?
Will your spouse be on a full state pension, in which case they may not have much head room to be used.

FWIW, I too am managing my affairs so that income tax will not be due. However that will become impossible once I claim SP.

[Gilgongo]

my point goes both ways though. you might want to take more out rather than less... like me for instance. i don't care about inheritance tax so i want as much as possible out of the SIPP with zero tax asap. so i will be taking out more than the dividends paid from the SIPP and getting it into the ISA.

Ah, I see. So for a small bit of extra faff (selling down more in the SIPP to invest into the ISA - although not enough that the resulting income would be taxable) you build up a tax free pot for later?

[TUK020]

I have a SIPP in drawdown with HL.
It offers you an online facility to pay out either a "one off" sum, or a "regular monthly" sum to your linked bank account.
At the start of the year I set the monthly amount to take me to the relevant tax threshold, and then just leave it in autopilot.
I ensure that there is at least 6 months payment in cash in the account, which is topped up by the dividends.
If the cash buffer exceeds 1 year's withdrawals, I reinvest some.
Minimal attention needed, assuming that you are not trying to withdraw monthly amounts too close to the average dividend income

[nmdhqbc]

Ah, I see. So for a small bit of extra faff (selling down more in the SIPP to invest into the ISA - although not enough that the resulting income would be taxable) you build up a tax free pot for later?

yep. it's one way to go. but if you care about inheritance tax when you're gone maybe the wrong way. if like me you don't care about that i think it's the right way.

[Dod101]

i was waiting for someone with more knowledge on the topic to get into this but in case no-one does... i believe there are some tax mitigation decisions you may want to look into. maybe only take out of SIPP's enough to keep yourselves not paying any or just basic rate tax. or maybe don't take any out at all if you have plenty outside of the SIPP's and want to keep as much as you can outside of your estate for inheritance tax. or if like me you want to get all the cash out of the SIPP's ASAP and the dividends paid within them is less than the personal allowance + 25% you can take out more than the dividends and re-buy the investments you sell to do that in your ISA's.

I did not mention that because that was not what was being asked, but that is why I quite often take nothing from my SIPP, and if I do I take it once a year in March to try to ensure that the withdrawal is below my tax threshold. Obviously you can do what you like with the withdrawal , recycling it to fund an ISA if you like.

I prefer to keep the SIPP untouched as I might as well save my heirs some IHT if I can, but this is now complicating what was a simple question.

Dod