£780k pot how much would you drawdown each year

pip895 · 11 January 2018 at 4:55PM

For the OP breaching the LTA is a very real risk. Doing some rough calculations if he took nothing out of the sipp and the growth of his funds was 10% and inflation 2% the size of his remaining funds would breach the LTA within 4 years. Taking 4% would only delay it for a few more years. A flexible approach - taking out the max you can tax efficiently and putting plenty aside in S&S isas and other investments has got to be the best way forward.

redux · 11 January 2018 at 6:13PM

kidmugsy wrote: »

The front of the baby boomer wave is 72 this year. As the wave swells there will magically become available a Dignitas-like option, letting the old and ill, the old and fed up, the old and weary, the old and lonely, the old and demented, shuffle off this mortal coil before they are sans everything. Maybe.

Elsewhere on this forum can be found one or two people suggesting ban all NHS and social spending for people over 75. The rich can pay their own way, but who cares about the rest.

One might expect that owners of such opinions might hypocritically change their views as they pass 60 or 70, but most of us won't be around to find out.

pensionpawn · 11 January 2018 at 9:39PM

bostonerimus wrote: »

What if the your funds fall by 25% or 50% for a few years? and inflation is factored into the "safe withdrawal" rates too. Everyone who retires needs a detailed budget so they understand their spending. If you are going to front load that spending it's even more necessary so you know how to reduce spending in down years or when you've had to sell after a few down years to top up your cash /short term bond cushion.

Indeed, you need to ensure that you provide for a different income stream in case the pension pot goes South for a few years hence withdrawing the money, up to the 40% tax band, each year into an ISA and hopefully one which will offer a rate that minimises (eliminates?) the impact of inflation. Looking at my funds one (if not all) did go South for a few years after the dot com bubble. Do you not think that if a person had retired in say 1995 and front loaded withdrawals until 2000 they would be in a better position from 2000 - 2005 than if they had not?

My nominal spending plans are known, and reduced by solar and going EV before retirement. Withdrawal reduces in stages over the retirement plan in line with quieter lifestyle.

You can only plan and hope to minimise surprises. However I do feel vulnerable keeping too much wealth in a pension fund that can go either way. I can live with loosing out on my fund nudging £1M however I can't risk it shrinking in value with no other 'income' stream.

lisyloo · 11 January 2018 at 11:23PM

redux wrote: »

Elsewhere on this forum can be found one or two people suggesting ban all NHS and social spending for people over 75. The rich can pay their own way, but who cares about the rest.

One might expect that owners of such opinions might hypocritically change their views as they pass 60 or 70, but most of us won't be around to find out.

So if they fall over in the street then just leave them there?
Completely outlandish suggestion.

bostonerimus · 12 January 2018 at 3:06PM

pensionpawn wrote: »

Indeed, you need to ensure that you provide for a different income stream in case the pension pot goes South for a few years hence withdrawing the money, up to the 40% tax band, each year into an ISA and hopefully one which will offer a rate that minimises (eliminates?) the impact of inflation. Looking at my funds one (if not all) did go South for a few years after the dot com bubble. Do you not think that if a person had retired in say 1995 and front loaded withdrawals until 2000 they would be in a better position from 2000 - 2005 than if they had not?

Withdrawal rates rely on compounding. If you are taking more than the "safe withdrawal rate" each year and holding it in cash then you are increasing the risk of failure. You should not design a plan based on a single set of recent annual markets. Looking back 5 or 10 years in a linear fashion does not tell you much about the probabilities of future returns. The best you can do is to take the entire set of market returns and possible allocations and use the statistics of all those combinations to make an educated guess. You set you spending level to be low enough to survive the worst set of circumstances. You can front load the withdrawal if you have a viable plan to reduce spending.

You can only plan and hope to minimize surprises. However I do feel vulnerable keeping too much wealth in a pension fund that can go either way. I can live with loosing out on my fund nudging £1M however I can't risk it shrinking in value with no other 'income' stream.

You are lucky if you can actually afford to do that. The vast majority of people will be able to withdraw most during retirement by staying fully invested.....in fact there is research that shows an increasing allocation to equities during retirement produces the greatest probability of success. I understand that's hard for most people to implement, but a safe withdrawl rate is calculated to survive the downs of the markets. It's probably riskier for you to hold a lot of cash and withdraw 5% than to stay fully invested and withdraw 3.5%

redux · 12 January 2018 at 3:30PM

The discussions about withdrawal rate seem to be getting abstruse, and it isn't necessarily directly related to how much is needed to live on while protecting remaining capital.

Surely withdrawing more but reinvesting part of it somewhere else isn't going to be much different in overall funds terms, except it may help move increasing proportions of future growth away from the lifetime allowance issue?

bostonerimus · 12 January 2018 at 5:05PM

redux wrote: »

Surely withdrawing more but reinvesting part of it somewhere else isn't going to be much different in overall funds terms, except it may help move increasing proportions of future growth away from the lifetime allowance issue?

It depends how it's invested. If money is withdrawn from equity investments in a SIPP and then reinvested in an ISA in similar investments there's no issue....just a different tax treatment. Of course paying tax earlier than needed on SIPP withdrawals over your actual income requirements might not be the most efficient strategy. But lifetime limits and changing tax rules make that sort of planning pretty tricky. If it's done to avoid a higher tax rate later on then it can be a good thing to do.

In the end my strategy was to develop income streams separate from pension pot withdrawals so I don't need to worry. My withdrawl rate is negative as I am just reinvesting dividends and letting the capital gains compound. I have a modest lifestyle and my income needs are covered by rent from an apartment I own and a final salary pension that I bought with a portion of my DC pension pot. I'm not sure how much emphasis people put on budgeting and controlling spending, but it's just as important as the investing and withdrawal rate side of things......and it has the benefit that you have greater control over the outcome when it comes to your spending.

ffacoffipawb · 12 January 2018 at 9:09PM

bostonerimus wrote: »

It depends how it's invested. If money is withdrawn from equity investments in a SIPP and then reinvested in an ISA in similar investments there's no issue....just a different tax treatment. Of course paying tax earlier than needed on SIPP withdrawals over your actual income requirements might not be the most efficient strategy. But lifetime limits and changing tax rules make that sort of planning pretty tricky. If it's done to avoid a higher tax rate later on then it can be a good thing to do.

In the end my strategy was to develop income streams separate from pension pot withdrawals so I don't need to worry. My withdrawl rate is negative as I am just reinvesting dividends and letting the capital gains compound. I have a modest lifestyle and my income needs are covered by rent from an apartment I own and a final salary pension that I bought with a portion of my DC pension pot. I'm not sure how much emphasis people put on budgeting and controlling spending, but it's just as important as the investing and withdrawal rate side of things......and it has the benefit that you have greater control over the outcome when it comes to your spending.

Can I ask how you bought a final salary pension with a portion of your DC pension pot.

Interested as I am close to LTA.

MallyGirl · 12 January 2018 at 11:35PM

He is in USA so it might be different there

pensionpawn · 12 January 2018 at 11:37PM

bostonerimus wrote: »

Withdrawal rates rely on compounding. If you are taking more than the "safe withdrawal rate" each year and holding it in cash then you are increasing the risk of failure. You should not design a plan based on a single set of recent annual markets. Looking back 5 or 10 years in a linear fashion does not tell you much about the probabilities of future returns. The best you can do is to take the entire set of market returns and possible allocations and use the statistics of all those combinations to make an educated guess. You set you spending level to be low enough to survive the worst set of circumstances. You can front load the withdrawal if you have a viable plan to reduce spending.

You are lucky if you can actually afford to do that. The vast majority of people will be able to withdraw most during retirement by staying fully invested.....in fact there is research that shows an increasing allocation to equities during retirement produces the greatest probability of success. I understand that's hard for most people to implement, but a safe withdrawl rate is calculated to survive the downs of the markets. It's probably riskier for you to hold a lot of cash and withdraw 5% than to stay fully invested and withdraw 3.5%

Thanks for your input, although I don't necessary (initially) agree with alternative perspectives that may change over time so please keep them coming. On the subject of looking back further than I have to obtain a more comprehensive data set of market variations surely the further in time you look back the more irrelevant (and potentially misleading) the analysis and conclusions could be. If you consider that some of the biggest (tech) companies who no doubt attract significant interest from pension fund managers didn't exist as recently as the 20th century! What yet to be launched companies will command significant pension fund managers interest in 10 years time shortly after I (hopefully) commence my draw down? My point being that the accuracy of any financial analysis, and therefore predictions for future growth, would be more reliable over a shorter time frame?

My plans for draw down really are to empty my pension pot by 85. Should I live beyond that age I really believe that the unspent portion of 26 years of draw down, combined with the state pension, will keep me warm, fed and safe. I am not expecting to be bungee jumping at 85 and would rue missed opportunities with a 6 figure pension pot at 85.

All I'm looking for is potential dangers to that strategy, and obviously taking the appropriate measure in plenty of time to avoid missing my target.

£780k pot how much would you drawdown each year

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