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    • GSP
    • By GSP 29th Dec 17, 10:26 AM
    • 162Posts
    • 34Thanks
    GSP
    £780k pot how much would you drawdown each year
    • #1
    • 29th Dec 17, 10:26 AM
    £780k pot how much would you drawdown each year 29th Dec 17 at 10:26 AM
    Hi,
    I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA.

    She has given up work and we intend to have some good holidays though keeping an eye on the fund.
    I have been reading posts regarding safe withdrawal rates etc. Some posters are cautious, but some say enjoy what you can.

    I will be having reviews with my IFA but with differing opinions out there be interesting to know how much people would withdraw each year. Excluding shopping, all regular household bills are less than £500 a month, no loans or mortgage.

    Thanks
Page 8
    • westv
    • By westv 11th Jan 18, 3:35 PM
    • 4,421 Posts
    • 2,044 Thanks
    westv
    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.
    Originally posted by kidmugsy
    The ultimate drawdown?
    • pip895
    • By pip895 11th Jan 18, 3:55 PM
    • 490 Posts
    • 279 Thanks
    pip895
    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
    • By redux 11th Jan 18, 5:13 PM
    • 17,797 Posts
    • 22,912 Thanks
    redux
    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.
    Originally posted by kidmugsy
    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
    • By pensionpawn 11th Jan 18, 8:39 PM
    • 25 Posts
    • 1 Thanks
    pensionpawn
    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.
    Originally posted by bostonerimus
    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
    • By lisyloo 11th Jan 18, 10:23 PM
    • 21,380 Posts
    • 10,280 Thanks
    lisyloo
    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.
    Originally posted by redux
    So if they fall over in the street then just leave them there?
    Completely outlandish suggestion.
    • bostonerimus
    • By bostonerimus 12th Jan 18, 2:06 PM
    • 1,403 Posts
    • 820 Thanks
    bostonerimus
    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?
    Originally posted by pensionpawn
    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%
    Last edited by bostonerimus; 12-01-2018 at 2:12 PM.
    Misanthrope in search of similar for mutual loathing
    • redux
    • By redux 12th Jan 18, 2:30 PM
    • 17,797 Posts
    • 22,912 Thanks
    redux
    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
    • By bostonerimus 12th Jan 18, 4:05 PM
    • 1,403 Posts
    • 820 Thanks
    bostonerimus
    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?
    Originally posted by redux
    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.
    Last edited by bostonerimus; 12-01-2018 at 4:08 PM.
    Misanthrope in search of similar for mutual loathing
    • ffacoffipawb
    • By ffacoffipawb 12th Jan 18, 8:09 PM
    • 2,399 Posts
    • 1,564 Thanks
    ffacoffipawb
    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.
    Originally posted by bostonerimus
    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
    • By MallyGirl 12th Jan 18, 10:35 PM
    • 2,286 Posts
    • 7,299 Thanks
    MallyGirl
    He is in USA so it might be different there
    • pensionpawn
    • By pensionpawn 12th Jan 18, 10:37 PM
    • 25 Posts
    • 1 Thanks
    pensionpawn
    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%
    Originally posted by bostonerimus

    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.
    • pensionpawn
    • By pensionpawn 12th Jan 18, 10:41 PM
    • 25 Posts
    • 1 Thanks
    pensionpawn
    How does half of the value of your home become available? (apologies if I missed something in the thread).
    You cannot usually sell half a house and you don't have any knowledge of what state your other half will be in for example they may have installed a stair lift, hoist and walk-in bath and not want or be in a great posistion to move away from family and friends.
    Originally posted by lisyloo
    Half is could obviously go in care home fees. We have made provision in our Wills that at least half of the value of the house will go to the children.
    • pensionpawn
    • By pensionpawn 12th Jan 18, 10:59 PM
    • 25 Posts
    • 1 Thanks
    pensionpawn
    Some problems
    1) You need to reinvest sufficient in your pot each year to cover inflation. Over the past 21years inflation has averaged about 2%.
    2) How much money do you put in your slush fund? The greater the % drawdown the more cash you need in your slush fund. The more cash in your slush fund the less you have in investments to generate the return.
    3) You need to replenish your slush fund fairly quickly - the next major fall could happen pretty soon after the previous one.
    4) In your example the worst case is -5%. -40% might be a a better number to use if you want 10% average returns.
    What makes you think that the past 21.5 years were particularly problematic? They seem to have been unusually benign to me apart from two rather short difficult periods. Assuming 10% is the average annual return over 21.5 years is rather risky since you only have 1 period of 21.5 years to look at. Even if it were a reasonable guess it would imply that 50% of the periods of 21.5 years would be worse. Is a 50% chance good enough?

    The actual annual return would vary considerably - presumably taking 10% income, half the time you would be using your slush fund to some extent.

    You can assume whatever your like. The question is what happens if your assumptions are wrong? How wrong do they have to be before you are in the doo-doo? In my retirement planning 12 years ago I assumed 1% return above inflation. Despite the great crash that turned out to be very pessimistic for which I am now very grateful.
    The problem with relying on capital erosion is that you need to know when you are going to die and then start eroding capital some years previously. Drawing down is like paying a mortgage in reverse - it mainly operates in a steady state mode until relatively close to the end of the term. Once you start seriously eroding your capital your returns fall rapidly.

    I suggest you have a play with http:\\www.cfiresim.com. It bases its results on data over the past 100 years and more and gives a far more realistic view of how drawdown can work out.
    Originally posted by Linton
    Thanks for your input! My plan is to erode the capital in my pot(s) at 85 hence I am not concerned about re-investment in the pot to maintain it's value. I may do the odd part time work during retirement and throw that all back in however that is an adhoc opportunity and not part of my financial planning. I am presently working on taking out the growth each year so with a £0.5M pot that is £50k which would net around £43k7 (if TFLS not taken) at least half of which would go into the slush fund. So each year of draw down I bank a years worth of 'backup' funds. Unless markets go south immediately after going into draw down I will have a few years of slush fund to draw from before having to withdraw from the pension pot at the minimum rate. As you may have guessed I'm not a professional economist however I have an average understanding of pensions and am pretty good at maths.

    Please keep the observations coming as I'm open to all suggestions though take quite a bit of convincing!
    • bostonerimus
    • By bostonerimus 13th Jan 18, 4:21 AM
    • 1,403 Posts
    • 820 Thanks
    bostonerimus
    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.
    Originally posted by ffacoffipawb
    As someone said I'm in the US, but using DC money to buy into a final salary pot Is generally not allowed here, just like in the UK.

    My state employer applied to the US Federal tax authority and got permission to do it one single time about a year before I retired. The teachers union was behind it and I'm sure a lot of political favours were given. The state took our contributions and compounded them at 8% annually and required that amount to buy into the final salary pension. Luckily I had enough with a bit left over. The pension is index linked and assuming I live an average life span I would have to average 7% annual return from the lump sum I paid to match the pension payments.....so I'm hoping to live a long life and get at least that 7% return.
    Last edited by bostonerimus; 13-01-2018 at 2:12 PM.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 13th Jan 18, 4:23 AM
    • 1,403 Posts
    • 820 Thanks
    bostonerimus
    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?
    Originally posted by pensionpawn
    You are falling into the "this time it's different" syndrome.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    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?
    Originally posted by redux
    For safe withdrawal rate discussion what is meant by withdrawing is "withdrawing from all assets - pension,ISA, whatever - to spend". Just taking it out of a pension and reinvesting somewhere else doesn't count as withdrawing. So yes,you're right.
    • Chickereeeee
    • By Chickereeeee 13th Jan 18, 9:34 AM
    • 425 Posts
    • 262 Thanks
    Chickereeeee
    Half is could obviously go in care home fees. We have made provision in our Wills that at least half of the value of the house will go to the children.
    Originally posted by pensionpawn
    Half of the remaining value of the house after care home fees have been paid, surely?
    • pensionpawn
    • By pensionpawn 13th Jan 18, 11:06 PM
    • 25 Posts
    • 1 Thanks
    pensionpawn
    Half of the remaining value of the house after care home fees have been paid, surely?
    Originally posted by Chickereeeee
    No, see this thread http://forums.moneysavingexpert.com/showthread.php?t=5771112&page=2#34
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