Drawdown: safe withdrawal rates

michaels · 4 January 2017 at 3:42PM

Fermion wrote: »

Historically I've always been disappointed with most "freeware" pension calculators in the marketplace. It seems either:-
1. They are far too trivial/simple(and created by various pension provider) and hence not fit for purpose, or
2. Are more complex but US based and hence require a "consumer health warning" and need various assumptions/interpretations created to make them suitable for UK use(as mentioned above).

Being reasonably competent with Excel Spreadsheet I actually found that it really wasn't that difficult to create a couple of "Bespoke" Spreadsheets that
(a) helped me track(by individual funds) my SIPP target projections and retirement drawdown income/yields
(b) helped me track my drawdown income/yield performance and residual drawdown fund value delta (to achieve my objectives of taking the natural income/yield from my pot)

In the spreadsheets I tracked:-
1. Specific Funds
2. Current fund value
3. Current fund annual income £
5. Target fund value at drawdown (following 25% tax free adjustment)
6. Target fund income (after drawdown)
7. Projected charges (post drawdown)
8. Future years contributions

I also made assumptions for the following:-
(a) Reinvested Income/Yield (by years 1-n)
(b) Annual portfolio growth per year

Using the spreadsheets helped me to optimise my SIPP portfolio in the final year before retirement so that I had:
(a) A range of funds that would enable me to achieve a target income of at least 3.5% (my min target), and
(b) Sufficient cash at Drawdown for my 25% lump sum and Drawdown cash float.

I found the key thing is to regularly update the spreadsheet with current fund values and yields to check the projections.

Don't be afraid to try the DIY approach - but maybe get an excel/financial competent friend to check out the spreadsheet calculation!

I can see he value of keeping this info up to date but these are effectively inputs to the cfiresim simuation that then applies a 'what-if' based on all available actual historic data.

gallygirl · 4 January 2017 at 10:58PM

michaels wrote: »

I can see he value of keeping this info up to date but these are effectively inputs to the cfiresim simuation that then applies a 'what-if' based on all available actual historic data.

I found it was only when I had built my own spreadsheets similar to the above (and checked and triple checked the formula!) that I really understood my possible financial future(s). Only then did I really get to grips with cfiresim. I did find it very useful though.

PensionSaver · 22 January 2017 at 9:51PM

PensionSaver wrote: »

Googling safe pension drawdown brought me to this thread and cfiresim so many thanks to jamesd.

Could anyone advise me how to enter the following:
As at next April 2017
Age 47, dc pension 415k invested in 'international shares fund'. Stay at home wife is 51 and has 8k dc fund. We both already qualify for full state pension at 67.
We would like to retire in 8-10 years time (so age 55-57 for me and 61-63 for wife). For those years wife will pay in 3.6k into her pension and I can pay in up to 40k.
After that we can both continue to pay in up to 3.6k pa and/or defer state pension(s) if that makes sense.
We will only have non-pension savings of 50k and no debt but could probably flex this using our mortgage plus pension lump sum to repay this if this helped with retiring before 57.

Ideally we would like to have at least 30k pa (2017 gbp, index linked) in retirement with a floor of 24k. We have lots of equity in our ppr and would contemplate downsizing.

So my question is how should I put all this into cfiresim to see what is possible?

Thanks for any help.

Ok, I have done as follows - does this sound right?

I have used my current pot and future anticipated contributions and increased everything by 2% a year (assuming investment return after fees of inflation plus 25) to my planned retirement date to get to a 'initial lump sum.

Then I have put that sum is as my initial pot, start year 2017, 40 years of retirement.

Then for state pension for self and DW I have used put in two entries for each of us - an income amount of 8k starting now payable ongoing and an expenditure amount of the same value starting now ending on the number of years post retirement date that SP will become payable.

Then I have played around with the initial withdrawal rate, floor , investment mix, withdrawal model etc.

To model SP deferral I have amended the income and expenditure annual sums to reflect the deferral uplift and increased the expenditure years correspondingly.

Sound reasonable?

AnotherJoe · 22 January 2017 at 10:26PM

tigerspill wrote: »

One question though on CFIRESIM -
When I start retirement in any year other then 2017 - and use the G&K spend model, it seems to not work and shows spend as zero for every year.
To get around this (I am not planning to retire until 2019 (and my spouse a few years later), what I have done is add our salaries in as additional income between 2017 and those dates. Does this sound like the correct thing to do to get around this problem?
I can publish my details if this helps to show the problem. And to check if I have done this correctly and am not missing anything? Would anyone be prepared to review my numbers?

I just tried it accepting all defaults and starting in 2019 and G-K and it worked.

I suggest you start by setting reteirment to 2019 amd accepting alll the defaults set to GK and check that works. Then add your numbers in one at a time and see how that goes.

System · 27 January 2017 at 8:53PM

A new resource:
https://earlyretirementnow.com/2017/01/25/the-ultimate-guide-to-safe-withdrawal-rates-part-7-toolbox/

This is part of a series of posts reporting on research being done by ERN. It's worth reading from part one and following the series from there:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Another resource http://www.portfoliocharts.com is exploring SWR and portfolio returns in some detail. Their simulations suggest a small allocation to gold increases SWR and lessens maximum drawdowns. However other portfolio tools do not always confirm these results so this is not clear.

ERN current research is based on a simple stocks/bonds portfolio and SWR. I have suggested to ERN that they explore Guyton Klinger Decision Rules and/or Dynamic Asset Allocation as proposed by Kitces, and testing the effect of adding tilts (small cap, value, emerging markets) or an allocation to gold.

ERN takes issue with some previous SWR tests which they point out have various failings including not factoring in real inflation adjusted values, and calling out research which has been used to support stated SWR rates by selectively choosing (i.e. with the benefit of hindsight) the appropriate bond duration to supports the most favourable returns. ERN is quite rigorous in testing so well worth a look.

jamesd · 27 February 2017 at 10:36AM

Hargreaves Lansdown is popular and has a useful range of tracker funds that can be used to match the popular Vanguard Lifestrategy funds at about half the price.

For many years all Virgin offered was a UK FTSE tracker fund with charge of 1% a year. A comparable option at HL would be Legal & General UK Index Class C - Accumulation (GBP) with 0.06% annual charge plus 0.45% HL platform charge, so 0.51% total, a hair over half the Virgin cost.

It would be better to also use Legal & General International Index Trust Class C - Accumulation (GBP) as well, same cost.That one tracks the FTSE global index, excluding the UK. You might put 80% in it and 20% into the UK one.

If you want UK company bonds you could add say BlackRock Corporate Bond Tracker Class H - Accumulation (GBP) at 0.12% and for UK government bonds Legal & General All Stocks Gilt Index Trust Class C - Accumulation (GBP) at 0.1%.

For larger pots HL caps their 0.45% at £200 a year for ETFs, investment trusts and shares, plus trading costs and those could be cheaper above around £50,000 depending on what you invest in and how often you trade.

jamesd · 27 February 2017 at 9:41PM

Some defined benefit common needs:

An example cash flow plan for a couple deferring their defined benefit pension until the normal pension age of the scheme.

Here's a list from May 2015 of providers who'll take over £30k against advice: Aegon, Aviva, AJ Bell, Canada Life (case by case decision), Dentons (case by case decision), Friends Life. Of those only AJ Bell and Canada Life will accept transfers of up to £30,000 without advice.See the link in my post for other lists, including those who will take transfers over £30k with the adviser recommending in favour of the transfer.

kidmugsy · 27 February 2017 at 10:12PM

Fermion wrote: »

If like me you had a period contracting via a Limited Company and you have money tied up in Company bank accounts that you don't want to pay as dividends (because of high rate tax implications), then making a once-off "Employer" gross payment into your SIPP is something to consider.

You won't get the 20% HMRC contribution, but gross Employer SIPP contributions come straight off the top line before Corporation Tax calculations. Also Business Bank interest rates are generally pathetic so at least you can invest in something via your SIPP which will get your money working for you.

How is it handled if your company isn't active this tax year so that there is no Corporation Tax to pay? Is there some sort of back-dating mechanism?

Northamptonblue · 28 February 2017 at 6:30PM

Thanks for your comment which makes perfect sense. I have a DB inflation linked pension in addition to some cash in the bank which mitigates overly optimistic drawdown so total destitution is less likely. I am guilty of looking at things only from my own perspective I accept.

kidmugsy · 28 February 2017 at 10:30PM

Northamptonblue wrote: »

I am guilty of looking at things only from my own perspective I accept.

That's the curse of us amateurs: we tend to know our own cases well but often assume that our knowledge carries over easily to other people. On the other hand, our suggestions come free.:)

Drawdown: safe withdrawal rates

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