Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    jamesd
    Drawdown: safe withdrawal rates
    • #1
    • 20th May 16, 9:39 AM
    Drawdown: safe withdrawal rates 20th May 16 at 9:39 AM
    This is a collection of posts that I think are useful for those planning drawdown, suggesting a base plan and references to help you to adjust as you wish.

    To get started you should:

    1. Use Guyton and Klinger's decision rules
    2. Use Guyton's sequence of return risk taming (adds about 1% of pot size to withdrawal rate)
    3. Keep one year of planned investment income in cash (adds about 0.5% of pot size to withdrawal rate)
    4. Use state pension deferral to protect against the long life risk (see the income effect on cFiresim and the like)
    5. Continue to make pension contributions until you reach age 75.
    6. Reduce income by 0.5% of pot size to allow for charges, or some more appropriate amount.
    7. Reduce income by 0-1% of pot size depending on how far you are from having all US investments.
    8. Use cFiresim and change its investment returns to do the cost/investment returns adjustments instead of using fixed reductions in income. Since UK safe withdrawal rate is about 0.3% below US, you might use cfiresim with fees increased by 1% 0.5% and skip 6 and 7, this has the advantage of just affecting the investments, not state or defined benefit pensions. 1% higher fees roughly produce a 0.3% reduction in SWR.

    Those are assuming that you have a reasonably large pot of money available and are using it to fund a high percentage of your living costs. State pension deferral assumes reasonably normal health and life expectancy around state pension age.

    Retirement is long, don't worry about it taking a while to work though things as you get started.

    Investment highlight: August April 2017: You should have lower than usual equity investments at the moment because cyclically adjusted price/earnings ratios (PE10) are above average in some major markets, particularly the US. You might also favour lower PE10 markets with higher than their usual equity weights. I like P2P lending rather than corporate or government bonds for this. See Guyton's sequence of return risk reduction and Bengen's interesting timing thought in the last paragraph of his 2016 small cap paper.
    Last edited by jamesd; 12-08-2017 at 4:00 PM.
Page 5
    • kidmugsy
    • By kidmugsy 28th Feb 17, 9:30 PM
    • 9,848 Posts
    • 6,640 Thanks
    kidmugsy
    I am guilty of looking at things only from my own perspective I accept.
    Originally posted by Northamptonblue
    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.
    • TheTracker
    • By TheTracker 11th Mar 17, 8:40 AM
    • 1,123 Posts
    • 1,114 Thanks
    TheTracker
    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?
    Originally posted by kidmugsy
    Losses can be carried forward and backward, though the company probably needs to be "active".
  • jamesd
    I recently added this to the first post:

    -----

    Investment highlight: April 2017: You should have lower than usual equity investments at the moment because cyclically adjusted price/earnings ratios (PE10) are above average in some major markets, particularly the US. You might also favour lower PE10 markets with higher than their usual equity weights. I like P2P lending rather than corporate or government bonds for this. See Guyton's sequence of return risk reduction and Bengen's interesting timing thought in the last paragraph of his 2016 small cap paper.

    -----
    Last edited by jamesd; 24-04-2017 at 8:29 PM.
    • ukdw
    • By ukdw 24th Apr 17, 6:57 PM
    • 47 Posts
    • 35 Thanks
    ukdw
    Hyperlink to Bengen seems to have missing colon after http
    • kidmugsy
    • By kidmugsy 24th Apr 17, 7:16 PM
    • 9,848 Posts
    • 6,640 Thanks
    kidmugsy
    Bengen's interesting timing thought in the last paragraph of his 2016 small cap paper
    Originally posted by jamesd
    On his page 1 he writes "1. Bonds rarely proved useful in portfolios seeking to maximize the safe withdrawal rate for a 30-year period."

    The best substitute for bonds I know is annuity-equivalents bought by deferring the old-style State Retirement Pension, backed up by the 3A NIC top-up for the same SRPs. The former is still available to some codgers. Of course, you can't rebalance your allocation annually using those, but since their returns are so good that's a price worth paying for us, we decided.

    I hope nobody in the UK assumes that his comments mean that they should fill their portfolio with AIM shares. Small companies in the US can be quite big by our standards.
    Last edited by kidmugsy; 24-04-2017 at 7:26 PM.
    • michaels
    • By michaels 25th Apr 17, 3:45 PM
    • 19,745 Posts
    • 90,184 Thanks
    michaels
    I recently added this to the first post:

    -----

    Investment highlight: April 2017: You should have lower than usual equity investments at the moment because cyclically adjusted price/earnings ratios (PE10) are above average in some major markets, particularly the US. You might also favour lower PE10 markets with higher than their usual equity weights. I like P2P lending rather than corporate or government bonds for this. See Guyton's sequence of return risk reduction and Bengen's interesting timing thought in the last paragraph of his 2016 small cap paper.

    -----
    Originally posted by jamesd
    How can one invest ones (non-sipp) pension fund in p2p?

    On his page 1 he writes "1. Bonds rarely proved useful in portfolios seeking to maximize the safe withdrawal rate for a 30-year period."

    The best substitute for bonds I know is annuity-equivalents bought by deferring the old-style State Retirement Pension, backed up by the 3A NIC top-up for the same SRPs. The former is still available to some codgers. Of course, you can't rebalance your allocation annually using those, but since their returns are so good that's a price worth paying for us, we decided.
    Originally posted by kidmugsy
    Isn't there an issue with deferring state pension for couples in that should one of the couple die then the deferral benefit is lost?
    Cool heads and compromise
    • bowlhead99
    • By bowlhead99 25th Apr 17, 4:13 PM
    • 6,888 Posts
    • 12,399 Thanks
    bowlhead99
    How can one invest ones (non-sipp) pension fund in p2p?
    Originally posted by michaels
    With a pension that's not a SIPP or SSAS, one can't.

    AFAIK there are some platforms offering P2P-type opportunities which will accept a SIPP trustee as an investor. They're not the mainstream platforms though, and you would still have to convince your SIPP manager that it was a legit investment, which the bare bones cheap DIY SIPPs wouldn't go for.

    Still, you don't have to do all your retirement planning inside a pension wrapper, there is IFISA (limited opportunities so far but more due to launch) or unwrapped options.

    Isn't there an issue with deferring state pension for couples in that should one of the couple die then the deferral benefit is lost?
    Yes, on the current (Apr 2016 onwards) version of the scheme if they die once they have come out of deferral. So you would compare it to the cost of an inflation-linked lifetime annuity, rather than an inflation-linked lifetime annuity with spouse provision.

    Although if you hit state pension age before 6 April last year, the benefit of extra annual pension generated was inheritable by spouse (as well as the rate of return being higher). There are a number of such people who have simply taken their state pension as soon as they could and not deferred yet, but still could if they wanted to.
    • kidmugsy
    • By kidmugsy 25th Apr 17, 10:08 PM
    • 9,848 Posts
    • 6,640 Thanks
    kidmugsy
    Isn't there an issue with deferring state pension for couples in that should one of the couple die then the deferral benefit is lost?
    Originally posted by michaels
    Let me quote me: "annuity-equivalents bought by deferring the old-style State Retirement Pension". Old-style doesn't have this problem: I expect my widow to get 90% of my extra pension received for deferring.
    • stoozie1
    • By stoozie1 28th Apr 17, 4:34 PM
    • 367 Posts
    • 211 Thanks
    stoozie1
    James,

    thank you for a fantastic resource.

    I have tried to read the article in point 1 of the OP a couple of times but it's going over my head a bit.

    Does anyone have anything a bit more basic/entry level I could look at first?
  • jamesd
    How can one invest ones (non-sipp) pension fund in p2p?
    Originally posted by michaels
    There are some managed funds which invest in P2P lending but I don't really recommend those. BondMason now say that they have some pension options and that people should email them for details. SIPP of course, since P2P direct lending and what they do are classed as non-standard investments, a term which mostly means not traded on a stock market and potentially not able to be sold within thirty days.
  • jamesd
    I have tried to read the article in point 1 of the OP a couple of times but it's going over my head a bit.

    Does anyone have anything a bit more basic/entry level I could look at first?
    Originally posted by stoozie1
    Have you tried my paraphrasing of the rules? I just modified the paragraph that has the link to it to be explicit in saying that it contains a summary.
    Last edited by jamesd; 30-04-2017 at 11:07 AM.
  • jamesd
    Archiving this now it's no longer possible to do it from 6 April 2017.

    Class 3A state pension top-up

    Available for those who reached state pension age before 6 April 2016 it pays less than state pension deferral until age 81 so only do it if you're planning to defer until at least 81 and still want more guaranteed for life income, else defer instead. It still beats an inflation-linked annuity at any age if in normal good health so do it instead of buying one of those, it's just that deferral beats it. Here's a table showing the percentage of capital that class 3A pays at each age to make it easier to compare with deferral or an annuity. Guidance for advisers. Class 3A doesn't count towards the maximum state pension limit, for either the buyer or a person who inherits it.

    One important issue to consider is how long it would take to defer because the state pension top up is immediate, while deferral isn't. This means that when comparing you have to pay yourself a higher income - the one increased by the top up - for as long as you're deferring. That effectively roughly decreases the amount you have to spend by top-up increase times number of years deferring. So say a 65 year old had £21k to spend they would get a top up of £1,226.40 a year. If it would take three years to spend the money on deferring they would have to reduce the effective amount being spent by three times that, £3,679.20. This means that the deferral increase would get them only £1,801 a year instead of the £2,184 a year it would pay if this wasn't allowed for. Both still beating the top up option, though.
    Last edited by jamesd; 02-05-2017 at 12:00 PM.
    • Glen Clark
    • By Glen Clark 18th May 17, 5:25 AM
    • 3,892 Posts
    • 2,893 Thanks
    Glen Clark
    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.
    Originally posted by jamesd
    Or a FTSE 100 ETF like VUKE at 0.09% with no platform charge?
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • jamesd
    Yes if outside the pension but there are cheaper options like 0.07% for the iShares version or HSBC also at 0.07%.
    • westv
    • By westv 21st Jun 17, 10:15 PM
    • 4,350 Posts
    • 1,969 Thanks
    westv
    Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.
    • bostonerimus
    • By bostonerimus 22nd Jun 17, 3:32 AM
    • 1,119 Posts
    • 628 Thanks
    bostonerimus
    Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.
    Originally posted by westv
    UI just looked at the cfiresim site....it looks like it does the simulation running through sequential years of market performance rather than analysing all the possible combinations...is that right?
    Misanthrope in search of similar for mutual loathing
  • jamesd
    It tries every starting year from 1871 to the last possible starting year. If you want to try returns with a specified standard deviation, that's an option in Firecalc. Historic has the advantages of modelling the correlation between performance across several years and ensuring that several very bad periods are included. You'll need far more runs to get such sequences if you use a Monte-Carlo approach.
  • jamesd
    Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.
    Originally posted by westv
    Two cases where it can do that are:

    1. If the starting date is in the future.
    2. Towards the end of the planning horizon for starting years which have good investment performance fairly close to the end, when Guyton-Klinger will increase spending to try to use the money before you die. You can choose the percentages by which income is cut or increased if you want to experiment with this.
    • gallygirl
    • By gallygirl 22nd Jun 17, 8:03 AM
    • 16,455 Posts
    • 107,807 Thanks
    gallygirl
    Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.
    Originally posted by westv
    Long time since I've used it (as I've retired so don't want to know any more if I'm going to run out of money ). Does the spending stay high? Could it be high inflation on some cycles - that could fit with a crash in value.
    A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
    Mortgage Balance = £0
    "Do what others won't early in life so you can do what others can't later in life"
    • westv
    • By westv 22nd Jun 17, 1:31 PM
    • 4,350 Posts
    • 1,969 Thanks
    westv
    Two cases where it can do that are:

    1. If the starting date is in the future.
    2. Towards the end of the planning horizon for starting years which have good investment performance fairly close to the end, when Guyton-Klinger will increase spending to try to use the money before you die. You can choose the percentages by which income is cut or increased if you want to experiment with this.
    Originally posted by jamesd
    Well here is a simple example:-

    Start year: 2017
    Portfolio value £300,000
    SP 8000 starting 2029
    Spouse SP 8000 starting 2036
    Investigate max initial spending
    Guyton Klinger
    min success rate 90%
    Spending floor £10,000

    One cycle pushes spending up to £64k at the end with a corresponding fall in the portfolio to minus £800k
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

5,193Posts Today

6,565Users online

Martin's Twitter