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  • FIRST POST
    • GSP
    • By GSP 8th Jun 17, 10:53 AM
    • 138Posts
    • 23Thanks
    GSP
    800k CETV Figure, is £28k p.a. sensible
    • #1
    • 8th Jun 17, 10:53 AM
    800k CETV Figure, is £28k p.a. sensible 8th Jun 17 at 10:53 AM
    Hi all,
    Aged 55 in just over 5 weeks and I intend to start a flexi access drawdown income next month, all being well.

    I have nothing to fall back on presently. The wife nearly 50 has a CETV figure currently at £150k.

    There is likely to be 3 inheritances in less than 20 years worth something around £75k, £150k and £200k in current values. EDIT, but I am not relying on them.

    The IFA I'm going with (% fee) suggested £28k p.a. to start with, and review from there. Another one we saw (flat fee) said we should survive on £35k to we are 100.

    We will have state pensions but not the full amounts something like 75% after being contracted out.

    The questions are is the £28k too sensible? Its a figure which should comfortably provide our needs. Would you go for the £35k.

    Be interested to hear your views and what you would do overall as you start out from 55. Always good to have opinions as sure these all differ slightly.
    Last edited by GSP; 08-06-2017 at 11:37 AM.
Page 2
    • GSP
    • By GSP 9th Jun 17, 11:22 AM
    • 138 Posts
    • 23 Thanks
    GSP
    A belated thank you for all your responses. Because he is the one to listen to, I expect my IFA to provide me with the best advice at all times. But I can appreciate with so many instruments out there, one IFA's recommendations could be quite different to another and trust is a big factor when choosing one. Only history will prove you made the right choice.

    A lot here still to digest thanks and interesting views.

    Joecrystal, its still in DB. My pension here taken now would be £15.5k. With no job prospects, taken the decision now to start my pension. The high CETV figure is past the tipping point in favour of transferring out.

    Ex-pat Scot, I'll leave the investing etc to the IFA and trust the people he deals with know what they are doing. Be interesting to compare strategies on here to how my money is invested.

    Molerat, yes topping up our pensions to receive the full amount is a priority.

    Linton, yes tax and how this affects decisions will be an ongoing discussion with the IFA I assume.

    CFrog, I intend to keep as much money in the fund rather than drawing out excess amounts to leave in a current account. I have worked out my expenses with a little buffer added in, but this can be reviewed. Until we actually go through a couple of years relying on this money we won't know where we are and can adjust accordingly.

    Again I will rely on my IFA and his investment contacts to make the choices on investing. It is good however to read all your advice and was seeking "a what would you do if starting out in my position if anyone can provide.
    Is it dangerous to have too much faith in my IFA? Once the investment decisions have been made initially I will see and understand better how it all works. But charged with ever growing knowledge on the subject won't be a bad thing as we go on where I can question the decision making.

    Are there bad IFA's in that the fund managers they deal with are more carefree with clients money than others? Is it a luck of the draw who you choose? Can it be like going into a shop and receiving two different types of service and depends who you speak to? As you are usually dealing with just one IFA, how do you know what service and return you are getting if you can't really compare it against another.
    • bigadaj
    • By bigadaj 9th Jun 17, 11:54 AM
    • 10,281 Posts
    • 6,595 Thanks
    bigadaj
    One question I can't see answered is charges, what is he charging initial and ongoing?

    Teh difficulty you have in terms of working out whether he suggests is suitable as he wont tell you before he gets his fee as the risk is you might then use that within paying him.

    All you can do is find a good ifa who you seem to get on with, check whether their fees are reasonable and get them to justify the reasoning behind the investments they propose.

    One big thing in drawdown is the ability to be flexible, so if you have a bad investment year and can draw less this reduces the risk very much going forward as you are eating into capital less. There might also be the opprotunity to draw slightly more in the good years of course.
    • bostonerimus
    • By bostonerimus 9th Jun 17, 12:18 PM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    If you have a 60/40 asset allocation, and plan a 30 year retirement, then you can probably safely withdraw 3.5% of your pension pot in the first year and increase that amount by inflation each year. The chances of you depleting the pot are very low and you might end up with money to pass on to heirs.

    So you should plan on withdrawing 3.5% * 800k = 28k. Of course if you pay an IFA annually and have other investment charges the amount will be less. So how much are you paying the IFA and in fund.platform charges? You could easily lose 50% of your income to these expenses.
    Misanthrope in search of similar for mutual loathing
    • GSP
    • By GSP 9th Jun 17, 1:51 PM
    • 138 Posts
    • 23 Thanks
    GSP
    The total charges are 1.75% p.a.
    0.5 for the IFA for ongoing advice.
    0.85 fund manager.
    0.4 (believe that's for the "platform").

    Believe reputable poster dunstonh suggests this is around the going rate in another thread a while back.
    When these fees come off, assume this means the growth, if possible needs to be between 5-6%.
    • bigadaj
    • By bigadaj 9th Jun 17, 2:10 PM
    • 10,281 Posts
    • 6,595 Thanks
    bigadaj
    The total charges are 1.75% p.a.
    0.5 for the IFA for ongoing advice.
    0.85 fund manager.
    0.4 (believe that's for the "platform").

    Believe reputable poster dunstonh suggests this is around the going rate in another thread a while back.
    When these fees come off, assume this means the growth, if possible needs to be between 5-6%.
    Originally posted by GSP
    Ok, charges aren't silly, my only gripe would be that percentage is fine for smaller sums, you are looking at a large investment so the sums he's getting paid start to look a bit high.

    Is there an initial charge, as he would be getting paid £4K a year by you for a review that shouldn't take more than a few hours.

    0.85 is right for active funds, id be looking to sue a mixture of active and passive if I were in your shoes, so think that figure might be 0.5% ish, again for the sums you are investing then every 0.1% is £800 per year which isn't insignificant.
    • Linton
    • By Linton 9th Jun 17, 2:22 PM
    • 8,320 Posts
    • 8,217 Thanks
    Linton
    The total charges are 1.75% p.a.
    0.5 for the IFA for ongoing advice.
    0.85 fund manager.
    0.4 (believe that's for the "platform").

    Believe reputable poster dunstonh suggests this is around the going rate in another thread a while back.
    When these fees come off, assume this means the growth, if possible needs to be between 5-6%.
    Originally posted by GSP
    Fund manager charges are included in published fund growth figures, they arent an added extra.
    • michaels
    • By michaels 9th Jun 17, 2:33 PM
    • 19,444 Posts
    • 88,928 Thanks
    michaels
    You dont seem to have used cfiresim which carries out a large number of simulations based on starting retirement on different dateswhere the return and inflation are based on actual values over the past 140 years.

    When I run it I get a success rate in terms of not running out of money of 75% for taking 36K, inflation adjusted from an 800K pot for 40 years. 75% seems a bit low to me since you dont get a second chance. 28K shows a 98% success rate.

    It's not clear to me exactly what we are talking about on this thread. Is it as the title suggests a safe drawdown from 800K or is it what annual expenditure/gross income the OP could reasonably live on including SP, inheritances etc. I am assuming the former.
    Originally posted by Linton
    Do these numbers include state pension?
    Cool heads and compromise
    • bostonerimus
    • By bostonerimus 9th Jun 17, 5:54 PM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    The total charges are 1.75% p.a.
    0.5 for the IFA for ongoing advice.
    0.85 fund manager.
    0.4 (believe that's for the "platform").

    Believe reputable poster dunstonh suggests this is around the going rate in another thread a while back.
    When these fees come off, assume this means the growth, if possible needs to be between 5-6%.
    Originally posted by GSP
    The safe withdrawal rate of around 3.5% does not include fees. You will have to pay any financial fees out of that amount. So with 1.75% fees your safe withdrawal income just went down to 1.75% * 800k = 14k.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 9th Jun 17, 5:59 PM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    Fund manager charges are included in published fund growth figures, they arent an added extra.
    Originally posted by Linton
    But the Trinity Study does not include any fund/manger fees so you take them straight off the top of the safe withdrawal rate.
    Misanthrope in search of similar for mutual loathing
    • westv
    • By westv 9th Jun 17, 6:42 PM
    • 4,311 Posts
    • 1,882 Thanks
    westv
    But the Trinity Study does not include any fund/manger fees so you take them straight off the top of the safe withdrawal rate.
    Originally posted by bostonerimus
    Neither does it include any allowance for state pension or any flexibility in withdrawals during poor markets.
    • bostonerimus
    • By bostonerimus 9th Jun 17, 7:26 PM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    Neither does it include any allowance for state pension or any flexibility in withdrawals during poor markets.
    Originally posted by westv
    DB and state pensions are not relevant and the withdrawal rate is index linked. The safe withdrawal rate is usually calculated on a 95% probability of the portfolio lasting for a period such as 30 years. You can always tweak the withdrawal downwards if you want
    Last edited by bostonerimus; 10-06-2017 at 2:37 AM.
    Misanthrope in search of similar for mutual loathing
    • michaels
    • By michaels 9th Jun 17, 8:31 PM
    • 19,444 Posts
    • 88,928 Thanks
    michaels
    True...DB and state pensions are not relevant and the withdrawal rate is constant. However, the safe withdrawal rate is usually calculated on a 95% probability of the portfolio lasting for a period such as 30 years. You can always tweak the withdrawal downwards if you want
    Originally posted by bostonerimus
    Or just use cfiresim which lets you include state pension starting later etc.
    Cool heads and compromise
    • GSP
    • By GSP 9th Jun 17, 10:29 PM
    • 138 Posts
    • 23 Thanks
    GSP
    Bigadaj, there is no starting fee, "just" his 0.5% for advice etc.

    I suppose I could move to another IFA later on ("shop around") if I feel I am being fleeced. Is it easy to move to another IFA anyone?
    • bostonerimus
    • By bostonerimus 10th Jun 17, 2:39 AM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    Bigadaj, there is no starting fee, "just" his 0.5% for advice etc.

    I suppose I could move to another IFA later on ("shop around") if I feel I am being fleeced. Is it easy to move to another IFA anyone?
    Originally posted by GSP
    Right now you are spending fully half of your drawdown income on fees. Personally I would ditch the IFA asap, go DIY and look to reduce fund and platform fees as much as possible.
    Misanthrope in search of similar for mutual loathing
    • GSP
    • By GSP 10th Jun 17, 4:34 AM
    • 138 Posts
    • 23 Thanks
    GSP
    Say if I have not got the experience and the the nous to DIY?
    Suspect it would turn out very much more expensive making the wrong choices.
    In time my knowledge and capability may grow as I learn more. But for now, I would not have a clue how to invest.
    Can see though if you are confident and comfortable in your abilities, then DIY is the way to go to save money.
    • bigadaj
    • By bigadaj 10th Jun 17, 9:42 AM
    • 10,281 Posts
    • 6,595 Thanks
    bigadaj
    Personally I'd haggle with the ifa if I felt comfortable with him in your shoes.

    £4000 is a lot, though dressed up as 0.5% because that looks like not a lot, I'd settle for maybe £2500 as his fee, if he says there's work in setting it up and wants comfort you'll stay with him then maybe agree that you'll continue with him for two or maybe three years which will cover his initial work.

    Platform fee is what it is I guess, little point in trying to haggle that when there probably hundreds of millions on the platform. 0.4% is high for large amounts though, the diy fixed fee providers would work out at well under 0.1% even with some trading and dealing costs for rebalancing.

    I'd also want some assurance from him that his asset allocation would be hybrid, which I think is probably the best compromise between active and passive. If he does that and uses us trackers and a couple of other areas then the fund management fees are likely to to drop to 0.5% or less, which is quite a saving in a portfolio of that size.

    That would leave your fees at close to 1% rather than closer to 2%, leaving another £4K or more in your pocket. In that scenario you'd still be paying out a total of maybe £10k a year, but it's something you could look to take over in a few years after doing some research. Total day costs on a similar basis could be £5k or less on a similar basis, so a significant saving.
    • GSP
    • By GSP 10th Jun 17, 12:31 PM
    • 138 Posts
    • 23 Thanks
    GSP
    Thank you for your thoughts.

    When you do put my fees alongside what I "may expect" to receive in fund growth, it does seem there will be little chance of growing (forget each year in isolation, looking more over a period).

    If he is around, be interesting to hear from dunstonh who accepts that total fees around 1.7% are about right, and his view on growth these charges will eat into. Apart from trying to get fees down later on, is there anything else to offset and provide some growth in the fund.
    • maximumgardener
    • By maximumgardener 10th Jun 17, 12:50 PM
    • 254 Posts
    • 105 Thanks
    maximumgardener
    for what its worth ...your whole approach seems quite simplistic

    your IFA should look at "everything" with you. Of course you don't seem to have selected who you will work with anyway. there is lots to consider. here are are a few for starters

    - you should have some cash (1 -3 years of income)
    - you should both have some tax free investments . Maximise S&S ISA potential
    - you should fully appraise your risk tolerance.
    - you should appreciate that 55 is young to fully retire?
    - you should be prepared to stomach a 20-50% drop in your fund at some point?
    - you may wish to consider continuing to pay into investments
    - have you fully addressed your income needs for your household
    • bostonerimus
    • By bostonerimus 10th Jun 17, 1:33 PM
    • 959 Posts
    • 493 Thanks
    bostonerimus
    Say if I have not got the experience and the the nous to DIY?
    Suspect it would turn out very much more expensive making the wrong choices.
    In time my knowledge and capability may grow as I learn more. But for now, I would not have a clue how to invest.
    Can see though if you are confident and comfortable in your abilities, then DIY is the way to go to save money.
    Originally posted by GSP
    A little reading and you can learn what you need. I would bet that your returns will be similar to using an IFA and you'll save 1.5% so you'll be way ahead after fees. DIY and you could double your income, don't spend half of you income before you even begin.

    FYI I invest a considerably larger portfolio than you in the US and my total fees are 0.1%. I have it set up as a simple "3 fund lazy portfolio" with around 50% US stocks, 20%, International stocks and 30% US bonds. You might want a couple more funds and obviously the weighting would change for the UK, but this is not rocket science. My portfolio produces around 2% to 3% in dividends and then capital gains can be taken for some extra income. Here is a little wiki about "lazy/passive" investing in the UK. The sample portfolios are a little conservative for me, but it's a starting point.

    https://www.bogleheads.org/wiki/UK_investing
    Last edited by bostonerimus; 10-06-2017 at 1:43 PM.
    Misanthrope in search of similar for mutual loathing
    • GSP
    • By GSP 10th Jun 17, 2:01 PM
    • 138 Posts
    • 23 Thanks
    GSP
    Thanks Bostonerimis,
    Already you have lost me with the spread of money and I have a lot to learn, so at this stage would not invest DIY.
    I will take a look at that link thanks.
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