Early-retirement wannabe

jamesd

Why not retire now? Using the Guyton-Klinger rules the UK safe withdrawal rate is 5.5% so you have enough personal pension money for £38.5k a year plus DB and state pensions. You could increase the mortgage and/or use cheap credit card deals to manage until 55.

I agree with the IFA: you're going to find it hard to avoid the lifetime allowance charge if you continue. As it is you're also going to have to withdraw money rapidly from the pension to avoid paying higher rate tax once DB and state pensions are in payment.

My father died of a heart attack at 45... I'm already older, though my heart and circulation are average so I should live quite a bit longer.

NotSkint

The following article and parts following seem to imply that Guyton Klinger drawdown rules have no free lunch and that although the percentage withdrawal rates can be higher the overall pot size later will be lower and therefore your later income will be less

https://earlyretirementnow.com/2017/02/08/the-ultimate-guide-to-safe-withdrawal-rates-part-9-guyton-klinger/

I haven't quite got my head round it all (yet) but After reading all parts I am less clear on a strategy for drawdown than I started with.

Terron

MallyGirl wrote: »

I am obviously a mere whippersnapper in present company - my first job was with Research Machines and I remember being gobsmacked by the new RM Nimbus which had 4 colours as compared to the BBC B which was just green and black. I also had no idea what to do with a mouse (Windows 1) and had to be shown

My second system was a BBC B and it could manage 8 colours. Maybe you were using a monochrome monitor.

blisteringblue

jamesd wrote: »

Why not retire now? Using the Guyton-Klinger rules the UK safe withdrawal rate is 5.5% so you have enough personal pension money for £38.5k a year plus DB and state pensions. You could increase the mortgage and/or use cheap credit card deals to manage until 55.

Pretty much what a friend who has done similar said too. Without the mortgage I said to my IFA that my number is about 2k Net a month too so more than comfortable now.

I'm happy to see out the last 5 years and get everything straight for now, but it does certainly give me food for thought.

My plan has been 55 since the mid 90s so I'm bang on track.

jamesd wrote: »

I agree with the IFA: you're going to find it hard to avoid the lifetime allowance charge if you continue. As it is you're also going to have to withdraw money rapidly from the pension to avoid paying higher rate tax once DB and state pensions are in payment.

I know we discussed this last year when sorting the transfers and I'm sure it will come up in the review this year.

It's a tough trade though, 40% tax now as salary, or continue with a little extra salary sacrifice to reduce my tax but try and hit close to LTA around my 55th birthday.

jamesd

NotSkint wrote: »

The following article and parts following seem to imply that Guyton Klinger ... although the percentage withdrawal rates can be higher the overall pot size later will be lower

That's because they didn't really use the Guyton-Klinger rules and one of the things they decided was useless and didn't use improves the values later in retirement. Here's more that they got wrong.

You can't trust the analysis at that site, they make their own changes but still label them as the original version.

Greta_Sharbo

Wonderful thread. Have read it all in the past 4 weeks or so. Phew.

Some great stories and wonderful advice so big thanks to the contributors.

Ive saved a few dozen links as I’ve gone along so lots of reading to do!

tony4147

jamesd,
Excuse my ignorance, am I correct in that what people normally think is a safe withdrawel rate for DD as 4% they should be thinking in terms of 5.5%?

madeinireland_2

I have read a book my Michael McClung called “living off you money” which covered the subject really well. He would argue the amount you can safely drawdown would vary depending on many factors but at a vary basic level and looking at the performance of stocks since data was recorded you would get away with 4% so that would be a fairly crude method but would pretty much work.

ex-pat_scot

madeinireland wrote: »

I have read a book my Michael McClung called “living off you money” which covered the subject really well. He would argue the amount you can safely drawdown would vary depending on many factors but at a vary basic level and looking at the performance of stocks since data was recorded you would get away with 4% so that would be a fairly crude method but would pretty much work.

That's the basic premise of "safe withdrawal rate".
There's a comprehensive thread, and lots of online resources.


Simply put, there is a sustainable rate of withdrawal from your assets, which will result in being able to maintain your capital.
The actual rate varies depending on a number of factors including:
- asset class
- currency / territory
- timescale


There is plenty of asset return data stretching back over 100 years and more, and concentrating on US and UK markets (but available apparently for others).


My take-away from that data is:
1. the long run real rate of return (ie net of inflation) is 5% for an equity portfolio, after taking account of average 3% inflation.
2. the level of withdrawal that would result in maintenance of capital after a 30 year timeframe, clearly depends on the actual returns each year (and the sequence of those returns).
3. for the UK market, and using the last 120+ years, if you had a 60:40 equities: bonds portfolio then withdrawing 3.5% annually would result in success (ie capital maintenance) in 95% of cases
4. for the US market, the figure is 4%
5. these figures are before costs -both custodian/platform, fund, tax, stamp duty, investment manager.


6. there are online modelling tools that look at the asset mix, timeframe, and give a probability of success. Clearly the lower the withdrawal rate, the greater the probability of success.


So what does this mean in practice?
Well - in my opinion if you have a 30+ year horizon, then the long term performance of equities portfolio makes sense, even with the greater volatility of returns.
My portfolio is a world tracker, to get the whole-of-market diversification and hedging on currency movements.
I figure if the long run mean of 5% equities return and 95% success of 4% return, then somewhere between 4% and 5% is a good starting point.
A lot also depends on flexibility. If you HAVE to have 4% each year, then that gives little room for error. If you can take a flexible approach, adjusting withdrawals for low or high phases of returns, then you can generally get a much better long run income.


There's lots of stuff on various methods: Guyton Klinger, cFireSim etc.


Remember also income tax. If you decide on a 4% withdrawal rate with a £1m pot (for simplicity), then that gives a £40,000 gross annual income. But, as you have your 25% tax free allowance, then you would get £36,000 net. That's £3,000 per month.
In pra

jamesd

tony4147 wrote: »

Excuse my ignorance, am I correct in that what people normally think is a safe withdrawel rate for DD as 4% they should be thinking in terms of 5.5%?

Yes, provided:

1. the retirement plan is for 40 years, which was used for the 5.5% calculation. It's higher for shorter plans, lower for longer
2. UK investments only are used - don't do this
3. you really do follow the Guyton-Klinger rules
4. you deduct from the 5.5% 30% of charges, so if platform and fund charges total 1%, reduce by 0.3% to 5.2% for you

You should also use Guyton's sequence of return risk reduction method.