Early-retirement wannabe

gadgetmind

Taking out enough to max out BR tax is a no brainer, but I guess you have that figured. Anything in excess of your needs can be lobbed into S&S ISAs, or just switch from business class to first class for a while.:D

I max consider flexible myself but a fair bit of my pot would be eaten buying that £20kpa annuity as I have no DB pension.

jimi_man

gadgetmind wrote: »

Assuming that 15yr gilt yields get back up to 3%, that would allow a drawdown of 4.8% * 120% = 5.76% pa.

So, £56k pa before tax, but you can also take the 25% tax free and generate fairly efficient income from that and also use it at a higher rate to bridge until state pension age.

If 15yr gilt yields recovery to close to long term average, then you could be drawing down 7%-8% pa, but this isn't sustainable over 3-4 decades.

Ok, I understand that. So that first figure you gave, how long would that last? And does the 4.8% drawdown take account of inflation or would that deplete your pot further?

gadgetmind

jimi_man wrote: »

Ok, I understand that. So that first figure you gave, how long would that last? And does the 4.8% drawdown take account of inflation or would that deplete your pot further?

The rule of thumb is that 4% (index linked) can be maintained for 30+ years at very low risk of depletion. For more information on this play with firecalc (google it) or buy a copy of something like "Smarter Investing".

As you go over 4%, you start to increase the risk of depletion, but the drawdown rules recalculate the drawdown every three years.

If you want some numbers, I ran portfolios in firecalc and 4% has been successful over all 30 year periods since 1871, and 5.3% for about 50% of periods.

More interesting is that firecalc lets you model for state pension arriving and for my case this allows a 5.3% drawdown with a 100% success rate as I can lower the drawdown when state pension arrives.

I'll try and find time tomorrow to model a 5.3% drawdown from a cash portfolio ...

Hmmm, does that answer your questions?

atush

However, I do like the idea of dying with my last tenner on the bedside table!

That won't leave much on the table for your wake lol.

jimi_man

Yes it does, thanks. You don't have to go to the trouble of doing that. I know little about drawdown/annuities etc, so I'm trying to pick up some knowledge.

Thanks again.

jamesd

The main UK stock market has had an average return of about 5.2% plus inflation over the last hundred plus years. It's paying around 3.5% and you'd want to use bonds and a different mixture of companies, as well as non-UK investments, so you wouldn't necessarily expect to be able to take 5.2% with no capital value reduction. But drawdown should include some gradual capital value decrease, just not a very rapid one with no replacement from investment income and growth.

ermine

The main UK stock market has had an average return of about 5.2% plus inflation over the last hundred plus years

Is the FTSE all-share a reasonable match or is it the FTSE100? It's hard to yet one's head around the concept of 100 years of 'the main UK stock market' as it must have changed stupendously over that period. And would the 5.2% real be a capitalisation weighted index or a straight £10 of GSK and £10 of some lowly 200-man band?

I ask because it certainly wasn't my experience of a FTAS index ISA over the 2002-2007 period It was my experience in my AVC fund 2009 to 2012 with a 50:50 FTSE100:Global fund but then that was a rather unusual time, not only did I start when it was touch and go whether there would be a financial system but then the government went and devalued the currency by 20%-odd in the period, which presumably made at least the Global stuff increase by the same amount.

So there must have been some serious extended periods of racy performance that aren't within my investment experience to up the average to 5.2% real. Hope they'll show up again some time in the next couple of decades, but not in the next five years as I'm still building my ISA

gadgetmind

ermine wrote: »

Is the FTSE all-share a reasonable match or is it the FTSE100?

The FTSE 100 is a fairly new invention that's only been around since 1984. Before that we had the FT30, but even that's only from 1935.

And yes, there are long bull and bear periods that make returns over any period of less than 1-2 decades rather lumpy.

cyclonebri1

peterg1965 wrote: »

I would want to be slowly depleting my drawdown pot over a long period of time. I would be happy to spend more as sprightly 55 year old and have slightly less as 75 year old. State pension will assist in making up some of the shortfall and I would aim to have as close to zero at the point of my demise! (Hopefully in my 80's or 90's!)

This is the issue gagetmind simply cannot factor in to his theoretical ideal retirement plan, you think as I do, my best days are past, I now need to enjoy the next period in comfort. I can live on much less later. But I won't need too.

I'm not as stupid as you may think GM, nor am I a "lotus eater" thank you very much. But having been through the mill I do have a grasp an the frailties and imponderables of life. I also understand that the aim in my life is not to amass as great an amount of dosh as possible and then sit on it

Only a blinkered person would ignore the fact that they can, and some will, be dead tomorrow.

As peterg said, "the idea is to reach your last day, with not a penny left, having drunk the last of the wine and with every major organ about to shut down".

Ok, it's not my view entirely, a friend used to drop this in occasionally in conversation, but we all agreed with at least the sentiment.

Gadgetmind, I can't fault your advice in monetary terms, in an ideal world where every one gets a fair share of the pot and has a guaranteed job until they decide to call it a day, yes it's a sound plan.

But we live in the real world, and recently expectations of wealth have floundered, jobs have gone, wages are pinned or reduced and many of those in work sit on a knifes edge.
Factor in the sick, accidents, and failing health in old age and you may start to grasp the reason I feel it necessary to oppose your views.

Please don't call me a lotus eater again.

gadgetmind

cyclonebri1 wrote: »

Gadgetmind, I can't fault your advice in monetary terms

Thanks. When it comes to determining how to use financial assets to generate much-needed retirement income, I find those are by far the best terms to use.

Factor in the sick, accidents, and failing health in old age and you may start to grasp the reason I feel it necessary to oppose your views.

I'm happy to factor in all that you have listed but completely fail to understand why anyone might adopt a financial plan that has a high certainty of not generating income over the period during which it's required.

However, each to their own.