Does a Pension run out ?

hyubh

princeofpounds wrote: »

Leaving aside the right and wrongs of that specific number, you will realise that whilst the pot can shrink in years when investment returns are poor, you will never hit zero.

Well yes, but by the same reasoning you can hit 1p, which some might argue is practically the same thing... (Would it be OK for me to spend 99% of my monthly salary on very expensive coffee, because at that rate, there will always be something left to spend on other things...?)

bigadaj

hyubh wrote: »

Well yes, but by the same reasoning you can hit 1p, which some might argue is practically the same thing... (Would it be OK for me to spend 99% of my monthly salary on very expensive coffee, because at that rate, there will always be something left to spend on other things...?)

Your comment is a little unfair given the conservative suggestions by that poster.

The problem here which is quite rightly pointed out is that the risk is being born by others in a db scheme. In many cases that risk is being transferred from one generation to the next, or even the next one after that , and with increased longevity that becomes a real issue.

The fundamental issue is that the overly generous promises were made by people who are no longer around, largely a natural consequence of our political system, who wouldn't want free money even if it was patently obvious that this approach were unsustainable.

jamesd

princeofpounds wrote: »

An often-used rule of thumb is that in drawdown you can consume up to 4% of your pot every year. ... you will realise that whilst the pot can shrink in years when investment returns are poor, you will never hit zero. Because if your pot shrinks your 4% the following year is of a lower number.

It's perhaps worth noting that the 4% rule is 4% of the initial capital, increasing with inflation each year. It's not a number that changes based on variations in pot size.

The key rules to improve on the 4% are the Guyton or Guyton and Klinger safeguards that would allow a 6.5% withdrawing rate with nearly 90% success rate when used with a one year cash buffer in combination with their work. The two additional safety rules are:

1. "there is no increase in withdrawals following a year in which the portfolio’s total investment return is negative, and there is no make-up for a missed increase in any subsequent year"
2. "the maximum inflationary increase in any given year is 6 percent, and there is no make-up for a capped inflation adjustment in any subsequent year"

Both of those rules implement income cuts in adverse investment return circumstances.

One year of planned investment income in savings so that it is not necessary to sell during a market downturn, like the other rules this has been shown to increase success rate or acceptable income level.

Much more controversial would be the use of equity release mortgages that allow borrowing and paying back to increase success rate or income levels. As with the others, this reduces the need to sell but during even more prolonged downturns, while adding the option of near to end of life withdrawing without the intention to repay.

Dird

Even if you use up all your "pot" aren't you always guaranteed money from the government like JSE?

xylophone

Even if you use up all your "pot" aren't you always guaranteed money from the government like JSE?

http://www.ftadviser.com/2015/03/27/pensions/personal-pensions/dwp-clarifies-spent-pension-state-fallback-rules-Qx80WCWKt7tBTgQCBlVfGP/article.html

jamesd

That doesn't apply to running out, though. It's mainly for those already on benefits or starting them at retirement. Drawing on money at a sensible rate and not claiming then running out rather than blowing the money is a different situation.

FatherAbraham

Dird wrote: »

Even if you use up all your "pot" aren't you always guaranteed money from the government like JSE?

There's always the Workhouse.

Warmest regards,
FA

mark55man

FatherAbraham wrote: »

There's always the Workhouse.

Warmest regards,
FA

I think I am already there