Safe Withdrawal Rates

jamesd

My pleasure, as you can see there are plenty of choices.

One reason I favour the Guyton and Klinger rules is that they don't cap the upside and the upside - average or better investment returns - is more likely than the worst case result. The Bengen one is compared to this in more detail here, observe that Guyton and Klinger has both higher upside and lower downside. You're also allowed to split the pot and use different rules for each part.

As Michael Kitces observed in the video interview I linked to (the first one starting at 07:50) this isn't a once in a lifetime decision. If investments do well you're allowed to switch or increase initial income to reflect that improved position.

gterr

Good point about splitting the pot and using two different strategies. I'd only ever thought of this in terms of buying an annuity with part of the pot to ensure a baseline income, but using two different drawdown strategies would be superior to this, I think.


I like the Bergen Floor-to-Ceiling if I'm honest because it's so easy to compute the yearly spending, and the annual income does not fluctuate all that much.


This is really important stuff for us, since our retirement resources are limited. I think we'll be fine if we are sensible and do our sums.


Thanks once again for your contributions.

jamesd

Yes two drawdown strategies should do better and better still if accompanied by state pension deferral to provide a core of good value for money inflation-protected income. That's in part because deferral provides assured income at lower cost than an annuity but with higher return on investment than historic UK stock market returns, at least near to state pension age.

okydoky

http://www.telegraph.co.uk/money/

Glad I don't live in Japan!!

coyrls

okydoky wrote: »

http://www.telegraph.co.uk/money/

Glad I don't live in Japan!!

The full report is here: http://media.morningstar.com/uk%5CMEDIA%5CResearch_paper%5CUK_Safe_Withdrawal_Rates_ForRetirees.pdf

kidmugsy

IHT: the 0% owner-occupied band x 2 will shortly cover all your house as long as it's left to direct descendants (interpreted to include adopted children, foster children, step children, and people for whom you have acted as Guardian), and the £325k x 2 will cover your financial assets. Any pension pot unused by the two of you can also be left free of IHT outside your estate. Your main risk of IHT will presumably come from changes in the law, or from continued accumulation of capital.

aldershot

okydoky wrote: »

http://www.telegraph.co.uk/money/

Glad I don't live in Japan!!

I have been pointing this out a number of times on this forum. 4% in the current environment of financial repression is probably too high and an assumption based on favourable conditions from the past that probably don't apply today.

TheTracker

I've long modelled 2.75% inclusive of 0.25% fees, leaving 2.5% for myself

I think in many walks of life and profession people make mistakes of snowballing risk/opportunity numbers. You have to be careful not to add caution/contingency to all of your anticipated income, contributions, return, withdrawal, life expectancy as they multiply up. Model everything with realistic expectations, and then add some contingency to the result.

For me that means a lowish SWR. For others, they may model a 4% SWR, but have made a bunch of conservative estimates along the way to result in the sum the 4% applies to, such as no salary increases. But once you approach retirement, where there is no income or contribution, and you might have a better understanding of your life expectancy, and there is less time for smoothed returns, I'd be looking with great skepticism about maintaining a 4% SWR in modelling. That's one of the reasons I just model it conservatively at the outset, less need to debate with myself later in life to reduce it.

Triumph13

I think there is a huge psychological dimension to withdrawal rates above and beyond the statistics. You need to come up with something that meets your personal aims and lets you sleep at night - and I've looked at an awful lot of different models before finding one that suits.
For me that involves a solid floor (big percentage in cash until small DB and state schemes kick in to cover core spending) and a second pot for long term income. For that pot I'm working on a 3.6% fixed percentage. I'll smooth this through a one year cash fund so each month I'll sell 0.3% of the funds (leaning strongly towards VLS80 for this) with proceeds to the cash fund then pay myself 1/12 of the cash. I'm lucky enough that money shouldn't be too tight anyway and eliminating sequence of returns risk is much more important to me than maximising income as I hate stress and enjoy frugality.
Others have completely different personalities and need different models.

okydoky

Triumph13 wrote: »

I think there is a huge psychological dimension to withdrawal rates above and beyond the statistics. You need to come up with something that meets your personal aims and lets you sleep at night - and I've looked at an awful lot of different models before finding one that suits.
For me that involves a solid floor (big percentage in cash until small DB and state schemes kick in to cover core spending) and a second pot for long term income. For that pot I'm working on a 3.6% fixed percentage. I'll smooth this through a one year cash fund so each month I'll sell 0.3% of the funds (leaning strongly towards VLS80 for this) with proceeds to the cash fund then pay myself 1/12 of the cash. I'm lucky enough that money shouldn't be too tight anyway and eliminating sequence of returns risk is much more important to me than maximising income as I hate stress and enjoy frugality.
Others have completely different personalities and need different models.

I really could not agree with you more, that is why if you are a DIY type investor, you really need to be clued up to the max., and totally understand the risks involved with any particular strategy.

At least if you can develop a deep understanding of what you are trying to achieve, as well as the available options, you can keep fine tuning as your personal circumstances change.

If you can't do it yourself, then a good IFA is worth their weight in gold😏