What's a reasonable annual 'draw-down' from a pension pot

_pete_

Can anyone tell me what a sensible annual %age figure one can take from one's pension pot after retirement. I appreciate that this might be a 'how long is a piece of string?' type of question, but I'm wondering if there is a standard working assumption.

For example, if I plan to retire at 60, and my total pension fund at retirement is £300k, which I leave invested and expect a growth rate (net of inflation) of 2%, how much could I take from the pot each year to live on?

Just to reiterate, I'm looking for a 'standard' figure. I have a feeling it might be 2.5%, but I'm not sure where I've heard that.....

Linton

_pete_ wrote: »

Can anyone tell me what a sensible annual %age figure one can take from one's pension pot after retirement. I appreciate that this might be a 'how long is a piece of string?' type of question, but I'm wondering if there is a standard working assumption.

For example, if I plan to retire at 60, and my total pension fund at retirement is £300k, which I leave invested and expect a growth rate (net of inflation) of 2%, how much could I take from the pot each year to live on?

Just to reiterate, I'm looking for a 'standard' figure. I have a feeling it might be 2.5%, but I'm not sure where I've heard that.....

Assuming your portfolio is broadly invested in equities 3.5% seems a good starting point. You can improve on this by varying your drawdown depending on market conditions - take less when prices are down. Have a look at firecalc. It's US based but the general principles apply.

BLB53

Can anyone tell me what a sensible annual %age figure one can take from one's pension pot after retirement.

The figure I always see is 4% which represents the average growth including income from a balanced equity/bond portfolio.

Therefore with a pot of £300K you could be looking to withdraw ~ £12K per year and you should be able to continue long term without depleting the pot.

Of course the 4% is an average and there will be years when the returns are negative so it may be adviseable to have some form of cash buffer.

_pete_

Thank you for the replies. My portfolio is roughly 60/40 equities/bonds. Presumably it's OK to run down the capital over time as I don't expect to live forever and have no wife/dependents?

Linton

_pete_ wrote: »

Thank you for the replies. My portfolio is roughly 60/40 equities/bonds. Presumably it's OK to run down the capital over time as I don't expect to live forever and have no wife/dependents?

mmm - its ok if you know when you are going to die. Assuming you get there do you start running down at 70? 80? 90? Once you start living off capital the return drops and the rate of capital depletion increases.. I think its safest not to plan to run down the capital - perhaps you will need it to go into the best care home your money can buy.

_pete_

Linton wrote: »

mmm - its ok if you know when you are going to die. Assuming you get there do you start running down at 70? 80? 90? Once you start living off capital the return drops and the rate of capital depletion increases.. I think its safest not to plan to run down the capital - perhaps you will need it to go into the best care home your money can buy.

Thank you - that's a helpful perspective (particularly the bit about needing a decent care home which I can imagine would be very expensive).

I'm just a bit 'meh' about dying with a mortgage-free property and £300k of investments all intact.

AnotherJoe

_pete_ wrote: »

Thank you for the replies. My portfolio is roughly 60/40 equities/bonds. Presumably it's OK to run down the capital over time as I don't expect to live forever and have no wife/dependents?

Of course. Plus, in general if you exclude the nuclear option of care home fees, what will you do with it in later life, better to focus on spending earlier rather than later? You might think that expenditure will start to decrease at some point, let's say age 80 as an arbitrary age so you could (say) take out 6% at 65-75, 5% at 75-80, and 3-4% 80+.
And there also comes a point when it's worthwhile buying an annuity. If you get to say 80 you might find an annuity is a better bet than drawdown.
Worth some simple spreadsheet work to look at the options, assume for example 3.5% growth on average and then play with different drawdown rates at different ages.

One option to consider is arranging your investments so there is (say) a 3 or so year buffer of cash. That way you withdraw from funds into cash when you've had a good year investment wise, and from cash when you've had a bad year. This is to avoid withdrawing from funds when the market is down, because it's then that much harder to recover when the market recovers.

torbrex

_pete_ wrote: »

Thank you for the replies. My portfolio is roughly 60/40 equities/bonds. Presumably it's OK to run down the capital over time as I don't expect to live forever and have no wife/dependents?

I was in a similar position when I retired from full-time work last year albeit with a much smaller pot to work with.
I took the view that I would rather leave nothing in my estate than have to keep on scrimping and saving every penny.
I divided my pot by the number of years that I think I might survive and that is my annual income, if the pot fails to make enough to keep the capital intact then I am really not that worried.

My OAP will kick in when I am 67 and I have a couple of investments that I can liquidate if need be before that.

Linton

_pete_ wrote: »

.....

I'm just a bit 'meh' about dying with a mortgage-free property and £300k of investments all intact.

I have the same problem with a mortgage free property. My cunning plan is to trade up using a lifetime mortgage. Its no concern to me if the mortgage company takes the house when I leave especially as I get to spend my last days living in a house (or a location) that couldnt otherwise be afforded.

dunstonh

Presumably it's OK to run down the capital over time as I don't expect to live forever and have no wife/dependents?

Sounds like an annuity may be the better option here.

AnotherJoe

dunstonh wrote: »

Sounds like an annuity may be the better option here.

Dont you think drawdown for a time and then an annuity once past a certain age would be better? Annuity rates aged around 60 are rubbish once you include inflation (whilst ISTM that drawdown inherently caters for inflation)