How long will your savings last?

atush

justwantedtosay wrote: »

Nobody's making you read this thread. Go and be rude to someone else and prove what a man you are.

Interesting to see you have the lowest Thanks to Posts ratio here. Says a lot, doesn't it!

Well yours is looking better as you now have 2 fewer posts?

Malthusian

jamesd

AnotherJoe wrote: »

I thought 4% was the RoT for retaining the full initial capital amount ?

Nope, it's assuming the worst case historic returns and spending all of the money according to Bill Bengen's 1994 paper.

As Wade Pfau wrote, "Kitces and Bengen have both described, as a statement of confidence in safe withdrawal rates, that in 96% of the U.S. historical simulations, the value of assets remaining after thirty years will be higher than the retirement date amount (although this is not adjusted for inflation)". So knowing that the safe withdrawal rate is looking a worst case not normal matters: you probably will be able to increase spending during retirement.

But it's also rounding down from the real number to 4% and ignoring the fact that Bengen didn't include small cap stocks until a couple of years later and now himself talks of a 4.5% rate, not 4%. Assumption is also a 30 year retirement and US investment returns with mixed bond and equities portfolio.

Typically people just fixated on the initial rounded down 4% and ignore both the subsequent change and the improvements to spending models since 1994.

Beyond Bengen there are now better drawdown rules so something more like 6-6.5% with the same objectives would be OK:

1. The Guyton and Klinger rules
2. Guyton's method of greatly reducing the effect of sequence of returns risk
3. The improvement from holding a year in cash savings.
4. The improvement from having an equity release product in place that allows arbitrary drawing and repaying.
5. Blanchett's Estimating the True Cost of Retirement that shows spending declines until age 75, in the US at least.

Cfiresim can't do a lot of that but it can do the basic Guyton and Klinger rules and also minimum and maximum income ranges, as i used in this example.

jamesd

Please_explain... wrote: »

So, after that too long preamble, my revelation was that, in the example above, you really could take £20,000 pa in real terms for exactly 30 years before the money ran out.

That's not a particularly bad assumption, though in practice you'll probably do better than just matching inflation, with the long term UK stock market average being a bit over inflation plus 5%.

That or 4-6% is typically the assumption I use for quick work on short term plans, like a few years until state pension age, or for first approximations, because it's both convenient and very conservative.

gadgetmind

jamesd wrote: »

1. The Guyton and Klinger rules
2. Guyton's method of greatly reducing the effect of sequence of returns risk
3. The improvement from holding a year in cash savings.
4. The improvement from having an equity release product in place that allows arbitrary drawing and repaying.

Hmmm, research needed here on my behalf regards (1) and (2).

(3) seems easy but I'd always be nervous drawing 100% on the cash portion of my portfolio. However, as I currently hold three years of reasonably lavish spending as cash, I guess spending 1-2 years of this in extreme situations is acceptable.

(4) seems odd but perhaps I just don't understand. When do you gear up and down?

bigadaj

jamesd wrote: »

That's not a particularly bad assumption, though in practice you'll probably do better than just matching inflation, with the long term UK stock market average being a bit over inflation plus 5%.

That or 4-6% is typically the assumption I use for quick work on short term plans, like a few years until state pension age, or for first approximations, because it's both convenient and very conservative.

I wouldn't disagree with your statement James but the thread is all about having the money in cash, which has led to the debate about whether you can meet inflation from returns on cash investments.

mgdavid

bigadaj wrote: »

I wouldn't disagree with your statement James but the thread is all about having the money in cash, which has led to the debate about whether you can meet inflation from returns on cash investments.

Is it? AIUI that was a misunderstanding because the OP refuses to distinguish between Savings and Investments by using the same definitions as the rest of us.

AnotherJoe

mgdavid wrote: »

Is it? AIUI that was a misunderstanding because the OP refuses to distinguish between Savings and Investments by using the same definitions as the rest of us.

I dont think so. That doesn't help but he did after all write ; "The canny MSE should always, alright, usually, be able to get a return that beats inflation even in nice secure building societies." without accounting for the amounts involved eg yes you can for £10k but not for a million, and even he would surely acknowledge that investing in shares/funds etc is not guaranteed and most importantly cannot be relied upon to return the rate of inflation in any given year.

bigadaj

mgdavid wrote: »

Is it? AIUI that was a misunderstanding because the OP refuses to distinguish between Savings and Investments by using the same definitions as the rest of us.

Yes, the OP partially explains this in the opening post, and it's expanded upon through the rest of the thread, have a read through the full five pages if you want to confirm this.

The main problem is that ther is a big IF all the way through, so they are saying if they can get above ink faction with cash then there is no risk for their defined period, no real substantiation or evidence to support whether this is possible for larger sums over longer periods.

HappyMJ

AnotherJoe wrote: »

I dont think so. That doesn't help but he did after all write ; "The canny MSE should always, alright, usually, be able to get a return that beats inflation even in nice secure building societies." without accounting for the amounts involved eg yes you can for £10k but not for a million, and even he would surely acknowledge that investing in shares/funds etc is not guaranteed and most importantly cannot be relied upon to return the rate of inflation in any given year.

That depends on you definition of inflation too.

Tesco's Fixed Rate Saver pays 2.5% for a term of 5 years and takes up to £5,000,000. As much cash as possible could be put into the high interest current accounts and regular savers and the remainder put into a fixed rate saver and the income used to live off.

I'm quite sure inflation is less than 2.5%.