Drawdown: safe withdrawal rates

jamesd

Archiving this now it's no longer possible to do it from 6 April 2017.

Class 3A state pension top-up

Available for those who reached state pension age before 6 April 2016 it pays less than state pension deferral until age 81 so only do it if you're planning to defer until at least 81 and still want more guaranteed for life income, else defer instead. It still beats an inflation-linked annuity at any age if in normal good health so do it instead of buying one of those, it's just that deferral beats it. Here's a table showing the percentage of capital that class 3A pays at each age to make it easier to compare with deferral or an annuity. Guidance for advisers. Class 3A doesn't count towards the maximum state pension limit, for either the buyer or a person who inherits it.

One important issue to consider is how long it would take to defer because the state pension top up is immediate, while deferral isn't. This means that when comparing you have to pay yourself a higher income - the one increased by the top up - for as long as you're deferring. That effectively roughly decreases the amount you have to spend by top-up increase times number of years deferring. So say a 65 year old had £21k to spend they would get a top up of £1,226.40 a year. If it would take three years to spend the money on deferring they would have to reduce the effective amount being spent by three times that, £3,679.20. This means that the deferral increase would get them only £1,801 a year instead of the £2,184 a year it would pay if this wasn't allowed for. Both still beating the top up option, though.

Glen_Clark

jamesd wrote: »

For many years all Virgin offered was a UK FTSE tracker fund with charge of 1% a year. A comparable option at HL would be Legal & General UK Index Class C - Accumulation (GBP) with 0.06% annual charge plus 0.45% HL platform charge, so 0.51% total, a hair over half the Virgin cost.

Or a FTSE 100 ETF like VUKE at 0.09% with no platform charge?

jamesd

Yes if outside the pension but there are cheaper options like 0.07% for the iShares version or HSBC also at 0.07%.

westv

Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.

bostonerimus

westv wrote: »

Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.

UI just looked at the cfiresim site....it looks like it does the simulation running through sequential years of market performance rather than analysing all the possible combinations...is that right?

jamesd

It tries every starting year from 1871 to the last possible starting year. If you want to try returns with a specified standard deviation, that's an option in Firecalc. Historic has the advantages of modelling the correlation between performance across several years and ensuring that several very bad periods are included. You'll need far more runs to get such sequences if you use a Monte-Carlo approach.

jamesd

westv wrote: »

Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.

Two cases where it can do that are:

1. If the starting date is in the future.
2. Towards the end of the planning horizon for starting years which have good investment performance fairly close to the end, when Guyton-Klinger will increase spending to try to use the money before you die. You can choose the percentages by which income is cut or increased if you want to experiment with this.

gallygirl

westv wrote: »

Just wondering why spending sometimes seems to shoot up to a silly amount on some cycles ( with a corresponding crash in portfolio value) when using Guyton Klinger with cfiresim.

Long time since I've used it (as I've retired so don't want to know any more if I'm going to run out of money ). Does the spending stay high? Could it be high inflation on some cycles - that could fit with a crash in value.

westv

jamesd wrote: »

Two cases where it can do that are:

1. If the starting date is in the future.
2. Towards the end of the planning horizon for starting years which have good investment performance fairly close to the end, when Guyton-Klinger will increase spending to try to use the money before you die. You can choose the percentages by which income is cut or increased if you want to experiment with this.

Well here is a simple example:-

Start year: 2017
Portfolio value £300,000
SP 8000 starting 2029
Spouse SP 8000 starting 2036
Investigate max initial spending
Guyton Klinger
min success rate 90%
Spending floor £10,000

One cycle pushes spending up to £64k at the end with a corresponding fall in the portfolio to minus £800k

jamesd

Assorted updates over the last few weeks, might be worth a scan of last edit dates to see which posts.