Drawdown: safe withdrawal rates

jamesd

Indeed, though I don't want it to be too highly controversial which is why I'm discussing what to do in advance and welcome other thoughts that I can ponder using.

Sea_Shell

What's the plan if your "rules" say you can happily withdraw £18,000 pa and you only spend £15,000?  Or less?!

Do you just keep the "spare" invested or do you pop it in a "jar" and keep it as extra cash, or would you give it away or donate it...as by the "rules" you don't need it anymore. 

coyrls

jamesd said:

I'm planning to update the first post with a guide to income to take while getting familiar with this subject. At present I'm planning to say something along the lines of:

1. take number of years to state pension age and deduct your state pension times that many years from your pot
2. take 6% of the remaining pot plus the state pension income as your initial income
3. do not increase with inflation and do not continue this for more than three years

Taking 6% will be most controversial but because of the lack of inflation increases it'll be safe even if used long term and in the short term it favours what people tend to want, more income at younger ages.

Any thoughts on how better but still very succinctly to get to an income level that's sustainable but intended to be short term during learning?

I don't understand the "learning" process that has to take place over a period after starting to take income from a pension.  I would expect the learning to take place prior to starting to take income.  If somebody has not bothered to consider how much they can take from their pension prior to retirement, why would you expect them to bother once they have started to take an income from their pension?

Audaxer

jamesd said:

I'm planning to update the first post with a guide to income to take while getting familiar with this subject. At present I'm planning to say something along the lines of:

1. take number of years to state pension age and deduct your state pension times that many years from your pot
2. take 6% of the remaining pot plus the state pension income as your initial income
3. do not increase with inflation and do not continue this for more than three years

Taking 6% will be most controversial but because of the lack of inflation increases it'll be safe even if used long term and in the short term it favours what people tend to want, more income at younger ages.

Any thoughts on how better but still very succinctly to get to an income level that's sustainable but intended to be short term during learning?

As regards number 1, are you saying if you have say 3 years until you reach SP age, you actually take 3 years from the pot as cash to pay yourself the equivalent of the SP for these 3 years? If you don't already have the cash to cover these 3 years, I would agree, but what is the plan for those retirees who have say, 10 years or more before they reach SP age? Maybe I have misunderstood the point?

Thrugelmir

Sea_Shell said:

What's the plan if your "rules" say you can happily withdraw £18,000 pa and you only spend £15,000?  Or less?!

Why not enjoy life?  Money is of little use when you are dead. Alternatively support a charitable cause with the excess money. There's thousands of causes that would be of benefit to mankind. 

cfw1994

Sea_Shell said:

What's the plan if your "rules" say you can happily withdraw £18,000 pa and you only spend £15,000?  Or less?!

Do you just keep the "spare" invested or do you pop it in a "jar" and keep it as extra cash, or would you give it away or donate it...as by the "rules" you don't need it anymore. 

We need to have a serious chat....I can certainly help you out with the excess 🤣

bostonerimus

Sea_Shell said:

What's the plan if your "rules" say you can happily withdraw £18,000 pa and you only spend £15,000?  Or less?!

Do you just keep the "spare" invested or do you pop it in a "jar" and keep it as extra cash, or would you give it away or donate it...as by the "rules" you don't need it anymore. 

All those are possible things to do, but some might be better done at various stages of retirement. Early on I'd leave the "spare" invested or set it aside in your cash allocation as you don't know what might happen. After a few years as you get more comfortable you could consider giving some to family. I think giving to charity is also a great way to express yourself through your savings. I give money to the local church where my mum and dad are buried and also give money to support the church "lunch club" that was my mum's major social outlet as she got old. I also have some local arts organizations, environmental and political groups and a homeless shelter that I give to around Christmas.

jamesd

Sea_Shell said:

What's the plan if your "rules" say you can happily withdraw £18,000 pa and you only spend £15,000?  Or less?!

Do you just keep the "spare" invested or do you pop it in a "jar" and keep it as extra cash, or would you give it away or donate it...as by the "rules" you don't need it anymore. 

I've edited the post to include two words I intended but missed: "up to".

You leave it invested as you normally do when spending less. Or you can give it away if you prefer but if someone hasn't yet become familiar with SWRs I'd prefer it if they leave it where it is.

jamesd

coyrls said:

I don't understand the "learning" process that has to take place over a period after starting to take income from a pension.  I would expect the learning to take place prior to starting to take income.  If somebody has not bothered to consider how much they can take from their pension prior to retirement, why would you expect them to bother once they have started to take an income from their pension?

In an ideal world I'd love to see it done well in advance as part of retirement panning. In the real world we're going to continue to get people coming here who aren't familiar with the concept and I'm seeking with this change to tell them something explicit and safe that they can do while they get familiar with it.

jamesd

Audaxer said:

jamesd said:

...
1. take number of years to state pension age and deduct your state pension times that many years from your pot
...

As regards number 1, are you saying if you have say 3 years until you reach SP age, you actually take 3 years from the pot as cash to pay yourself the equivalent of the SP for these 3 years? If you don't already have the cash to cover these 3 years, I would agree, but what is the plan for those retirees who have say, 10 years or more before they reach SP age? Maybe I have misunderstood the point?

For three years and up to five I'd prefer to see it moved into cash. Beyond that rolling three to five years and anyone with investment expertise can pick whatever term they like. The primary points were deduct enough from the pot for the calculation of the SWR and pay yourself your own state pension.