Drawdown: safe withdrawal rates

Sea_Shell

Thrugelmir said:

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. 

We are.   We do.   (within the confines of the last 18 months!)  

cfw1994 said:

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 🤣

I know, I know!!!    You stalking me round the forum now?      Being the little voice in my ear telling me to "spend it"!!

bostonerimus said:

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.

This is the key, well to me it is.     We are only just into this part of life and its still early days (50+55), so we wouldn't be looking at large gifts etc just yet.   I was just wanting to get a feel for what others would do if they underspend their SWR figure, regularly, especially in the early days, say, before SP kicks in.

Personally, we'll give it another few years and see how the land lies, and then start making decisions around larger gifts/donations.

Thrugelmir

Sea_Shell said:

Thrugelmir said:

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. 

We are.   We do.   (within the confines of the last 18 months!)  

cfw1994 said:

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 🤣

I know, I know!!!    You stalking me round the forum now?      Being the little voice in my ear telling me to "spend it"!!

bostonerimus said:

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.

This is the key, well to me it is.     We are only just into this part of life and its still early days (50+55), so we wouldn't be looking at large gifts etc just yet.   I was just wanting to get a feel for what others would do if they underspend their SWR figure, regularly, especially in the early days, say, before SP kicks in.

Personally, we'll give it another few years and see how the land lies, and then start making decisions around larger gifts/donations.

A decade is a long time when it comes to investing. In 2011 Exxon was the largest company in the world and you could have bought Microsoft on a PE of less than 10, now over 37.  

jamesd

Sea_Shell said:

This is the key, well to me it is.     We are only just into this part of life and its still early days (50+55), so we wouldn't be looking at large gifts etc just yet.   I was just wanting to get a feel for what others would do if they underspend their SWR figure, regularly, especially in the early days, say, before SP kicks in.

Personally, we'll give it another few years and see how the land lies, and then start making decisions around larger gifts/donations.

Personally, seven years back you can find a topic where I ask for thoughts on retiring on 18k a year with 12k minimum in drawdown. 12k was and is less than my core spending requirement which means that unless I actively do things to spend more I get to not spend a large part of my potential income, which is now around the Retirement Living Standards Comfortable level or above. No car, A band council tax and single person discount, flat in an inexpensive part of town. Even when trying I don't spend that RLS level but I do have costly home repairs to take care of in the nearish future - single pane louvered windows shot, no central heating for example.

Hopefully you'll end up finding that it's easy for your own natural tendencies to make things nicely comfortable on less.

Audaxer

jamesd said:

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.

Thanks jamesd. Another question comes to mind - there is a lot of discussion about what the SWR should be - 3.5%, 4% or higher, but do the models have different SWRs depending on the portfolio risk? Some retirees take a cautious approach with around 40% or less equities, whereas some other retirees are happy at keeping their portfolio at around 80% equities or higher in retirement. So I would assume for these examples you would be suggesting different SWRs? If so I'd be interested to know the SWRs you think would be appropriate for these different portfolio examples.

cfw1994

Sea_Shell said:

cfw1994 said:

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 🤣

I know, I know!!!    You stalking me round the forum now?      Being the little voice in my ear telling me to "spend it"!!

Only this part of the forum!  Someone has to be the devil on your left shoulder 😈
Or....is it the voice of reason? 🤣

jamesd

Audaxer said:

Another question comes to mind - there is a lot of discussion about what the SWR should be - 3.5%, 4% or higher, but do the models have different SWRs depending on the portfolio risk? Some retirees take a cautious approach with around 40% or less equities, whereas some other retirees are happy at keeping their portfolio at around 80% equities or higher in retirement. So I would assume for these examples you would be suggesting different SWRs? If so I'd be interested to know the SWRs you think would be appropriate for these different portfolio examples.

There are differences based on portfolio risk but I'd generalise them as if you have between 50% and 75% equities you're going to get about the same results as shown in studies, with higher equity percentages appropriate for longer planning horizons and differences between rules. And avoid less than 50% equities because below that the shortage of equities starts to really grow in adverse effect on SWR.

So using 4% rule you might go from 50:50 if not using small caps to 55:45 or 60:40 for a 40 year plan while the UK 40 year GK has 65:35 as optimal for 40 years.

Small caps should be included too, since there's research showing that at suitable levels they can reduce volatility for the same returns or increase returns for the same volatility. Is there an efficient frontier for including smaller companies alongside an index fund? has some discussion of this that I've contributed to, including the observation that "45% of my total pension investments are in small caps, split among global 19%, UK 23% and European 3%. Another 14% of pension value is outside the pension in VCTs, also smaller or micro companies". Too high for most but maybe interesting. Almost 100% of my pension money is in equities, the non-equity portion is outside. Cash in the pensions is mainly to cover pending withdrawals so I don't have to sell equities at a bad time.

jamesd

All links out of the first page are now backed up in yesterday's state by the Internet Archive's Wayback Machine. Some were backed up in earlier versions as well. Most don't have an archive link next to them but they are still there. A few, like some early videos, weren't backed up and are no longer available so I'll need to replace those.

To do this I used an account I created at the Archive more than fifteen years ago and it's feature that allows logged in users to archive a page and what it links directly to. There's been no sign of the Archive misusing my details during those years.

bostonerimus

jamesd said:

Sea_Shell said:

This is the key, well to me it is.     We are only just into this part of life and its still early days (50+55), so we wouldn't be looking at large gifts etc just yet.   I was just wanting to get a feel for what others would do if they underspend their SWR figure, regularly, especially in the early days, say, before SP kicks in.

Personally, we'll give it another few years and see how the land lies, and then start making decisions around larger gifts/donations.

Personally, seven years back you can find a topic where I ask for thoughts on retiring on 18k a year with 12k minimum in drawdown. 12k was and is less than my core spending requirement which means that unless I actively do things to spend more I get to not spend a large part of my potential income, which is now around the Retirement Living Standards Comfortable level or above. No car, A band council tax and single person discount, flat in an inexpensive part of town. Even when trying I don't spend that RLS level but I do have costly home repairs to take care of in the nearish future - single pane louvered windows shot, no central heating for example.

Hopefully you'll end up finding that it's easy for your own natural tendencies to make things nicely comfortable on less.

I own a two family with a rental on the ground floor and my largest single annual cost is the US equivalent of the council tax..$8k last year and the biggest variable cost is maintenance: this year new exterior decks at $4k and a new custom storm door $800. Last year a new water heater in the rental for $1.5k, it's always something. So when calculating a SWR there must be allowance made in the cash flow for some spending variation due to large one off expenses.

BananaChairs

Hi Everyone.
I’ve been studying this thread - and others like it - for some time, but must admit how daunting I find it all. And that’s coming from someone with 20 years’ financial services experience!

So I was hoping if I gave some details of my situation, some kind person could…I don’t know really….general advice, “just keep reading” or whatever!

I’d also like some thoughts about maybe seeing an IFA; but in my experience they don’t cover “this kind of thing”; or maybe I’ve been looking in the wrong place? I’m comfortable with asset allocation and choosing funds myself, but would pay for good advice (not just “we’ll put it in xxxx multi-asset fund for you, that’s 1% please”).

So.  My situation.  I have started to think about “what’s next”. And when can I just stop earning (or face a massive reduction) to do more worthwhile things.
I’m about to turn 40 (but have been mulling this over for some time, this isn’t knee jerk MLC). No kids/mortgage and a partner in pretty much same financial position as me (so the situation is really much better; but for both of our peace of minds, keeping separate)

I am well compensated (~£90k) for a job I find “ok”. For the last few years and the foreseeable future I contribute £40k to pension (£30k ee, £10k er), £20k ISA (inc. £4k LISA) and ~£10k into VCT/crowdfund.

What I have;

450k = Retirement Savings (SIPP/LISA)
230k = “liquid” savings (S&S ISA, cash)
70k   = “illiquid” savings (VCT, crowdfunding (very prudently valued!)
plus;
DB pension with an access age of 62, current value of £7.5k pa (CPI increasing). Transfer value was given as £300k in April 21.
24 years of full contributions re. state pension
(I maintain £20k in cash in addition to the above, topped back up each month from salary)

I can live comfortably on £25k pa which is within the SWR for a pot of £680k (retirement + liquid) but with the complexity that I can’t access “retirement” for at least 17 years but it could be supplemented with dividends/exits from the “illiquid” pot.

It feels like I should/could model this myself…but I just can’t (per opening para) and I end up frustrated, I drop it for a bit, then pick it back up and a frustrating cycle ensues. I’ll understand if there’s eye rolling, “nice problem to have”, “first world issues” and I’ll take those on the chin.  But any guidance would be greatly appreciated!

NoMore

BananaChairs said:

Hi Everyone.
I’ve been studying this thread - and others like it - for some time, but must admit how daunting I find it all. And that’s coming from someone with 20 years’ financial services experience!

So I was hoping if I gave some details of my situation, some kind person could…I don’t know really….general advice, “just keep reading” or whatever!

I’d also like some thoughts about maybe seeing an IFA; but in my experience they don’t cover “this kind of thing”; or maybe I’ve been looking in the wrong place? I’m comfortable with asset allocation and choosing funds myself, but would pay for good advice (not just “we’ll put it in xxxx multi-asset fund for you, that’s 1% please”).

So.  My situation.  I have started to think about “what’s next”. And when can I just stop earning (or face a massive reduction) to do more worthwhile things.
I’m about to turn 40 (but have been mulling this over for some time, this isn’t knee jerk MLC). No kids/mortgage and a partner in pretty much same financial position as me (so the situation is really much better; but for both of our peace of minds, keeping separate)

I am well compensated (~£90k) for a job I find “ok”. For the last few years and the foreseeable future I contribute £40k to pension (£30k ee, £10k er), £20k ISA (inc. £4k LISA) and ~£10k into VCT/crowdfund.

What I have;

450k = Retirement Savings (SIPP/LISA)
230k = “liquid” savings (S&S ISA, cash)
70k   = “illiquid” savings (VCT, crowdfunding (very prudently valued!)
plus;
DB pension with an access age of 62, current value of £7.5k pa (CPI increasing). Transfer value was given as £300k in April 21.
24 years of full contributions re. state pension
(I maintain £20k in cash in addition to the above, topped back up each month from salary)

I can live comfortably on £25k pa which is within the SWR for a pot of £680k (retirement + liquid) but with the complexity that I can’t access “retirement” for at least 17 years but it could be supplemented with dividends/exits from the “illiquid” pot.

It feels like I should/could model this myself…but I just can’t (per opening para) and I end up frustrated, I drop it for a bit, then pick it back up and a frustrating cycle ensues. I’ll understand if there’s eye rolling, “nice problem to have”, “first world issues” and I’ll take those on the chin.  But any guidance would be greatly appreciated!

This would be  better as a separate thread, and also try to come up with some specific questions rather than asking for 'general advice'