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Drawdown: safe withdrawal rates
edited 14 April 2021 at 8:35PM in Pensions, annuities & retirement planning
228 replies 90.2K views
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FWIW back in an interview on 3 September 2015 Shiller said in an interview that he'd acted on this to reduce his own equity investments though he also observed that he thought that for young people leveraged investing would be a good long term plan, that interview was a couple of weeks after modest market drops.
"If using US data and UK investments, subtract 0.3 from the safe withdrawal rate percentage, roughly the expected difference between US and UK SWRs."
The link also has a mention that the author and Kitces are working on a UK safe withdrawal rate analysis, results expected in early 2017.
Also the discussion on how to use the G&K rules in Drawdown rules help may be of interest, I'll add some sort of worksheet or other guide to how to follow the rules over here at some point.
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.
For convenience here's the table I linked to:
Age Increase Calculation, also multiply by 100 to get %
63 5.56% (52 / 934)
64 5.70% (52 / 913)
65 5.84% (52 / 890)
66 5.97% (52 / 871)
67 6.14% (52 / 847)
68 6.29% (52 / 827)
69 6.49% (52 / 801)
70 6.68% (52 / 779)
75 7.72% (52 / 674)
80 9.56% (52 / 544)
81 10.12% (52 / 514)
82 10.74% (52 / 484)
85 13.20% (52 / 394)
I have posted before about BCE and LTA. I am now getting nearer to working out my pension 'strategy' and would appreciate any comments.
1. Hopefully retire July 2017 age 60.
2. Take £9k/year DB pension (retirement age 60) from previous employer.
3. Defer state pension of £9k/year until 70-ish to give some longevity protection.
4. Put expected £800k DC pot (current employer, still contributing, plus a previous employer) into drawdown, but not take 25% cash as a single tax free lump sum.
5. So, I should just avoid any LTA charge as the value will be £9k*20+£800k=£980k.
6. Withdraw enough each year (including 25% tax free per withdrawal) to 'maximise' withdrawing at the 20% tax band whilst not going into the 40% band.
7. My simple calculation, assuming the DC pot matches inflation, tax bands/rates do not change significantly and I live to 90, gives me about £38k/year from July 2017 after tax from the DB/DC pensions and then the DB/DC/state pensions. I know that I am fortunate to have so much, and I guess it might even be more if the DC investments perform well.
8. If this 'strategy' is sensible, then my next task is to look at what the asset allocation should be for the DC fund.
Comments and suggestions about the strategy are very welcome as I am still learning, mainly by lurking on this forum and reading around the subject.
Points 4 and 6 are incompatible. If you crystallise your entire pension you must take the 25% tax free lump sum or lose it. Point 6 could be achieved with UFPLS or phased drawdown but each drawdown or UFPLS would be a crystallisation event that would be tested against the LTA. If you want to get your entire pension tested against the LTA as early as possible and want to take advantage of your tax free lump sum, you will need to take the full 25% at once.
Also don’t forget that there will be another test against the LTA at 75 but you will have fifteen years to make sufficient withdrawals to avoid breaching the LTA at 75.
Thank you very much for pointing this out. Another learning point for me on BCE/LTA!
I guess, then, it will turn out that I will take the full 25% tax free cash at once, so I can get the entire pension tested against LTA asap to avoid any LTA charge.
I then need to work out how to get the most tax efficient etc. income from the DB/DC/state pensions and the 25% cash. It's going to be interesting looking at the options.
The ONS 2014 Principal projection based How long will my pension need to last? tool gives these values:
Male, to age 86, 21 years, 1 in 4 chance of 95, 1 in 10 chance of 99
Female, to age 89, 24 years, 1 in 4 chance of 96, 1 in 10 chance of 100
Unless you have reason to expect a shorter than usual life expectancy I suggest planning to at least the 1 in 4 age. That would be roughly the traditionally used 30 years from age 65 while 1 in 10 would be 35/36 years.