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Drawdown: safe withdrawal rates

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  • westv
    westv Posts: 6,273 Forumite
    First Post First Anniversary Name Dropper
    AnotherJoe wrote: »
    Nearly. But "could" implies definitely.

    It shows the lowest balance it would reach tested against the past 100 years or so stock market performance. It's possible that results in the future might be worse.

    Like if there's a global zombie apocalypse? That sort of thing?

    :eek::eek:

    :D
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    Fifth Anniversary Photogenic First Post Name Dropper
    westv wrote: »
    Like if there's a global zombie apocalypse? That sort of thing?

    :eek::eek:

    :D

    Or vampires. Lot of those at the movies, surely not a coincidence? Could be a zombie vampire,the worst sort IME.
  • jamesd
    jamesd Posts: 26,103 Forumite
    First Post First Anniversary Name Dropper
    westv wrote: »
    I actually find deferring the state pension reduces our initial withdrawal rate but that must be due to when the various DB pensions come on stream.
    One case when that can happen would be if there's relatively little capital at the start that has to cover the time until those pensions start, but not much income once they are being paid. Then the cost of providing the income while deferring can increase the provision needed for a bad case.
  • I have enjoyed reading this thread but can't help thinking that there is bias towards maintaining the lump sum. Surely once you are retired, it is reasonable to run down retirement savings? I know that longevity is an unpredictable number but if I ran out of money at 100, I suspect that I might still think I had done OK. I might start to worry it I dropped as low as 20-30K.

    Am I missing something?
  • Linton
    Linton Posts: 17,615 Forumite
    Hung up my suit! First Post First Anniversary Name Dropper
    I have enjoyed reading this thread but can't help thinking that there is bias towards maintaining the lump sum. Surely once you are retired, it is reasonable to run down retirement savings? I know that longevity is an unpredictable number but if I ran out of money at 100, I suspect that I might still think I had done OK. I might start to worry it I dropped as low as 20-30K.

    Am I missing something?

    The problem with planning to run out of money at 100 in 40 or more years time is that it doesnt leave much room for things going wrong. 40 years is plenty of time for things to go very wrong. A few extra % inflation could leave you very exposed. Better in my view is to plan on your income being sustainable or nearly so.
  • Fermion
    Fermion Posts: 173 Forumite
    Seventh Anniversary First Post Combo Breaker
    Pension contributions

    If like me you had a period contracting via a Limited Company and you have money tied up in Company bank accounts that you don't want to pay as dividends (because of high rate tax implications), then making a once-off "Employer" gross payment into your SIPP is something to consider.

    You won't get the 20% HMRC contribution, but gross Employer SIPP contributions come straight off the top line before Corporation Tax calculations. Also Business Bank interest rates are generally pathetic so at least you can invest in something via your SIPP which will get your money working for you.
  • jamesd
    jamesd Posts: 26,103 Forumite
    First Post First Anniversary Name Dropper
    Am I missing something?
    Watch the videos in post 2 and read the linked material in posts 2 and 3.

    Safe withdrawal rate has to plan to work at the specified success rate even if you are unlucky with your retirement time. The drawdown method I suggest will increase your income if you turn out not to be living through unusually bad times.

    With cfiresim you can use a lower income floor than I suggest to obtain a higher starting income.
  • Googling safe pension drawdown brought me to this thread and cfiresim so many thanks to jamesd.

    Could anyone advise me how to enter the following:
    As at next April 2017
    Age 47, dc pension 415k invested in 'international shares fund'. Stay at home wife is 51 and has 8k dc fund. We both already qualify for full state pension at 67.
    We would like to retire in 8-10 years time (so age 55-57 for me and 61-63 for wife). For those years wife will pay in 3.6k into her pension and I can pay in up to 40k.
    After that we can both continue to pay in up to 3.6k pa and/or defer state pension(s) if that makes sense.
    We will only have non-pension savings of 50k and no debt but could probably flex this using our mortgage plus pension lump sum to repay this if this helped with retiring before 57.

    Ideally we would like to have at least 30k pa (2017 gbp, index linked) in retirement with a floor of 24k. We have lots of equity in our ppr and would contemplate downsizing.

    So my question is how should I put all this into cfiresim to see what is possible?

    Thanks for any help.
  • tigerspill
    tigerspill Posts: 783 Forumite
    Ninth Anniversary Name Dropper 500 Posts
    This is one of the best threads on here.

    I have spent some of today watching the video in post 2 and reading and trying to understand the detail in http://cornerstonewealthadvisors.com/wp-content/uploads/2014/09/08-06_WebsiteArticle.pdf

    This explained enough about what I can do to drive CFIRESIM and to at least understand some of what it is dong. What a great tool. I have stuck to the Guyton/Klinger model. I did limit the rules to drop/increase withdrawals in some runs.

    It tells me that my retirement plans are sound (thank goodness).

    It just remains for me to continue to gain confidence on what it is doing. Not sure really how to achieve this. Any ideas?

    One question though on CFIRESIM -
    When I start retirement in any year other then 2017 - and use the G&K spend model, it seems to not work and shows spend as zero for every year.
    To get around this (I am not planning to retire until 2019 (and my spouse a few years later), what I have done is add our salaries in as additional income between 2017 and those dates. Does this sound like the correct thing to do to get around this problem?
    I can publish my details if this helps to show the problem. And to check if I have done this correctly and am not missing anything? Would anyone be prepared to review my numbers?
  • Fermion
    Fermion Posts: 173 Forumite
    Seventh Anniversary First Post Combo Breaker
    Historically I've always been disappointed with most "freeware" pension calculators in the marketplace. It seems either:-
    1. They are far too trivial/simple(and created by various pension provider) and hence not fit for purpose, or
    2. Are more complex but US based and hence require a "consumer health warning" and need various assumptions/interpretations created to make them suitable for UK use(as mentioned above).

    Being reasonably competent with Excel Spreadsheet I actually found that it really wasn't that difficult to create a couple of "Bespoke" Spreadsheets that
    (a) helped me track(by individual funds) my SIPP target projections and retirement drawdown income/yields
    (b) helped me track my drawdown income/yield performance and residual drawdown fund value delta (to achieve my objectives of taking the natural income/yield from my pot)

    In the spreadsheets I tracked:-
    1. Specific Funds
    2. Current fund value
    3. Current fund annual income £
    5. Target fund value at drawdown (following 25% tax free adjustment)
    6. Target fund income (after drawdown)
    7. Projected charges (post drawdown)
    8. Future years contributions

    I also made assumptions for the following:-
    (a) Reinvested Income/Yield (by years 1-n)
    (b) Annual portfolio growth per year

    Using the spreadsheets helped me to optimise my SIPP portfolio in the final year before retirement so that I had:
    (a) A range of funds that would enable me to achieve a target income of at least 3.5% (my min target), and
    (b) Sufficient cash at Drawdown for my 25% lump sum and Drawdown cash float.

    I found the key thing is to regularly update the spreadsheet with current fund values and yields to check the projections.

    Don't be afraid to try the DIY approach - but maybe get an excel/financial competent friend to check out the spreadsheet calculation!
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