The 4% Rule

TBC15

I came across this http://www.madfientist.com/michael-kitces-interview/ some may find useful.

It’s American centric but still worth a listen.

Makes a change from reading about the subject.

Anonymous101

Great podcast that, thanks.

westv

I have often wondered how you pronounce Kitces.

ianthy

Great podcast .... especially the reference/advice at the end about lifestyle creep.

ams25

Very interesting podcast, thanks for sharing.

http://www.morningstar.co.uk/uk/news/149651/how-much-can-you-safely-withdraw-annually-from-your-pension-pot.aspx

The article linked above, or more usefully the full paper linked within, gives a perspective for the UK and takes fees into account. This indicates a uk equivalent to 4% (which is based on US data) is around 3%. Also 4% is typically for a 30 year retirement...Kitces suggests another 0.5% is deducted for 40 years or more.

But as the Kitces interview also makes clear, the 4% is all about dealing with the worst period history has thrown at us - so getting through the first 10 years in reasonable shape likely would enable you to increase the %.

On balance..and given you want to spend more while you are younger, I am going with 3% for a 40+ year retirement....but will continuously review.

How are others handling this. What % are people using or what alternative approaches?

Frenske

Gosh I would have thought it would have been more than 4% unless you expect very little growth in the future.

AlanP_2

Frenske wrote: »

Gosh I would have thought it would have been more than 4% unless you expect very little growth in the future.

You need to consider the risk level and sequence of returns risk.

Once you have retired, started taking your >4% and the values drop 30%+ in a full on bear market what are you going to do?

You aren't earning, so can't top up the pot, and it may take a long time to recover naturally by which time you will have even less in your pot as you still need to draw from it.

Plan for the Worst, Hope for the Best.

bostonerimus

Frenske wrote: »

Gosh I would have thought it would have been more than 4% unless you expect very little growth in the future.

"4%" would have successfully got you through 95% of the combination of 30 year US stock and bond markets with a 60/40 portfolio. Also remember that your initial "4%" goes up each year with inflation. You'll have to be very unlucky to run out of money in 30 years.

bostonerimus

For any withdrawal rate you'll have to account for fund, management and IFA fees as they are not included in the models. Also with bond markets probably going to underperform the historical averages for the next decade it might be better to start with 3.5%. This should be further reduced by about 50% of your investment expenses. So if you have 1% fund and platform fees and cough up 1% to an IFA you should reduce your withdrawal by another 2%/2 = 1%.....so the 3.5% becomes 2.5%. This is why fees and expenses are important in drawdown.

westv

Seems a good time to post jamesd's link again

https://forums.moneysavingexpert.com/discussion/5466114

ams25

the research I referenced above was uk focused (slightly lower returns) and allowed 1% for fees.