£780k pot how much would you drawdown each year

jamesd

pensionpawn wrote: »

Unless the markets crash immediately after first accessing a pension surely squirrelling away a minimum of two years 'drawdown buffer' supports an annual withdrawal in excess of the 'natural yield'?

The biggest threat isn't a big drop then recovery just after retiring, it's a decade or so of low returns just after retiring.

pensionpawn wrote: »

Also, from my basic understanding of shares even dividends are not guaranteed and I would expect them to decrease in line with a reduction in share (pension fund) value?

They drop but by less than the drop in capital value.

pensionpawn wrote: »

Regarding running out of pension fund, my current model does empty my pension fund by 85 however my reasons for doing this by then is because all I will be financing is the basics, food, council tax, heating (I have solar..), etc... I do start with a draw down in excess of my current net pay so I'm expecting to have cash savings too. The full state pension isn't such a meagre sum to live off from 85 especially if I haven't blown everything that I've drawn down since 59 and my daily thrills from 85 are finding the remote control and going to the bathroom by myself! Hence I've front loaded the pension withdrawals. Based on the this, do you still think I need to re-plan?

Nothing wrong with a deliberate front loading plan in principle and I often suggest significant front loading because spending does tend to decrease as people get older.

Given your objectives the Guyton-Klinger rules with a success rate in the 25-50% sort of range seems reasonable. A 25% success rate means an initial income that's sustainable for life only if you live through the better 25% of historic investment returns. Alternatively or in addition you could build into a cfiresim plan your intended reduction in spending.

If you haven't done it yet, a read of Drawdown: safe withdrawal rates is likely to be useful.

IanSt

pensionpawn wrote: »

Out of interest I just calculated the annual rate of growth of my oldest pension fund (started in 1989) since 1997 (when I stopped contributing to it) to be 9.8%. Given that rate includes the dotcom bubble bursting and the 2008 depression I don't think that's such a bad indicator of future growth. Perhaps by the end of 2018 that average will be up to the 10% I'm using as the fund growth rate in my modelling supporting a retirement of 26 years. Of course there can be huge crashes over a long time base and that's where the cash slush fund comes in. However modelling some worse case scenarios would also be prudent.

Is that invested in globally diverse funds or more UK based?

If UK then is there a fair amount of inflation in that figure, and if global then you may have the £ currency rates to consider?

I've always been a lot more conservative on the future growth - I really hope they continue at their historic rate, but I sleep a bit easier by going for a more pessimistic rate!

Thrugelmir

jamesd wrote: »

If you haven't done it yet, a read of Drawdown: safe withdrawal rates is likely to be useful.

All of which is based on US equity and bond data. Therefore applying this to an investor based in the UK is somewhat questionable. As the likelihood of holding such a portfolio is somewhat remote.

Thrugelmir

jamesd wrote: »

What was unusual was just how high markets went before the dotcom crash. Way higher cyclically adjusted price/earnings ratio than usual.

Nothing unusual in investors chasing profit in a rising market. Technology was the game in town. Out of some 160 or so companies then (globally). Only 35 of them still exist today as independent trading entities. Great ideas don't always convert into commercial success.

Amazon currently trades a p/e in excess of 200. How long before even their model gets overtaken. Alibaba for example combining an on line presence with investment in bricks and mortar. Amazon launched in 1995 by the way.

Thrugelmir

pensionpawn wrote: »

My fund(s) on average are growing around 10% before contributions.

Have you actually asked yourself why? Understanding what you are invested in is key.

jamesd

Thrugelmir wrote: »

All of which is based on US equity and bond data. Therefore applying this to an investor based in the UK is somewhat questionable. As the likelihood of holding such a portfolio is somewhat remote.

It isn't all based on US data, with the first post mentioning the 0.3% lower UK safe withdrawal rate, if using comparable UK investments and level inflation-adjusted income, and much other information is purely UK-specific.

The US is currently the area where much of the analysis of safe withdrawal rates goes on, though, so a lot of interesting material originates there.

For drawdown in general it's very useful to use decision rules like Guyton-Klinger because they adjust based on actual results during retirement. They already have to deal with far larger swings than the UK-US difference.

It's also worth knowing that much of the difference in safe withdrawal rates between countries is due to major wars directly touching things on their soil. The degree depending on how much touching and win/lose the war result. It'll be pretty obvious if we're in another world war and need to adjust for it.

jamesd

Thrugelmir wrote: »

Nothing unusual in investors chasing profit in a rising market. Technology was the game in town. Out of some 160 or so companies then (globally). Only 35 of them still exist today as independent trading entities. Great ideas don't always convert into commercial success.

Nothing unusual in the chasing but what was unusual that time was how long and high it went on.

John Authers at the FT has done quite a bit of interesting reporting on such differences, most recently last Friday in his Long View column. While tech got the headlines the stretched valuations were throughout the market.

pensionpawn

I have absolutely no idea. They are 'managed' funds from a old pension firm called Friends Provident.

pensionpawn

Not really. I keep track of growth, more so over the last couple of years as I near 55. If growth looks rubbish I'll explore the options for change. I leave it to the pension companies to know the 'why'! I have a basic understanding of what causes share and dividend price change however I can leave the managing of it to the experts, like you guys on here!

bostonerimus

pensionpawn wrote: »

Thanks for your reply. Unless the markets crash immediately after first accessing a pension surely squirrelling away a minimum of two years 'drawdown buffer' supports an annual withdrawal in excess of the 'natural yield'? Also, from my basic understanding of shares even dividends are not guaranteed and I would expect them to decrease in line with a reduction in share (pension fund) value? Regarding running out of pension fund, my current model does empty my pension fund by 85 however my reasons for doing this by then is because all I will be financing is the basics, food, council tax, heating (I have solar..), etc... I do start with a draw down in excess of my current net pay so I'm expecting to have cash savings too. The full state pension isn't such a meagre sum to live off from 85 especially if I haven't blown everything that I've drawn down since 59 and my daily thrills from 85 are finding the remote control and going to the bathroom by myself! Hence I've front loaded the pension withdrawals. Based on the this, do you still think I need to re-plan?

The 4% (probably 3.5% for the UK) starting drawdown levels are derived so you can survive 95% of possible combinations of historical market scenarios, so it's a conservative number, as it should be for retirement. Dividends are given per share and are so pretty stable with price fluctuation. Your approach to income planning is not one I'd adopt. It sounds sensible, but you're not planning for the worst case which is dangerous; some combination of bad market returns, a long life and long term care costs could put you in the poor house. There is US research that shows retirement spending inflation to be less than the general inflation rate by 1% or 2%, but I haven't seen any UK numbers and it's hard to do a comparison because of costs for healthcare being so different. Still if you intend to front load tour spending make sure you have a plan to reduce spending in bad years. A previously mentioned the Guyton Klinger rules are useful for that, but also identify places in your budget where you can save.