£780k pot how much would you drawdown each year

pensionpawn

lisyloo wrote: »

How does half of the value of your home become available? (apologies if I missed something in the thread).
You cannot usually sell half a house and you don't have any knowledge of what state your other half will be in for example they may have installed a stair lift, hoist and walk-in bath and not want or be in a great posistion to move away from family and friends.

Half is could obviously go in care home fees. We have made provision in our Wills that at least half of the value of the house will go to the children.

pensionpawn

Linton wrote: »

Some problems
1) You need to reinvest sufficient in your pot each year to cover inflation. Over the past 21years inflation has averaged about 2%.
2) How much money do you put in your slush fund? The greater the % drawdown the more cash you need in your slush fund. The more cash in your slush fund the less you have in investments to generate the return.
3) You need to replenish your slush fund fairly quickly - the next major fall could happen pretty soon after the previous one.
4) In your example the worst case is -5%. -40% might be a a better number to use if you want 10% average returns.
What makes you think that the past 21.5 years were particularly problematic? They seem to have been unusually benign to me apart from two rather short difficult periods. Assuming 10% is the average annual return over 21.5 years is rather risky since you only have 1 period of 21.5 years to look at. Even if it were a reasonable guess it would imply that 50% of the periods of 21.5 years would be worse. Is a 50% chance good enough?

The actual annual return would vary considerably - presumably taking 10% income, half the time you would be using your slush fund to some extent.

You can assume whatever your like. The question is what happens if your assumptions are wrong? How wrong do they have to be before you are in the doo-doo? In my retirement planning 12 years ago I assumed 1% return above inflation. Despite the great crash that turned out to be very pessimistic for which I am now very grateful.
The problem with relying on capital erosion is that you need to know when you are going to die and then start eroding capital some years previously. Drawing down is like paying a mortgage in reverse - it mainly operates in a steady state mode until relatively close to the end of the term. Once you start seriously eroding your capital your returns fall rapidly.

I suggest you have a play with http:\\www.cfiresim.com. It bases its results on data over the past 100 years and more and gives a far more realistic view of how drawdown can work out.

Thanks for your input! My plan is to erode the capital in my pot(s) at 85 hence I am not concerned about re-investment in the pot to maintain it's value. I may do the odd part time work during retirement and throw that all back in however that is an adhoc opportunity and not part of my financial planning. I am presently working on taking out the growth each year so with a £0.5M pot that is £50k which would net around £43k7 (if TFLS not taken) at least half of which would go into the slush fund. So each year of draw down I bank a years worth of 'backup' funds. Unless markets go south immediately after going into draw down I will have a few years of slush fund to draw from before having to withdraw from the pension pot at the minimum rate. As you may have guessed I'm not a professional economist however I have an average understanding of pensions and am pretty good at maths.

Please keep the observations coming as I'm open to all suggestions though take quite a bit of convincing!

bostonerimus

ffacoffipawb wrote: »

Can I ask how you bought a final salary pension with a portion of your DC pension pot.

Interested as I am close to LTA.

As someone said I'm in the US, but using DC money to buy into a final salary pot Is generally not allowed here, just like in the UK.

My state employer applied to the US Federal tax authority and got permission to do it one single time about a year before I retired. The teachers union was behind it and I'm sure a lot of political favours were given. The state took our contributions and compounded them at 8% annually and required that amount to buy into the final salary pension. Luckily I had enough with a bit left over. The pension is index linked and assuming I live an average life span I would have to average 7% annual return from the lump sum I paid to match the pension payments.....so I'm hoping to live a long life and get at least that 7% return.

bostonerimus

pensionpawn wrote: »

Thanks for your input, although I don't necessary (initially) agree with alternative perspectives that may change over time so please keep them coming. On the subject of looking back further than I have to obtain a more comprehensive data set of market variations surely the further in time you look back the more irrelevant (and potentially misleading) the analysis and conclusions could be. If you consider that some of the biggest (tech) companies who no doubt attract significant interest from pension fund managers didn't exist as recently as the 20th century! What yet to be launched companies will command significant pension fund managers interest in 10 years time shortly after I (hopefully) commence my draw down? My point being that the accuracy of any financial analysis, and therefore predictions for future growth, would be more reliable over a shorter time frame?

You are falling into the "this time it's different" syndrome.

jamesd

redux wrote: »

Surely withdrawing more but reinvesting part of it somewhere else isn't going to be much different in overall funds terms, except it may help move increasing proportions of future growth away from the lifetime allowance issue?

For safe withdrawal rate discussion what is meant by withdrawing is "withdrawing from all assets - pension,ISA, whatever - to spend". Just taking it out of a pension and reinvesting somewhere else doesn't count as withdrawing. So yes,you're right.

Chickereeeee

pensionpawn wrote: »

Half is could obviously go in care home fees. We have made provision in our Wills that at least half of the value of the house will go to the children.

Half of the remaining value of the house after care home fees have been paid, surely?

pensionpawn

Chickereeeee wrote: »

Half of the remaining value of the house after care home fees have been paid, surely?

No, see this thread https://forums.moneysavingexpert.com/discussion/5771112