£780k pot how much would you drawdown each year

pip895

I think in your situation I might be tempted to up the withdrawals to ~£40k until SP kicks in in 12 years - a bit above the natural yield but still pretty sustainable. Out of this I would definitely pay the Ni contributions for you both and put £2880/annum into OH's pension. With any remainder I would go on some of those nice holidays you are keen on.

If the stock market takes a tumble you might want to cut back on withdrawals for a few years but ending up having to tighten your belt significantly, is probably less likely than ending up at age 75 bumping up against the LTA and not having the health to really enjoy your money.

atush

k6chris wrote: »

Is it reasonable to assume that if you live of the natural yield (ie dividends) that expected growth in the underlying assets will grow over time to cover inflation? I presume that depends on the yield of the assets, ie high yielding are likely to grow less, so may not cover inflation?? It's a simple model if it did / could work that way!

Plus a lot of ITs have a rcord of increasing dividends yearly- which can cover inflation.

bostonerimus

Drp8713 wrote: »

Just the dividends, for example Murray International yields 3.86% (£30,108 on £780k), City of London yields 3.92% (£30,576 on £780k).

You could easily build a globally diversified Investmemt Trust portfolio that would get you a sustainable £30k from £780k.

You need to account for inflation which is why it's also important to have growth in a retirement portfolio as well as dividends.

bostonerimus

atush wrote: »

Plus a lot of ITs have a rcord of increasing dividends yearly- which can cover inflation.

Have you done the maths to see how many ITs would keep up with inflation?

goRt

Hal17 wrote: »

Could someone please explain what is meant by the comment above, regarding the tax liability when the pot is revalued at 75?

I was thinking of possibly using some of my Drawdown fund as part of my estate planning in the future, so am now confused.

My take on this LTA issue at 75 is (using simplified numbers):
1. 30k per year out of the fund * 20 years = 600k
2. LTA increase from the current 1m (well just over) at 2% increase pa for 20 years = ~1.5m
Remove 1 from 2 = 900k left, OP has ~800k fund value.

So not much room for investment gains and the LTA test at 75 is bust.
There's an article somewhere on the interweb which clearly advises crystallisation of the full fund ASAP (you can store the PCLS in ISAs over time and probably invest in the same funds as within your SIPP)

My strategy is to withdraw [tax-free allowance and basic rate allowance each year (which you pay ~7k tax on)] less any other taxable income as my biggest issue is the age 75 LTA test (I'm FP14 so my allowance is 1.5m). I spend less than is withdrawn (~30k spend on holidays, etc) and put the remainder into ISAs

The LTA and associated tests are the biggest single disincentive to pension savings.

Fermion

I have a diversified portfolio with a fair proportion as cash (rightly or wrongly) to cover crashes.

I only keep about 3% max of my pot as cash, sufficient to cover about 10 months of monthly drawdown payments. The danger of keeping much more than this as cash is that it's not delivering any yield given that interest rates are so low.

There is an interesting article on the HL web site about "Timing the Market" and "Time in the Market" which makes a lot of sense if you are only taking the natural yield in drawdown and in particular do not have to sell funds to cover monthly drawdown
http://www.hl.co.uk/news/investment-times/2014/09/peter-hargreaves-why-i-never-try-to-time-the-market

atush

bostonerimus wrote: »

Have you done the maths to see how many ITs would keep up with inflation?

No maths required. Just choose ones with a dividend annual increase you estimate to beat inflation (ie 2-5%- many are around 3-4%).

You of course need to look at longer running ITs and ones that are income based over accumultation.

I trust that isnt out f your wheel house
:beer:

Thrugelmir

bostonerimus wrote: »

You need to account for inflation which is why it's also important to have growth in a retirement portfolio as well as dividends.

Then you'll know from the long term studies that the majority of growth comes from income reinvestment. Perhaps why equity investments haven't been relied on in the past to provide the foundation of retirement income.

jamesd

michaels wrote: »

Isn't it worth moving the tfls as quickly as possible (given annual isa allowance) from the pension wrapper to an isa wrapper?

Depends on objectives but personally I'll be looking to move from pension to ISA as fast as my basic rate band combined with VCT buying allows. That's in part to get more P2P investing flexibility and part for flexibility in general. That'll be the wrong choice for a lot of people.

For the current question there seems to be substantial risk of a lifetime allowance charge at 75 and that suggests to me that drawing at least as fast as money can be moved into ISAs looks likely to be a good move. There seems to be ample money available to use VCT buying to effectively eliminate the tax cost with interesting investments.

jamesd

GSP wrote: »

with differing opinions out there be interesting to know how much people would withdraw each year.

Depends on objectives. Anything from £30,000 to £70,000 can make sense. A UK IFA is likely to suggest approaches at the cautious end of the range, in part because it isn't their money that's being wasted if you die with too much and in part because most customers will be at the cautious part of the preferences ranges.

At the £30,000 end comes allowing for future state pension and using the outdated 4% rule reduced for current market values and perhaps going lower still with high weights towards lower volatility investments with substantial spending on inflation linked annuities.

At the £70,000 end comes deliberate loading to younger ages, deliberately having a base plan to reduce income substantially, having high willingness to reduce income if investments don't do better than average and using modern rules like Guyton-Klinger with Guyton's sequence of returns risk reduction approach. By design with carefully considered choices this wouldn't be required to be sustainable for life.

Using modern rules with planned age-related spending reductions and allowing for your age now, starting out at around £50,000 should have decent sustainability.

Model your plans with something like cfiresim to get some feel for the implications using your planned cash flows. Even at higher levels I'm a fan of state pension deferral because it's an efficient way to get guaranteed base income and longevity insurance. You might also consider spending £10-20k every year or two, particularly in good investment performance years, to buy some level annuity guaranteed income with built in reduce as you get older due to inflation profile.