Drawdown and movement to 'safer' funds

kidmugsy

Andy_L wrote: »

Reg savers aren't a true 5% rate as you don't get 5% on all the money for all the year

You do if you operate a money-go-round as described.

Terron

bostonerimus wrote: »

Klinger does it from 1926 to 2004 in this paper....but once again I think we can get bogged down in detail and should concentrate more on the general principles that these studies illuminate.

http://schulmerichandassoc.homestead.com/Using_Decision_Rules_to_Create_Retirement_Withdrawal_Profiles.pdf

That link does not work.

bostonerimus

Terron wrote: »

That link does not work.

It should work now......a couple of spaces were being included if I just pasted the link

http://www.schulmerichandassoc.com/using_decision_rules_to_create_retirement_withdrawal_profiles.pdf

cfw1994

FatherAbraham wrote: »

So it's not actually safe then?

So: what rate would YOU advise as a safe rate?
What are your definitions?
Nothing in this life is 100% guaranteed when it comes to this kind of investment, unless you take an annuity, but these days they tend to be rather lower than most people would want!

westv

cfw1994 wrote: »

So: what rate would YOU advise as a safe rate?
What are your definitions?
Nothing in this life is 100% guaranteed when it comes to this kind of investment, unless you take an annuity, but these days they tend to be rather lower than most people would want!

And even annuitìes aren't 100% safe unless index linked.

Malthusian

cfw1994 wrote: »

So: what rate would YOU advise as a safe rate?

0% is pretty safe.

If you mean a rate that would allow you to enjoy your retirement while keeping the risk of running out of money acceptably low, then that would depend on how large your retirement fund is, how much you want to withdraw and when, whether you can accept reductions in income if necessary, and your attitude to risk.

bostonerimus

Malthusian wrote: »

0% is pretty safe.

If you mean a rate that would allow you to enjoy your retirement while keeping the risk of running out of money acceptably low, then that would depend on how large your retirement fund is, how much you want to withdraw and when, whether you can accept reductions in income if necessary, and your attitude to risk.

If you can get retirement income from sources other the your DC pension pot, ISAs and regular accounts or you withdraw less than your investments make each year, then accumulation of capital gains and interest give you a negative percentage withdrawal and that's the safest type of percentage of all.

ams25

Beyond the 4% rule by Abraham Okusanya is a good (and easy) read. He has calculated a safe withdrawal rate (constant inflation adjusted 4% style rule) of 2.6% for a 50:50 equity bond portfolio based on uk equities and allowing 1% fees. A global mix of equities increases that but not by that much. Lower fees will also increase that number, but as 1% fees translates to about 0.5% reduction in swr not hugely. A higher equity allocation might also increase a notch.

Brings me back to around 3% as a realistic number after fees for a uk investor with a diversified global allocation of around 60:40. 3% was my take out from Wade Pfau's book too. Early retirement now's safe withdrawal rate series lands on 3.25% for US investors.

I read a boogleheads post recently (sorry can't find it now) where someone had compared 4% wr and 3% for a 2000 retiree with a high equity allocation..after 18 years...so living through the dot com crash and 2008 crisis. It was a huge difference..with the 4% wr retiree seeing their portfolio fall to below 50% and struggling to recover, whereas the 3% retiree was almost back to 100%. Taking what might seem like only a little more can hurt your portfolio a lot if returns are poor.

Obviously swr's are planning rules of thumb and best advice is whatever rate you use stay flexible and adjust.

Audaxer

Is it safer to withdraw 4% per annum using a cash buffer for loss years, or to be fully invested and draw 3% of the outstanding balance every year without a cash buffer?

cfw1994

Audaxer wrote: »

Is it safer to withdraw 4% per annum using a cash buffer for loss years, or to be fully invested and draw 3% of the outstanding balance every year without a cash buffer?

Be interesting to see some analysis for this: my view is that your logic makes perfect sense....have some cash buffer in some form to allow lower withdrawals for some time where needed....it will clearly be a bit of a moving feast (or famine!) come retirement time, especially for any lucky enough to enjoy 30+ years of it, and having a rigid withdrawal % could be dangerous!