Drawdown and movement to 'safer' funds

ams25

cfw1994 wrote: »

Very clear, thanks!

Is this all inside a SIPP, using a drawdown account to manage both equities and non-equities? do you manage that rebalancing and where the funds are inside a SIPP, or do you use an IFA?

I ask because the bulk of my DC fund is in one Aviva pot, whereas my non-equity funds are external.
I do wonder whether a chunk of that ought to be in the (utterly rubbish!) sterling fund, in order to effectively enable the rebalancing you describe to take place within the pot (by then perhaps a drawdown account).
At such times I would envisage not withdrawing from the fund anyway, but to use other investments to live on.

Logically this makes sense to me, although with the ‘cash sterling’ account inside Aviva (& I imagine many SIPP funds elsewhere) effectively flat for interest, in the current booming equity space that would clearly be losing money for me all the time (& losing to inflation year on year too!).
Another option could be to simply to have sources external to “the pot” to hold the cash today, then invest elsewhere (ISAs) at such times.....
Sorry, a bit rambling....I need to consider my overall “wealth” as The Pot, methinks!


Thanks, this is a useful thread!

glad to help. This is a key topic for me also.
I am still a couple of years off being able to access the SIPP, but I treat my portfolio as a single pot (across SIPP, ISA and taxable accounts). I do have a lower equity allocation in the SIPP, so hope to have sufficient non equity funds for drawdown to PA limit and tax free withdrawal. Cash for current living expenses is mostly in taxable. Bonds for next phase mostly in the SIPP. Very little actual cash in the SIPP (or ISA) given lack of interest from holding cash in these wrappers. Would rebalance within the SIPP/Isa wrapped funds.

I don't use an IFA..pure DIY.. Still learning about withdrawal/drawdown strategies.

If you're not already, then you need to think of your funds as one pot for overall allocation purposes and also tax efficient withdrawal strategy.

ams25

Malthusian wrote: »

The whole debate about "safe withdrawal rates", whether it's the 4% rate or Guyton-Klinger, assumes that you don't want to cut your income. If you can happily slash your income by 40-50% when the markets crash, then you have little to worry about.

Malthusian wrote: »

And, to labour the point, if you can cope with dramatic drops in income then you have little to worry about. All the debate and academic literature about "safe withdrawal rates" assumes that the punter will not want to slash their income when the markets crash.

.

if you are primarily or fully living off DC pots/investments, who wants to live on the basis of income varying by 40-50% a year? Even if you have a large pot, that sounds like a pretty uncomfortable way to live. it might not be a case of food on the table, or not, but who wants to be able to have five holidays one year and then none for the next two.

As someone who will have some basics covered by a DB pension (but not for 7 years) and has to rely on investments fully for next 7 years and then to significant degree thereafter, I have found the whole area of SWR theory extremely valuable in helping me to understand - from a planning perspective - what I can (with a high degree of probability, albeit not with cetrtainty) take out from my portfolio on an annual basis. Hopefully this will prevent me from materially over or under spending and allow me to manage my / my family's expectations in terms of a reasonable and sustainable lifestyle.

Audaxer

Malthusian wrote: »

When you could manage that yourself by, say, drawing something like 4% a year, not spending all of it, and cutting your withdrawals and spending your cash instead during a crash.

Yes, my thought is to pay myself additional income I need to supplement DB pensions, from a cash buffer and draw from investments whatever percentage I need to keep the cash buffer at a fairly generous level to cover lean years. Is that how most investors would smooth out to provide a regular income?

Triumph13

ams25 wrote: »

if you are primarily or fully living off DC pots/investments, who wants to live on the basis of income varying by 40-50% a year? Even if you have a large pot, that sounds like a pretty uncomfortable way to live.

Fortunately that has been a pretty rare event historically.

it might not be a case of food on the table, or not, but who wants to be able to have five holidays one year and then none for the next two.

If the alternative is one holiday every year with a low wr / level income or 5 holidays every 3 years by being flexible I could see the advantages of the latter.

ams25

Triumph13 wrote: »

Fortunately that has been a pretty rare event historically.

If the alternative is one holiday every year with a low wr / level income or 5 holidays every 3 years by being flexible I could see the advantages of the latter.

using the understanding from swr research its more a case of a baseline of 2 holidays per year using a conservative wr (c.3% for me) with maybe 3 if you have a few good years and maybe down to 1 if you have a few bad years... The expectation can be set that 2 is reasonable whatever markets do, except in extremes.

Before I read all the swr research, I would have been (even) more conservative....

MK62

As long as you start with enough in the pot and are realistic about the levels of income you can sustainably draw from said pot.....


The bottom line is that there are too many unknowns with a withdrawal plan, so no amount of maths will work really.....it's a bit like saying 1000=x * y / z, find x, y and z.

However, as we have some context, we can make reasonable assumptions about x, y and z, but that's about it.....

Thrugelmir

Triumph13 wrote: »

It always amazes me when people don't get this. People with £1M using a 2% WR 'to be safe' and living on £20k pa come-what-may, rather than living on £40k and just cutting back if there's a crash.

Why let the £1m wither away with inflation?

Triumph13

Thrugelmir wrote: »

Why let the £1m wither away with inflation?

????

I'm referring to people using 2% increasing with inflation as being safe rather than 4% and being prepared to cut back in bad years. No reference to how the £1m is invested.