Drawdown frequency

ukdw

I am about to start drawdown next tax year and trying to decide whether it would be best to:


a) Drawdown 1/12th of the annual amount monthly, or

b) Do a single lump sum drawdown in Mid April, put the lump sum in an instant access cash account (Marcus 1.5% for example) and then draw out a monthly 1/12th amount from the cash account.


The main advantages I can see of the more conventional monthly drawdown approach I can see are:
1. No emergency tax refunds admin to worry about
2. Smoothing of investment ups and downs during the year
3. The ability to clearly demonstrate a monthly income for credit card / bank account applications etc.

The main advantages I can see of the single lump sum approach are
4. An average net cash interest benefit on the saved drawdown funds of around 0.75% (based on 1.5% Marcus) - which would come to about £100 on an annual £12,500, or a larger ~£320 on a full basic rate tax £50k. - both of which are well within current tax free interest limits.


5. The ability to do a basic level of market timing - by delaying the drawdown to a better month/day of week if a fixed day in April is not generally the best month in the year for stocks and share etc. sales or if there is an obvious dip (due to Brexit disruption in April for example:eek:).


I am erring towards the single April lump sum approach due to the extra unwrapped interest, but I would appreciate any thoughts on what other people do.


Also are there any better accounts than instant access to hold the lump sum during the year that support monthly withdrawal. i.e. Is there anything around that is the opposite of regular saver account that gives regular account levels of annual interest;)?

anselld

Smoothing works agianst you on withdrawals. (See sequence of investment return risk). It is the opposite effect of pound cost averaging for regular investments on the way in.

So whilst you may or may not be able to "time the market" successfully, with a single lump you can at least assess your affordable position and set a budget for the year. You can cut back spending in years where the fund has under performed.

ukdw

anselld wrote: »

Smoothing works agianst you on withdrawals. (See sequence of investment return risk). It is the opposite effect of pound cost averaging for regular investments on the way in.

So whilst you may or may not be able to "time the market" successfully, with a single lump you can at least assess your affordable position and set a budget for the year. You can cut back spending in years where the fund has under performed.

Good point about smoothing - although I thought it would average out your sell price a bit and allow you to benefit from any growth later in the year.


Also good point about annual drawdowns giving you the ability to easily lower the drawdown amount after bad years - I guess you could then always do a second drawdown later in the year if things pick up again.

Brynsam

Is it really worth the hassle for just a few hundred pounds, depending on how much you decide to withdraw?

mgdavid

I do (b) and stash it into a mix of interest-bearing accounts (Tesco, TSB, Santander etc) and transfer smaller sums into current ('bills') account when needed.

AnotherJoe

ukdw wrote: »

5. The ability to do a basic level of market timing - by delaying the drawdown to a better month/day of week if a fixed day in April is not generally the best month in the year for stocks and share etc. sales or if there is an obvious dip (due to Brexit disruption in April for example:eek:

If there was any particular day on which not to sell, i reckon that might be known by now
Why do you think "Brexit disruption" would cause a dip? Are you mainly invested in companies that do most of their busienss in the UK?

AnotherJoe

ukdw wrote: »

Also good point about annual drawdowns giving you the ability to easily lower the drawdown amount after bad years - I guess you could then always do a second drawdown later in the year if things pick up again.

Wouldn't monthly withdrawals allow you to tune that better?

ukdw

AnotherJoe wrote: »

If there was any particular day on which not to sell, i reckon that might be known by now
Why do you think "Brexit disruption" would cause a dip? Are you mainly invested in companies that do most of their busienss in the UK?

According to this https://www.investopedia.com/day-trading/best-time-day-week-month-trade-stocks/. Friday's before long weekends could be a good day to sell so maybe I will consider May24th - before US Memorial Day.

On the Brexit front I suppose we could either get a single day dip like we did on the day after the referendum if there is disruption. Or alternatively if things go really well and the pound rises 15% that could push prices down I suppose.

GSP

Everyone will have different circumstances I am sure.
Into our second year of drawdown aged 56. Thoughts so far.
We received the first years money in one lump. This was great as we felt comfortable and "rich". But as a result we have been a little extravagant. To see that lump dwindle without increasing has felt uncomfortable as the figure rolled towards a couple of thousand. Life is for living however, you can't take it with you and there are things we would never had done if we received the money monthly.
Into our second year and we will use our married tax allowance and draw that in one go, then do another withdrawal on our pre retirement tax free portion. In all though, we will reign in from our first year that's for sure.
Thereafter, we will see how year 2 pans out. I think taking early retirement, we still have adjusting to do and need to take on some activities or interests that are cheap to do. We will adjust as we get older I am sure, but this is all early days yet. Just one thing, all eyes are on how that fund is doing but at the time it was a no brainer we chose drawdown instead of final salary because of circumstances.

As the third post said, was it worth worrying about with so little interest on offer at this time.

Linton

I take annual drawdowns shortly before the end of the tax year. The reasons are:


1) Maximum drawdown can be taken whilst keeping ones taxable income just below the HRT level as it is only then when one is certain about ones taxable income. Excess cash beyond that required for the following year is placed into S&S ISAs.
2) Drawing down from an equity portfolio requires a decision to be made as to what to sell. It is less effort and cheaper to make decisions as infrequently as posssible and to combine them with an annual portfolio review and rebalance.
3) Taking a one-off lump sum drawdown at the end of the tax year when one has accumulated 11 tax months minimises the chances of excess tax.

AnotherJoe

ukdw wrote: »

According to this https://www.investopedia.com/day-trading/best-time-day-week-month-trade-stocks/. Friday's before long weekends could be a good day to sell so maybe I will consider May24th - before US Memorial Day.

On the Brexit front I suppose we could either get a single day dip like we did on the day after the referendum if there is disruption. Or alternatively if things go really well and the pound rises 15% that could push prices down I suppose.

The dip was pretty much only in the FTSE wasnt it? And even that was short lived perhaps a week? My recollection is that world markets, eg US Germany Hong Kong etc had recovered by the end of the day. FTSE end of teh week and indeed UP. And thats without factoring in the Sterling fall, which for UK investors meant a rise.
Yes, a rise in Sterling witah "good" Brexit could indeed cause prices to fall in the same way as dips caused them to rise.
Trading to take account of that means you become a currency speculator. Thats too risky for me.