Drawdown from investments

woody190388

I too am at the stage of analysing withdrawal rates as I approach retirement with a Sipp and no defined benefit pension. It seems that 3% is thought to be safer in the UK and I am happy with this as 3% will produce more than enough annual income for my family to start retired life. Our Sipps are invested in low cost global tracker funds (mainly vanguard) through a low cost investment platform (Interactive Investor). At the moment it is 69% equities, 6% commercial property, 19% bonds and 6% cash. So globally/industry diversified and high equity should provide decent returns in the long term and a cost basis that can't be reduced any further.

However, it does occur to me that there is much discussion about drawdown percentages and very little about investment costs and investment strategy. For example if my Sipp was invested with a high charging wealth management company (think St James Place) in a low risk/low return portfolio then 3% might be wildly optimistic.

I am not sure what the answer is but increasing numbers of the public are facing this decision in the coming years. I guess it will be good business for financial advisors helping people to navigate retirement. However, this will understandably be at a cost and that will ultimately reduce the drawdown percentage further. In a world where most people are risk averse and financially uneducated, this system of personally managed pension funds seems like a recipe for disaster.

TadleyBaggie

Thrugelmir wrote: »

That's a broad generalisation. How sustainable is your plan. If capital values were to fall. Likewise is your underlying investment income falling while you cash in "capital units".

My plan works for me, I have a final salary pension of £28K pa, 2 full state pensions and a small civil service pension. The income from them alone is enough to maintain lifestyle, the drawdown is merely a bonus on top and if the pot gets reduced over time it's not a big issue.

shinytop

I am not sure what the answer is but increasing numbers of the public are facing this decision in the coming years.

I agree. Most people wouldn't have a clue about how to manage a 6 figure sum in drawdown. The industry seems to have at least tried to cater for the mass market on the pension investment side with default funds, lifestyling, etc.; it needs to do the same for the drawdown phase.

Alexland

TadleyBaggie wrote: »

the drawdown is merely a bonus on top and if the pot gets reduced over time it's not a big issue.

You didn't make that clear in your previous post and the OP may need their money to last for a lifetime.

Thrugelmir

TadleyBaggie wrote: »

My plan works for me, I have a final salary pension of £28K pa, 2 full state pensions and a small civil service pension. The income from them alone is enough to maintain lifestyle, the drawdown is merely a bonus on top and if the pot gets reduced over time it's not a big issue.

Not suggesting that it doesn't work for you at the current time. I simply draw on the experience of actively traded for over 40 years now. To this day I've never found the Holy Grail of investing. I'll carry on looking though.....

Aged

Interesting thread, I'd like to follow. I'm in drawdown, have been for a couple of years. Have been withdrawing about 2% as have other sources of income, but one of those is about to end and I still have 5 years before my state pension kicks in so I need to find some extra income from somewhere. My health isn't good so I don't think I'll be around in 30 years or anything like it. Considering taking a bit more to cover at least part of the shortfall.

cfw1994

Thrugelmir wrote: »

TadleyBaggie wrote: »

I'm drawing 4.5% and in 3 years the pension value is still in excess of the starting point.

That's a broad generalisation. How sustainable is your plan. If capital values were to fall. Likewise is your underlying investment income falling while you cash in "capital units".

A broad generalisation?
Surely that was a simple statement of fact?
If your capital remains the same, whilst drawing X, then surely X sounds like a pretty darned safe withdrawal rate!
Sure you might need to tweak it if we have a lean year or two, but if the capital remains solid, you're doing well!

TadleyBaggie - be interested to know which sort of investments you are in (if it is easy to share & you don't mind, of course!)
I read generally that whilst the US often uses 4%, the number for the UK is around the 3.5% mark (as dunstonh said earlier), but it will depend on investments (much of mine are US-based)....and also whether you use a FA/IFA (who is also then taking a piece of it).

[Deleted User]

Many will tell you that they have been withdrawing 4 or 5% and how great they’ve done. And it’s true. Its what they call a “recency” bias. Both stocks and bonds have done great over the last 10 years.

The problem is that nobody knows what happens next. A prolonged bear early on after retirement could ensure someone withdrawing 4 or 3% dies in poverty. Are you ok with a small probability of large consequences? Variable percentage withdrawal is designed to deal with this risk.