How much pension will you get? Build your own dashboard to keep track of your progress

Thrugelmir

Deleted_User wrote: »

I think 4% wild guesstimate is just fine as long as you are prepared to reduce your expenditure if the market were to tumble just after you retire.

Which market are you refering to though? An awful lot gets written on the basis of heresay. Rather than researched fact. The original conception for the SWR is undisputed. Trouble is the world has moved on since then.

jamesd

dunstonh wrote: »

That is very bold of MSE. Regulated advisers wouldn't dare refer to it as a safe withdrawal rate. The FCA would have a field day. Pretty much auto-upheld complaints if that was used. However, if MSE is prepared to face the flack when it goes wrong then I guess that is fair enough.

Well, "safe withdrawal rate" is what the relevant research is called, so in the context of journalism - the author among other things having formerly been a personal finance writer for the UK's leading financial newspaper - it's not too bad. Particularly given the dashboard and pension tracking theme.

[Deleted User]

Thrugelmir wrote: »

Which market are you refering to though? An awful lot gets written on the basis of heresay. Rather than researched fact. The original conception for the SWR is undisputed. Trouble is the world has moved on since then.

The one you are investing in. For me it’s the world.

Saying “undisputed” about any concept is kinda silly, more so when generally accepted SWR keeps changing every other year.

jamesd

For those who want to know more about 4% and safe withdrawal rates: the safe withdrawal rate is the income you can take for the specified number of years with the specified investment mixture and still not run out of money even in a repeat of the worst situation in the last 125 or so years. There are many rules that can be used, two quite well known ones are:

1. the "4% rule" called that because it's about that for Americans. The rule says that if you invest in a mixture of 60% shares and 40% bonds with no costs at all and are in the US you can take 4% of the starting pension pot as your income and increase it with inflation each year and the money historically would last at least 30 years. Normally you'd have more money than you started with after 30 years but to be safe the rule has to assume the worst case. With total costs of 1.5% the UK equivalent is 3.2%.

2. the Guyton-Klinger rules. For a UK person with 1.5% in costs and 65% shares, 35% bonds you can start out taking 5% of the pot value. These rules usually increase that with inflation each year but skip the increase or cut if things go badly. If things go as they have on average or better there would usually be increases above inflation from time to time. The 5% start is for success in lasting at least 40 years in 90% of historic cases. That's roughly the same as saying if you live through a repeat of one of the world wars or the great depression you'll have to make extra cuts.

For references for 3.2% and 5% and more of an introduction to the subject see [URL="https://forums.moneysavingexpert.com/discussion/5466114safe withdrawal rates[/URL].

jamesd

Thrugelmir wrote: »

Care to substantiate this ?

No real substantiaion seems needed. It's true that 4% is a widely used rule of thumb and it's no more a guarantee than any rule of thumb.

It happens that I recently compared 4%to some more sophisticated 4% rule calculations and plain 4% did pretty well in a fair range of situations. Well enough so that the main issue in those cases would be the times you lived through in retirement, not using plain 4%.

The article does seem to be tacitly assuming retirement at or very close to state pension age, though.

bostonerimus

The 4% rule comes from historical US markets... any model is going to be unsatisfactory for many because it's difficult to predict the future from what's happened in the past. To successfully retire it's useful to be comfortable with assessing risk, probabilities and modulating your withdrawal rate according to personal and market circumstances.

jamesd

bostonerimus wrote: »

The 4% rule comes from historical US markets... any model is going to be unsatisfactory for many because it's difficult to predict the future from what's happened in the past.

The rules aren't predicting the future. What they are doing if 100% success rate is used is saying that you won't need to adjust more than the rules do unless you live through something worse than either world war or the great depression.

You're likely to live through far better times than that and be able to draw more money.

bostonerimus

jamesd wrote: »

The rules aren't predicting the future.

Exactly, the models give the probability of various outcomes given the statistical distribution of a large number of parameters. Personally I hate probability and so I use a DB pension and rent to fund my retirement so I can be rather sanguine about the equity and bond market casino.

[Deleted User]

I am ok with probability. As long as it’s 1 in a million or thereabouts. Lightning strike, cancer before hitting 40, car accidents... Life is full of probabilities, we are betting every time we go for a walk. Has to be informed risk though. A heck of a lot of people have taken a walk before us.

Now... when we take 100 years’ worth of stock data in the one country that went from an emerging market to an economic superpower and apply these data to the next 50 years under completely different conditions to all sorts of brexity places and claim 4% = nirvana guaranteed... Count me as a sceptic.

dharm999

Monevator covered this very recently, two very detailed articles:

https://monevator.com/what-is-a-sustainable-withdrawal-rate-for-a-world-portfolio/

https://monevator.com/how-to-improve-your-sustainable-withdrawal-rate/

He ended up at, 4%, so maybe it's not such a crazy number.

Having said that, I'm using 3%, combined with a real low growth rate of 3%, in my spreadsheet