Why I don't want to go with drawdown

[Deleted User]

Annuity is a valid option, particularly for part of your funds if your DB income is low. Keep inflation in mind when you buy one; inflation linked ones cost more but protect you against erosion of your income over time.

Another valid strategy is to buy annuity with the rest of ones funds after reaching a certain age, e g 80. For one thing, the older you are, the more they pay annually per pound of cost

dunstonh

That’s dangerous thinking AND a recency bias. High returns over the last 20 year period, if they suggest anything about the future, it’s that the expected returns will be lower.

Not really as it includes two periods of over 40% losses with one of those occuring right at the start (and not the growth period before it).

Plus, the funds have actually exceeded 5.5% p.a. as an average after charges. I built in a margin.

[Deleted User]

I would be concerned that the pot would get smaller
every year

Why? Do you want to bequest? You won’t be able to do that if you buy an annuity

Linton

Deleted_User wrote: »

That’s dangerous thinking AND a recency bias. High returns over the last 20 year period, if they suggest anything about the future, it’s that the expected returns will be lower.

Also, 20 year period is very short compared to how long newly retired people are expected to live

Over the past 20 years returns have not been that good. 10 years yes, 20 no. Someone investing in 1999 could well have lost in the period up to 2009 after both the .com crash and the 2008/9 crash. 20 years isnt very short compared with the average retirement lifetime, 85-88 is close to average life expectancy.


But yes, there is a risk. Its not a wild bet but still a risk.

[Deleted User]

dunstonh wrote: »

Not really as it includes two periods of over 40% losses with one of those occuring right at the start (and not the growth period before it).

Plus, the funds have actually exceeded 5.5% p.a. as an average after charges. I built in a margin.

Let’s just say that the majority of experts beg to differ. https://www.cnbc.com/2018/09/14/nobel-prize-winner-shiller-sees-bad-times-in-the-stock-market-ahead.html

[Deleted User]

On a side note, had we been talking in 2009, expected returns would have been high. But it’s been 10 years since the last major drop and valuations are high. Saying “there have been 2 40% drops in the last 20 years” tells us nothing about valuations today which are an important factor when looking at expected returns

[Deleted User]

Linton wrote: »

Over the past 20 years returns have not been that good. 10 years yes, 20 no. Someone investing in 1999 could well have lost in the period up to 2009 after both the .com crash and the 2008/9 crash. 20 years isnt very short compared with the average retirement lifetime, 85-88 is close to average life expectancy.


But yes, there is a risk. Its not a wild bet but still a risk.

Guess it depends how you invested but I’ve been in the market for just over 20 years and the returns have been good. The key point is that valuations are high and CAPE is high.

If you were expecting to be retired for 20 years, making a judgement based on data over a 20 year period is unacceptable. Like last years returns are unlikely to repeat this year. 100 twenty year periods would give some stats.

Besides, it’s not unusual to be retired for 35 years. Pretty scary scenario if you do and money runs out after 20.

bostonerimus

Drawdown of capital is inherent to a drawdown strategy that maximizes income. That makes many people nervous as it comes with the possibility of running out of money. If you plug the annuity with RPI income into a drawdown strategy I think you'll find that the probability of success is very high and that the annuity wins out only in extreme circumstances of very long life, stock market crashes and run away inflation. However, given your quoted fees of 1.35% I can see why you might look an an annuity. The idea of spending over 25% of your annual income on IFA fees is ridiculously obscene.

dunstonh

Deleted_User wrote: »

Let’s just say that the majority of experts beg to differ. https://www.cnbc.com/2018/09/14/nobel-prize-winner-shiller-sees-bad-times-in-the-stock-market-ahead.html

Who would have guessed that. A stockmarket crash is coming. Well I never.

There are always crashes coming. And the last 20 years includes two significant ones which were larger than most. They are also good ones to model as one was a quick decline in a W shape. The other was a slow decline over a three year period and happened right at the start (so no gains to begin with).

However, given your quoted fees of 1.35% I can see why you might look an an annuity. The idea of spending over 25% of your annual income on IFA fees is ridiculously obscene.

1.35% as a bottom line (adviser, platform and funds) would be absolutely fine. It's actually lower than a typical savings account.

michaels

Don't forget you can shop around for the best value annuity rather than just having to buy one from your pension company.

Don't most annuities have a CPI cap which IMO defeats the objective?