Why I don't want to go with drawdown

[Deleted User]

Why not go half and half?

OldMusicGuy

Like you I am very risk averse. However, as tempted as I am, I would not buy an annuity until I am older and rates have improved (I am 62).

I use a "bucket" strategy. I have a lot of cash (more than most on here) in my SIPP to avoid pound cost ravaging, the rest is invested for at least 10 years in multi-asset funds at a 50/50 equity/bond split. I have a fair amount of cash outside the SIPP which is held in a bond ladder.

It's not going to get much growth but all I need to do is match inflation as I have enough to last us for at least 30 years. That strategy enables me to sleep at night.

FWIW I am using UFPLS up to SP age for tax reasons. I will then drawdown and then possibly start to phase in annuities later in life (not before 70 at the earliest).

AnotherJoe

choi wrote: »

Just crunched some numbers on the Drawdown
Pot Starts at £250k
Let's say yield is 3% average over 10 years
IFA and other costs at 1.3 % pa

After ten years my pot has fallen to £219341.00


Thats because of your totally unrealistic yield guess, allied with your high costs of 1.3%.
You are saying you'll get an overall return of just 1.7% with investments. Then it would make no sense to use investments , use savings at about 2.5% instead, which have zero risk of loss of capital (ignoring inflation for now)

I have taken yield only at 3% = £70758.00 over ten years
EIther use a realistic yield level above that of savings or abandon investments and use savings.

The annual yield is falling each year
But of course 25% of the payment is tax free

If I compare with an annuity over ten years
I get £71664.00 in ten years
My payments are increasing each year with RPI
My wife is covered by 50% Spouse

On the drawdown option I could of course end it at any time and use the remaining pot to buy an annuity
Let's say after 5 years
I would then be 72 and could get a better deal
Hopefully

It's this kind of dilemma that is frazzling my brain

Your (IMO) ridiculously high caution levels are leading you to make mistakes such as not realizing your assumptions on yield are so low, below savings rates, that they make no sense, either change your assumptions/investments or use savings.

What I think you are doing is piling all the bad possibilities on top of each other in your attempt to reduce risk, and in doing so you are creating a different risk which becomes a certainty, that of picking a very poor option.


Critically, by just looking at each investment one at a time, you are in danger of picking the worst one for each seperate one.

As many have said, work holistically across all your investments, picking fixed income from some until you've satisfied your basic spending needs, which i think were £30k, and then invest for teh rest.
For example you have

Rental income £8.4k
SP maybe £8k ?

Wife SP maybe £8k ?

Wife pension maybe same £8k ?



Thats your £30k after tax .

Put the rest in moderate investments (at lower than 1.3% costs hopefully) and a savings ladder at 2.5%, what they provide is gravy on top.


Stop looking at individual income from each, the whole idea is to spread across multiple modes so as to minimise risk, which is one of your key aims. By picking "low risk" separately each time you are increasing risk (in your case to a certainty of extremely low returns).

choi

AnotherJoe wrote: »

Your (IMO) ridiculously high caution levels are leading you to make mistakes such as not realizing your assumptions on yield are so low, below savings rates, that they make no sense, either change your assumptions/investments or use savings.

What I think you are doing is piling all the bad possibilities on top of each other in your attempt to reduce risk, and in doing so you are creating a different risk which becomes a certainty, that of picking a very poor option.


Critically, by just looking at each investment one at a time, you are in danger of picking the worst one for each seperate one.

As many have said, work holistically across all your investments, picking fixed income from some until you've satisfied your basic spending needs, which i think were £30k, and then invest for teh rest.
For example you have

Rental income £8.4k
SP maybe £8k ?

Wife SP maybe £8k ?

Wife pension maybe same £8k ?



Thats your £30k after tax .

Put the rest in moderate investments (at lower than 1.3% costs hopefully) and a savings ladder at 2.5%, what they provide is gravy on top.


Stop looking at individual income from each, the whole idea is to spread across multiple modes so as to minimise risk, which is one of your key aims. By picking "low risk" separately each time you are increasing risk (in your case to a certainty of extremely low returns).

You say 1.3% for overall costs from IFA is too high
(It is in fact 1.35% as my previous post)

What would a more reasonable cost be for
Platform plus General Management Plus Portfolio Adjustments

choi

bostonerimus wrote: »

Set up a balanced income portfolio for cautious risk
Cost approx 0.6%
Yield circa 3.5 - 4.0%
Cost pa to run
Circa
Platform 0.25%
Running Fund 0.5%
Portfolio Costs 0.6%

So you'll be paying 1.35% and getting maybe 4% return.....that's expensive IMO. What will this income portfolio contain? some bonds and some dividend stocks?

You say 1.35% pa is high
What would be a fair cost
Platform
Running Fund
Portfolio Costs

bostonerimus

choi wrote: »

You say 1.35% pa is high
What would be a fair cost
Platform
Running Fund
Portfolio Costs

If you went DIY you could avoid IFA costs entirely and I bet you could come up with a combination of platform and fund costs that would keep your costs close to 0.5%.

FYI if you are getting 3% and spending 1.35% on fees, you'd be better off with a DIY saving bond ladder that paid 2%. Also do you know what your IFA portfolio would be invested in?