It's time to start digging up those Squirrelled Nuts!!!!

Sea_Shell

Joeygirl72 said:

Only just found this thread, very interesting.
this is what me & my DH are doing.
great to see another lady on here, so interested & fired up about money & how it can work for the future .
bit easier for us to take a ‘contrarian’ view of managing finances In this way, as we have no children or dependents at all. ( we have sold our house & rent)....
i wonder, are you invested in income generating funds within your ISA’s.  I am, I have switched many funds to dividend paying & when the dividends pay I buy more shares/ units in them.  When we start taking the income in 2022/23, I will just start diverting these to the bank, to spend.

Glad you're enjoying it, and welcome.

Our ISA funds are still in Accumulation units, so growth is automatically reinvested.

We have plenty of cash until DH goes into drawdown and then we'll live on that.

We just need to learn to spend more, as, as it stands, we may never actually touch our ISAs!!!

Joeygirl72

Yep, it’s a weird one to get your head around.....
you spend most of your life earning & saving, so to get your head round spending it - flipping it on its head is weird (& then you think you may not spend it all When you do the maths),
With This in mind, I do get fed up with lots of people just looking at the 4% rule with pensions - nobody wants to spend the capital,!  You can’t take it with you.......

coyrls

Joeygirl72 said:

Yep, it’s a weird one to get your head around.....
you spend most of your life earning & saving, so to get your head round spending it - flipping it on its head is weird (& then you think you may not spend it all When you do the maths),
With This in mind, I do get fed up with lots of people just looking at the 4% rule with pensions - nobody wants to spend the capital,!  You can’t take it with you.......

Why do you think the 4% "rule" doesn't involve spending capital?

CFrog

Joeygirl72 said:

Yep, it’s a weird one to get your head around.....
you spend most of your life earning & saving, so to get your head round spending it - flipping it on its head is weird (& then you think you may not spend it all When you do the maths),
With This in mind, I do get fed up with lots of people just looking at the 4% rule with pensions - nobody wants to spend the capital,!  You can’t take it with you.......

Excuse my ignorance, but what's the '4% rule with pensions'.  TIA.

shinytop

CFrog said:

Joeygirl72 said:

Yep, it’s a weird one to get your head around.....
you spend most of your life earning & saving, so to get your head round spending it - flipping it on its head is weird (& then you think you may not spend it all When you do the maths),
With This in mind, I do get fed up with lots of people just looking at the 4% rule with pensions - nobody wants to spend the capital,!  You can’t take it with you.......

Excuse my ignorance, but what's the '4% rule with pensions'.  TIA.

4% is sometimes quoted as the  'safe withdrawal rate', i.e. the percentage of your initial amount you can draw out of your invested pot each year, increasing by inflation, so that you never run out of money.  Or sometimes it's used as a guide to how much you need to save to fund your retirement, i.e. 25x your desired income.  Lots of discussion (and disagreement!) on this board and via Google.  

Audaxer

Joeygirl72 said:

Yep, it’s a weird one to get your head around.....
you spend most of your life earning & saving, so to get your head round spending it - flipping it on its head is weird (& then you think you may not spend it all When you do the maths),
With This in mind, I do get fed up with lots of people just looking at the 4% rule with pensions - nobody wants to spend the capital,!  You can’t take it with you.......

The 4% rule as a safe withdrawal rate usually involves spending capital as well as dividends from the total return of investments. It is generally believed that you achieve a more globally diversified portfolio with better returns, if you don't focus on dividend paying funds alone, even when retired.

Anonymous101

The "4% rule" actually came about from papers published after studies on safe withdrawal rates from the Trinity University in the US. They studied portfolio drawdowns and concluded that when compared with historical data a 4% drawdown would have survived any 30 year period. I believe in 75% of cases the portfolio was worth more than the initial principle.

It was a study of the historical data to see what the maximum withdrawal rate could be if you retired at any point during the history of the data. Literally a worst case scenario of the data set. Not a forecast of future SWR and not a preservation of capital withdrawal rate.

Terron

Anonymous101 said:

The "4% rule" actually came about from papers published after studies on safe withdrawal rates from the Trinity University in the US. They studied portfolio drawdowns and concluded that when compared with historical data a 4% drawdown would have survived any 30 year period. I believe in 75% of cases the portfolio was worth more than the initial principle.

It was a study of the historical data to see what the maximum withdrawal rate could be if you retired at any point during the history of the data. Literally a worst case scenario of the data set. Not a forecast of future SWR and not a preservation of capital withdrawal rate.

The first paper predated the Trinity ones - https://www.retailinvestor.org/pdf/Bengen1.pdf

The rate is the %age of the original pot which is then adjusted by inflation to maintain your lifestyle. At 4% the shortage period before the money ran out was 33 years.

The initial study used a 50/50 stock/bond mix.

Sea_Shell

If we applied the 4% "rule" to our current pot, as if today was "day 1", then we'd be pulling out £23,400!!!       

Our annual spends are looking like about £11,500 this year! - Must try harder!!     (Although I don't think the shackles of CV19 will be fully removed for next year to be a spending bonanza!)

The "rule" also means that you should be able to continue to pull that sort of cash during a downturn, and not be too effected by "pound cost ravaging" * as you should have enough left to regain losses during a recovery.    Although a bad "sequence of returns" * in the early days, with a slow recovery, could put that in jeopardy.     It's not a strategy with zero risk!

However, in that situation, we would (not sure about others) still be looking to "tighten our belts" and not just plough on at 4% regardless.

* I'm not going to explain those terms here...you'll have to google them!

Anonymous101

You could look at it that even though you are living off your investments you still have a "savings" rate of over 50%

Of course you are correct about the rule. The study was based upon drawing the 4% plus inflation every single year regardless of the market conditions. That's not a realistic situation at all in my opinion, some belt tightening would be inevitable. That's only possible however if you have enough headroom within the original figures, which you clearly do. Tightening digressionary spending on cars, meals out and holidays is one thing, but cutting back on the weekly shop and household heating bills is quite another.