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

Anonymous101

shinytop said:

Anonymous101 said:

Sea_Shell said:

LHW99 said:

coyrls said:

Bravepants said:

I think 4% should be considered as a "guideline" on the MAXIMUM amount to withdraw. If one needs to draw less, then certainly draw that. I'm aiming for 3%.

I think you would be very brave to start with the full 4%.  In the original studies, no account was taken of investment costs and charges and subsequent studies reduced the rate for UK investors to, I think, 3 to 3.5%.  There are more sophisticated variable withdrawal rate strategies for which jamesd has provided a lot of references in his Safe Withdrawal Rate thread.

Also, it depends on how long you want it to last. If you want to start drawing at 55, 30 years may well leave you short in later old age if things go wrong.

And what any DB or SP provision is too!

If they cover the basics, then everything else is "gravy".

SP is a very good point especially for a couple. I do feel like having the SP to fall back on is a huge safety net which pretty much takes care of the basics for us. When I think about being FI in my mid 40's this excludes SP and when in reality even if setting off close to 4% one should be factoring in that from SP age the WR may step down to just 1-2%.

How did you factor in SP when planning your retirement?

Agreed.  That's exactly the situation we're in.  Having just retired the plan is around 4% but in 7 years SP kicks in and it should drop to well under 2%.  If you use the (perhaps optimistic?) 4% rule, each £9k SP is worth £225K 'CETV'.  It's a significant for most people and  even more so for a couple. 

Yes that's how I would think about it, effectively another £450k worth of a pot that we won't need to draw down upon when / if we get to SP age and there still is a benefit we can claim.
I agree with your approach Sea Shell for an early retiree, with SP being so far away (30 years at least for us) the risk of legislative change is too big to rely upon SP in any meaningful way.
Once its just a few years away as for Shinytop then the position is much more reliable and it'd be possible to factor in and perhaps loosen the purse strings slightly if you like.

MK62

One big potential issue with couple's pension planning and the state pension is what happens if/when one partner dies, perhaps much earlier than planned or expected.......in my/our case we should be able to get by, just, on both state pensions, but neither of us would get by on the one state pension alone in the event one of us checks out early.....in reality your costs don't halve when one partner dies.....and the last thing you'd need after losing your partner would be a personal financial crisis on top....

cfw1994

coyrls said:

Bravepants said:

I think 4% should be considered as a "guideline" on the MAXIMUM amount to withdraw. If one needs to draw less, then certainly draw that. I'm aiming for 3%.

I think you would be very brave to start with the full 4%.  In the original studies, no account was taken of investment costs and charges and subsequent studies reduced the rate for UK investors to, I think, 3 to 3.5%.  There are more sophisticated variable withdrawal rate strategies for which jamesd has provided a lot of references in his Safe Withdrawal Rate thread.

OR.....it could possibly be much higher.   
Jonathan Guyton and William Klinger found that initial withdrawal rates could be increased from roughly 4.1% to 5.2-5.6% (see here)by utilizing a series of decision rules which determine whether a retiree will make adjustments to their portfolio – such as not taking an inflation adjustment in a given year when the market is down, or cutting retirement income more significantly in bad times (and then making it up later once markets more-than-recovered).   I recall @jamesd posting a few times about the Guyton-Klinger rules....makes some sense to me.
I feel that being flexible and disciplined enough is the key.   If you are of nervous disposition, perhaps go with 3.5%.

Stubod

..ref the 4% rule (or safer 3%), I am assuming this is a one off "starting figure"? ie you have a pot of (say) £500k so based on 4% you would assume that you could start taking £20k per year increasing by inflation for a number of years?..does this plan assume the pot is "emptied" after (say) 25 years, or will it remain the same?...

Anonymous101

Stubod said:

..ref the 4% rule (or safer 3%), I am assuming this is a one off "starting figure"? ie you have a pot of (say) £500k so based on 4% you would assume that you could start taking £20k per year increasing by inflation for a number of years?..does this plan assume the pot is "emptied" after (say) 25 years, or will it remain the same?...

Covered a couple of pages ago but it was based upon several studies by Bill Bengen and a group at Trinity University which intended to work out what the maximum starting percentage (then adjusted by inflation) could be at any point in history and you not run out of money after 30 years.
In the worst case scenario the 4% ran out after 33 years, in 75% of the cases a 4% withdrawal rate would result in more money than you started with despite the drawdown.

coyrls

cfw1994 said:

coyrls said:

Bravepants said:

I think 4% should be considered as a "guideline" on the MAXIMUM amount to withdraw. If one needs to draw less, then certainly draw that. I'm aiming for 3%.

I think you would be very brave to start with the full 4%.  In the original studies, no account was taken of investment costs and charges and subsequent studies reduced the rate for UK investors to, I think, 3 to 3.5%.  There are more sophisticated variable withdrawal rate strategies for which jamesd has provided a lot of references in his Safe Withdrawal Rate thread.

OR.....it could possibly be much higher.   
Jonathan Guyton and William Klinger found that initial withdrawal rates could be increased from roughly 4.1% to 5.2-5.6% (see here)by utilizing a series of decision rules which determine whether a retiree will make adjustments to their portfolio – such as not taking an inflation adjustment in a given year when the market is down, or cutting retirement income more significantly in bad times (and then making it up later once markets more-than-recovered).   I recall @jamesd posting a few times about the Guyton-Klinger rules....makes some sense to me.
I feel that being flexible and disciplined enough is the key.   If you are of nervous disposition, perhaps go with 3.5%.

Yes, as I mentioned there are more sophisticated variable withdrawal rate strategies that are referenced in jamesd's thread.

michaels

coyrls said:

cfw1994 said:

coyrls said:

Bravepants said:

I think 4% should be considered as a "guideline" on the MAXIMUM amount to withdraw. If one needs to draw less, then certainly draw that. I'm aiming for 3%.

I think you would be very brave to start with the full 4%.  In the original studies, no account was taken of investment costs and charges and subsequent studies reduced the rate for UK investors to, I think, 3 to 3.5%.  There are more sophisticated variable withdrawal rate strategies for which jamesd has provided a lot of references in his Safe Withdrawal Rate thread.

OR.....it could possibly be much higher.   
Jonathan Guyton and William Klinger found that initial withdrawal rates could be increased from roughly 4.1% to 5.2-5.6% (see here)by utilizing a series of decision rules which determine whether a retiree will make adjustments to their portfolio – such as not taking an inflation adjustment in a given year when the market is down, or cutting retirement income more significantly in bad times (and then making it up later once markets more-than-recovered).   I recall @jamesd posting a few times about the Guyton-Klinger rules....makes some sense to me.
I feel that being flexible and disciplined enough is the key.   If you are of nervous disposition, perhaps go with 3.5%.

Yes, as I mentioned there are more sophisticated variable withdrawal rate strategies that are referenced in jamesd's thread.

You can explore your own SWR on the cfiresim website
https://cfiresim.com/

Terron

shinytop said:

Anonymous101 said:

Sea_Shell said:

LHW99 said:

coyrls said:

Bravepants said:

I think 4% should be considered as a "guideline" on the MAXIMUM amount to withdraw. If one needs to draw less, then certainly draw that. I'm aiming for 3%.

I think you would be very brave to start with the full 4%.  In the original studies, no account was taken of investment costs and charges and subsequent studies reduced the rate for UK investors to, I think, 3 to 3.5%.  There are more sophisticated variable withdrawal rate strategies for which jamesd has provided a lot of references in his Safe Withdrawal Rate thread.

Also, it depends on how long you want it to last. If you want to start drawing at 55, 30 years may well leave you short in later old age if things go wrong.

And what any DB or SP provision is too!

If they cover the basics, then everything else is "gravy".

SP is a very good point especially for a couple. I do feel like having the SP to fall back on is a huge safety net which pretty much takes care of the basics for us. When I think about being FI in my mid 40's this excludes SP and when in reality even if setting off close to 4% one should be factoring in that from SP age the WR may step down to just 1-2%.

How did you factor in SP when planning your retirement?

Agreed.  That's exactly the situation we're in.  Having just retired the plan is around 4% but in 7 years SP kicks in and it should drop to well under 2%.  If you use the (perhaps optimistic?) 4% rule, each £9k SP is worth £225K 'CETV'.  It's a significant amount for most people and even more so for a couple. 

It's not really optimistic. It is based on the idea that the future is not likely to be worse than the worst of the past, which given that that past included the great depression and the oil crisis of the 70s isn't setting that high a bar. It also included two world wars but they weren't that bad for the US stock market. If use the UK stock market the figures are a bit worse (~3.5%).

As others have mentioned 4% came from the original studies. There has been a lot more research done since then. Still it remains a good rule of thumb for long range pension planning. Work out how much you would like to have on top of the state pension/ DB pensions, multiply it by 25 and that will give you a fugure to aim for.

jamesd

shinytop said:

Agreed.  That's exactly the situation we're in.  Having just retired the plan is around 4% but in 7 years SP kicks in and it should drop to well under 2%.  If you use the (perhaps optimistic?) 4% rule, each £9k SP is worth £225K 'CETV'.  It's a significant amount for most people and even more so for a couple. 

4% is what worked in the worst case of the US sequences over a 30 year term. Substituting small caps for some of the equities increased it to 4.5%. Increasing with uncapped inflation every year. Worst historic case is very pessimistic.

For the UK it's about 0.3% lower and after deducting more for all costs that takes 4% down to 3.2%. UK 40 year Guyton-Klinger starts at 5% on the same basis but 99% success rate. It doesn't have to start as pessimistic because it adjusts based on what you end up living through.

For SP you deduct 7 times your SP from the pot and use a safe withdrawal rate based on what remains.

shinytop

jamesd said:

shinytop said:

Agreed.  That's exactly the situation we're in.  Having just retired the plan is around 4% but in 7 years SP kicks in and it should drop to well under 2%.  If you use the (perhaps optimistic?) 4% rule, each £9k SP is worth £225K 'CETV'.  It's a significant amount for most people and even more so for a couple. 

4% is what worked in the worst case of the US sequences over a 30 year term. Substituting small caps for some of the equities increased it to 4.5%. Increasing with uncapped inflation every year. Worst historic case is very pessimistic.

For the UK it's about 0.3% lower and after deducting more for all costs that takes 4% down to 3.2%. UK 40 year Guyton-Klinger starts at 5% on the same basis but 99% success rate. It doesn't have to start as pessimistic because it adjusts based on what you end up living through.

For SP you deduct 7 times your SP from the pot and use a safe withdrawal rate based on what remains.

Sorry if I'm being a bit thick but I'm not sure what you mean here?