Outliving your pension

jamesd

LadyTC wrote: »

To help us make sure our money will last we use an online cashflow tool from Retireeasy. ... We have built 2 basic plans both with our outgoings increasing by 3% inflation and then growth set at 4% and 5%. We run out of money (before any downsizing) at age 92 at the 4% growth rate and are fine with growth at 5%.

At least the free version needs a lot of care because it doesn't use safe withdrawal rates but instead asks people to put in a growth rate. A safe withdrawal rate will normally be a couple of percent lower than what is calculated using unvarying growth rates.

You're probably safe, though, since you're using growth rates about 2% below historic ones and that's enough margin.

If you think that more spending would be useful you might look into the Guyton-Klinger drawdown rules. Those allow more spending early on and increase, skip inflation increases or decrease based on the times you live through. The free tool cfiresim provides that option. You can find some worked examples linked from here.

bostonerimus

Sea_Shell wrote: »

I've concocted a spreadsheet which you can set a growth (loss) rate, inflation rate and initial annual withdrawal amount and it then shows projections up to, well however many years you want to click and drag the formulas down to!!

For a long time I maintained a spreadsheet and used the online simulators, but as my DC and other investments aren't a big factor in my retirement income I've stopped running the simulations. If you are doing any projections it's very important to use good inputs. So sensible numbers for gain and inflation and then maybe some pessimistic and optimistic numbers to explore the extremes. Also you must have an accurate budget and an understanding of the variance in that budget; bills for a new roof and a new car in a year when the markets are down by 20% could spell trouble. Also low levels of excess spending for several years can compound to produce trouble.

So watch the budget, the withdrawal rate and your capital and keep running the models to see how you are doing.

LadyTC

Thanks James

itwasntme001

This question is for everyone and in particular jamesd:


Is there a UK version of firesim? If not, do you think it is worth having a UK version of it so that it includes global stock growth rates as opposed to US, uk income tax bands so that annual income is net of income taxes etc? Any other features that you would like to see in a web tool that is not there in firesim?


I have a friend who is a developer and is looking for a project to do.

jamesd

YES! Though preferably within not as a fork because that will increase adoption rate.

Some ideas:
1. More than ten what if trials, I'll often need more when exploring someone's options, 20 should suffice.
2. Easier provision for reducing income gradually while using Guyton-Klinger or other rules would be useful; you can fake it by adding false income at the moment.
3. Option to use Guyton's sequence of returns risk reduction method in addition to drawdown rules
4. A small cap percentage for investments, adding some small caps took the US SWR from 4% to 4.5% and Bill Bengen himself now normally writes of the 4.5% rule and includes them in his modelling.

Those are the main things I normally want to tell people to do.

DT2001

PH 91
My pension pot will not be used for an annuity. It will allow more to be drawn before SPA to fund the shortfall between guaranteed income and expected budget. I have mentally split my investment pots to allow for the use of part of the capital whilst the remainder is invested, with more risk, for post SPA.
At SPA my idea is to just take natural income as it will be funding ‘luxury’ spend not basic needs so that part of my capital will be preserved (although potentially decreasing in real terms).
Whilst having read the very valid points regarding taking an annuity later on for higher guaranteed income it is my intention, at the moment, to leave it to boost IHT free funds for our children.
I intend to be flexible regarding income and expenditure which 25 years of self employment has taught me to cope with more or less stress free (having 1st built up my emergency fund!)
I love the back of an envelope forecast because what is in there this month will be different next. IMO having plan A, B, C etc is the key. If you’re on this forum you’ll be continually developing your ideas/goals not sticking to some rigid fixed SWR.

GunJack

All this makes me very glad I've got 2x DB (plus SP) for when I retire - all this messing about with markets, funds, etc. will just get in the way of having fun in retirement

westv

GunJack wrote: »

All this makes me very glad I've got 2x DB (plus SP) for when I retire - all this messing about with markets, funds, etc. will just get in the way of having fun in retirement

On the other hand though, how will your Lamborghini be funded?

GunJack

westv wrote: »

On the other hand though, how will your Lamborghini be funded?

£20 for a Scalextric one? Easy-peasy :rotfl:

jamesd

GunJack wrote: »

All this makes me very glad I've got 2x DB (plus SP) for when I retire - all this messing about with markets, funds, etc. will just get in the way of having fun in retirement

Requires no more than an hour or two a year once set up:

1. Work out the new payments from your drawdown rule and adjust your monthly "pay" from your buffer savings account to this.
2. Change investments a required by the drawdown rule.
3. Adjust monthly payments from pension to savings account as required, selling a little if appropriate.

No particular deadline to do it either once the payments are set up.