Drawdown at 55

ffacoffipawb

Mick70 wrote: »

So , regardless of how much you drawdown , you should only use 4% of the full pot value in year 1 And then just increase that amount by inflation year on year ? Is that about right

I believe so, yes.

That is what I am doing.

bostonerimus

Mick70 wrote: »

So , regardless of how much you drawdown , you should only use 4% of the full pot value in year 1 And then just increase that amount by inflation year on year ? Is that about right

Yes, but thats if you withdraw amounts to maintain spending power rather than modulating your withdrawal for investment gain as well as inflation.

Mick70

bostonerimus wrote: »

Yes, but thats if you withdraw amounts to maintain spending power rather than modulating your withdrawal for investment gain as well as inflation.

So just as an example .
If had pot £1m. And wanted to see it grow year on year by 3% (after all fees ) , could you drawdown in year 1 25k (4%) and increase that drawdown amount year on year by say 3% also ? Or have I got this completely wrong 😀😀

Albermarle

.Or have I got this completely wrong

Yes.

Read the posts above again . The idea is to withdraw approx. the same amount each year , just adjusted for inflation , regardless of the performance of investments that year . If you withdrew based on how investments were doing than you would have a variable income , rather than a steady one.
One rider to this is that if the investments have a particularly bad year then you should reduce the withdrawal amount ( if you can ) until they recover again and then maybe withdraw some more.

And wanted to see it grow year on year by 3% (after all fees )

To 'want' is different from what will actually happen.

Mick70

Albermarle wrote: »

Yes.

Read the posts above again . The idea is to withdraw approx. the same amount each year , just adjusted for inflation , regardless of the performance of investments that year . If you withdrew based on how investments were doing than you would have a variable income , rather than a steady one.
One rider to this is that if the investments have a particularly bad year then you should reduce the withdrawal amount ( if you can ) until they recover again and then maybe withdraw some more.

To 'want' is different from what will actually happen.

But isn’t 3% annual growth (after fees) on a low risk pot realistic or is that growth too high a forecast ?

bostonerimus

Mick70 wrote: »

So just as an example .
If had pot £1m. And wanted to see it grow year on year by 3% (after all fees ) , could you drawdown in year 1 25k (4%) and increase that drawdown amount year on year by say 3% also ? Or have I got this completely wrong 😀😀

Well, 4% would be 40k and if your gain and inflation numbers don't change from year to year you will be out of money in 26 years so your plan would not be a good one for most retirees. A 25k starting withdrawal could be sustained for 41 years.

The crux of the 4% rule is that it's a starting withdrawal that has a 95% probability of making your money last 30 years using US historical inflation and stock and bond returns of a 60/40 portfolio.

bostonerimus

Mick70 wrote: »

But isn’t 3% annual growth (after fees) on a low risk pot realistic or is that growth too high a forecast ?

It depends on the fees, and what you mean by "conservative"

You also have to consider that returns will vary from year to year and that in some years you might lose money....unless you are really conservative.

[Deleted User]

bostonerimus wrote: »

It depends on the fees, and what you mean by "conservative"

You also have to consider that returns will vary from year to year and that in some years you might lose money....unless you are really conservative.

There is no way to design a portfolio that can’t lose money n real terms.

Triumph13

Getting back to the original question of does retiring at 55 make a difference to the SWR, the answer is 'not much'. On back testing the great majority of portfolios that survive 30 years survive pretty well for ever. It's a relatively small percentage that make it to 30 but fail by say 45. When you add in to the mix the fact that in most of those 'extra' failure cases the odds are that you would expire before the portfolio did anyway you are left with very few cases where the 'early' retirement makes any difference.

Mick70

So if I had a spreadsheet where my pot increases yearly at 2-3% , to work out how long funds may last , I’m being overly optimistic with that and should bin it ?
I would have thought any investment should grow over the years otherwise may as well cash it in and out in bank ?