Drawdown at 55

bostonerimus

Mick70 wrote: »

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 ?

You need to take risk to get gains that will support an inflation linked 4% drawdown, so if you are being "conservative" (whatever than means) you will need to reduce your withdrawal

Triumph13

Mick70 wrote: »

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 ?

That kind of spreadsheet is very useful when saving for retirement. It gives the best estimate of when you will reach your target, and if you get there sooner or later you can change strategy. It is much less use once you retire and start drawing money if you want to withdraw fixed mounts. I hate to break it to you, but we live in a probabilistic universe, not a deterministic one. Investments don't generally churn out the same return year after year after year. They might go up 5% one year, down 30% the next, up 15% the year after and so on. Their market value is supposed to reflect the expectation of the AVERAGE growth over many future years, not what they will do in any particular period. That's what we buy them for - the long term.

jamesd

Mick70 wrote: »

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 ?

Because that doesn't allow for sequence of returns risk it will give an answer 1-2% higher than the safe withdrawal rate.

That will probably work just because you're not likely to live through sufficiently bad times. Sufficiently bad would be early on having a few years of high inflation or a bad initial decade. In either case you have time to adjust.

Since people tend to reduce spending as they get older and don't normally die on the last day of the plan you'll have additional protection.

jamesd

tacpot12 wrote: »

I am applying inflation to the figures being withdrawn, not to the percentage of the pot being withdrawn. The percentage of the pot being withdrawn should always be 4% if you are applying the 4% rule. If you increase your withdrawal amount by inflation, unless your portfolio value has increased by the rate of inflation, you are not drawing 4% and hence you are not operating the 4% rule.

The 4% rule starts at 4% and increases by inflation each year. There is no adjustment based on the changing portfolio value.

tacpot12 wrote: »

Because so much of the research and analysis is undertaken in the USA, where they don't have a state pension

They do. It's called Social Security and works like the old UK state pension system, paying an average of $14,760/year in 2013.

tacpot12 wrote: »

the 4% is unnecessarily SAFE for most retirees in the UK. I'm withdrawing 5.6% of my pension pot each year and have run this through CFIRESIM for a 45 year retirement and it is succeeds 100% of the time

That's unsurprising once the state pension is allowed for using a tool like cfiresim. It'd be normal to withdraw faster before state pension age because the state pension will take over some of the income provision.

Someone expecting 8500 state pension after five years with 100k pot can calculate without tools like this:

5 * 8500 = 42500 leaves 57500
57500 * 4% = 2300 a year for 30 years
So start on 8500 + 2300 = 10800

That's a drawing rate of 10.8% of the initial pot for 5 years, then 2.3% for the rest of the plan, which is 4% of the value left after bridging the gap.

But such a person should instead consider deferring claiming their state pension for a year and draw all 10800 from investments. That increases the state pension by 5.8%, 493, for the 8500 cost and increases their rest of life income from 10800 to 10800 - 4% of 8500 + 493 = 10953.

For simplicity I ignored changes to 30 years and used today's money with investments growing at the rate of inflation to avoid the need for inflation-adjusted nominal amounts.

tacpot12 wrote: »

I also plan to adjust my withdrawal rate based on the Cyclically Adjusted Price Earnings (CAPE) ratio for the UK stockmarket (as over 60% of my investment is UK based). There is an Early Retirement Now article on CAPE and it persuaded me that this was a better method than Guyton-Klinger, or any of the other methods.

Given that their analysis of Guyton-Klinger didn't use the Guyton-Klinger rules and the problems their version had were caused by the changes they made you should use great caution with anything written there.

Combining the real Guyton-Klinger rules with Guyton's sequence of return risk reduction method that adjusts the asset mix based on CAPE is what I suggest. Combined usually with some state pension deferral and eventually some annuity buying.