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Temporarily halt drawdown due to market situation?

35 replies 2.4K views
Like many on here I've seen my drawdown pot reduce over the last few weeks and have questions for anyone who can help.
Is this the time when I should think of stopping drawdown temporarily and instead using some of my cash back up to allow my pot to recover?  After all, isn't that one of the reasons for keeping a local fund?
What sort of calculations would I do to try and justify (or knock back) this approach?

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Replies

  • CleggClegg Forumite
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    Having sufficient cash as income to allow investments to recover in times like these is my planned strategy.  I am a few years away from retiring but have been reading up on this and planning accordingly (sequence risks).  Otherwise you will potentially decimate your investments (depending on pot size/income requirements etc).
  • LintonLinton Forumite
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    The whole point of a cash buffer is to avoid selling fund units/shares when you get significantly less money for them.  This is just a temporary measure, though you could plan for temporary to be several years.  If the buffer becomes seriously depleted you will need to review your retirement plan and possibly cut your planned expenditure.
  • edited 27 March at 12:37PM
    OldMusicGuyOldMusicGuy Forumite
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    edited 27 March at 12:37PM
    I hold a cash balance within my SIPP and am using that to support drawdown so I do not have to sell any investments. I use a "bucket" strategy rather than an annual safe withdrawal rate to avoid what is known as sequence of returns risk. I have been drawing down cash and planned to do so for a few years anyway prior to this crisis.
  • dunstonhdunstonh Forumite
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    Is this the time when I should think of stopping drawdown temporarily and instead using some of my cash back up to allow my pot to recover?

    Depends on your drawdown strategy, which you haven't mentioned.

    Are you using total return to feed the income or yield?

    Do you operate a cash account within your pension to hold 18-24 months (or similar in cash)?


    Market drops like this are relatively common (you will see several during retirement years).  So, planning for them is common sense and the cash buffer is one way to do it.

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • FermionFermion Forumite
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    I'm a great believer in holding income funds in Drawdown as it's a lot easier to see the true yield performance of your pot during a stock market crisis and of course of don't have to sell funds in a depressed market. I've actually got a cash buffer of about 10 months in my pot, but I'm reducing my monthly pension drawdown income by 20% from April 2020 due to the fall in pot value and also in anticipation of reduced yields/dividends for the coming year. My pot comprises about 85% Equity Income funds with a about 15% in defensive Shares (utilities, pharmaceuticals, etc). I went into Drawdown about 4 years ago, but I've been taking slightly less than the natural yield in pension, so up till a few months ago my pot had grown significantly. At the moment my pot is about 10% down. I'm planning for at least a further  short-term 10% fall in value but hoping for the best!
  • ThrugelmirThrugelmir Forumite
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    Guyton-Klinger produced four drawdown rules to optimise withdrawl. 
    • The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. This is by far the most effective of the rules. By making sure that withdrawals are frozen in the years following a negative portfolio return, the danger of pound-cost ravaging is drastically minimised. Following the rule means clients do not ‘make up’ for missed withdrawal increases.
    • The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.
    • The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.
    • The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. Doing this means the client does not miss out on higher sustainable spending when markets are doing well.
    “An investor who has all the answers doesn’t even understand all the questions.” - John Templeton
  • StubodStubod Forumite
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    We have stopped drawing down, but then we have a "reasonable" cash buffer for such an occasion...shame as we have only been in drawdown since the start of the year!
  • edited 27 March at 4:01PM
    dunstonhdunstonh Forumite
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    edited 27 March at 4:01PM
    I'm a great believer in holding income funds in Drawdown as it's a lot easier to see the true yield performance of your pot during a stock market crisis and of course of don't have to sell funds in a depressed market.

    Whilst that is an entirely viable method, it is not without pitfalls.   

    1 - Relies on yield.  Only way to get a decent yield nowadays is increase your risk.    The risk level required may not be suitable for many of the UK investors (who tend to prefer holding 40-60% equities typically)

    2 - Yield can fall.   Shares can stop dividends during periods of extreme events.  High yield portfolios were decimated during the credit crunch as high yield back then required financials.  BP was another.  Now you have the CV you have companies suspending their dividends.   

    Shares that pay good dividends tend to have slower price growth.  So, if dividends are stopped, you have the double whammy of a share that has given you lower growth and no dividend.


    There are pros and cons to every investment strategy.   

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ThrugelmirThrugelmir Forumite
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    Fermion said:
    I'm a great believer in holding income funds in Drawdown as it's a lot easier to see the true yield performance of your pot during a stock market crisis and of course of don't have to sell funds in a depressed market.
    Dividends are being cancelled across the board ( UK shares). What's your contingency plan given that capital values have also fallen. 
    “An investor who has all the answers doesn’t even understand all the questions.” - John Templeton
  • FermionFermion Forumite
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    Fermion said:
    I'm a great believer in holding income funds in Drawdown as it's a lot easier to see the true yield performance of your pot during a stock market crisis and of course of don't have to sell funds in a depressed market.
    Dividends are being cancelled across the board ( UK shares). What's your contingency plan given that capital values have also fallen. 
    Quite simply I'll reduce my income to match the natural yield of my total pot, although I have a 10-12 month cash buffer. I also have other cash available if required. 
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