What number are you aiming for - solely DC pot

Mistermeaner

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

I understand a number of studies have shown this to Be sustainable over a 30+ year period with your withdrawal increasing by inflation each year 

do you have a better way to calculate it ? 

garmeg

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

That you run out of life before you run out of money.

cfw1994

Mistermeaner said:

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

I understand a number of studies have shown this to Be sustainable over a 30+ year period with your withdrawal increasing by inflation each year 

do you have a better way to calculate it ? 

Pretty sure BritishInvestor is a FA/IFA: maybe they could explain why 3-4% is unreasonable.   

Most every study I’ve read on SWR suggests that is entirely reasonable. 

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ is pretty solid read.

https://www.cnbc.com/2017/02/09/that-4-percent-rule-could-spell-trouble-for-early-retirees.html warns of “trouble”, but still suggests 3.5% is okay.  Maybe you are Sam Dogan on that page.....
I’ve read some who suggest the UK should use 3-3.5%....although not really with any logic, to me, when one might be invested in precisely the same funds as an American....but either way, it still falls in the 3-4% range.

So: BritishInvestor, show us what you’re made of: why do you think 3% is unreasonable?

BritishInvestor

cfw1994 said:

Mistermeaner said:

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

I understand a number of studies have shown this to Be sustainable over a 30+ year period with your withdrawal increasing by inflation each year 

do you have a better way to calculate it ? 

Pretty sure BritishInvestor is a FA/IFA: maybe they could explain why 3-4% is unreasonable.   

Most every study I’ve read on SWR suggests that is entirely reasonable. 

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ is pretty solid read.

https://www.cnbc.com/2017/02/09/that-4-percent-rule-could-spell-trouble-for-early-retirees.html warns of “trouble”, but still suggests 3.5% is okay.  Maybe you are Sam Dogan on that page.....
I’ve read some who suggest the UK should use 3-3.5%....although not really with any logic, to me, when one might be invested in precisely the same funds as an American....but either way, it still falls in the 3-4% range.

So: BritishInvestor, show us what you’re made of: why do you think 3% is unreasonable?

1. The SWR assumption is based upon benchmark returns of broad asset classes. When you consider the potential real-world slippage that the "average" investor may experience such as:
Platform fees
Active fund fees
Passive fund tracking error
Human behaviour (buying winning fund managers etc)
You'd need to be 100% sure that you were going to achieve returns pretty close to the benchmark.
2. Longevity. 30 years might be too conservative, especially if you are a couple.

That said, SWR is catering for the worst possible historical case, and most people, fortunately, didn't experience this.
There is the option of varying your spending dynamically according to market/inflationary outcomes.
https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/

cfw1994

BritishInvestor said:

cfw1994 said:

Mistermeaner said:

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

I understand a number of studies have shown this to Be sustainable over a 30+ year period with your withdrawal increasing by inflation each year 

do you have a better way to calculate it ? 

Pretty sure BritishInvestor is a FA/IFA: maybe they could explain why 3-4% is unreasonable.   

Most every study I’ve read on SWR suggests that is entirely reasonable. 

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ is pretty solid read.

https://www.cnbc.com/2017/02/09/that-4-percent-rule-could-spell-trouble-for-early-retirees.html warns of “trouble”, but still suggests 3.5% is okay.  Maybe you are Sam Dogan on that page.....
I’ve read some who suggest the UK should use 3-3.5%....although not really with any logic, to me, when one might be invested in precisely the same funds as an American....but either way, it still falls in the 3-4% range.

So: BritishInvestor, show us what you’re made of: why do you think 3% is unreasonable?

1. The SWR assumption is based upon benchmark returns of broad asset classes. When you consider the potential real-world slippage that the "average" investor may experience such as:
Platform fees
Active fund fees
Passive fund tracking error
Human behaviour (buying winning fund managers etc)
You'd need to be 100% sure that you were going to achieve returns pretty close to the benchmark.
2. Longevity. 30 years might be too conservative, especially if you are a couple.

That said, SWR is catering for the worst possible historical case, and most people, fortunately, didn't experience this.
There is the option of varying your spending dynamically according to market/inflationary outcomes.
https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/

You made it sound like 3-4% wasn’t reasonable.  “Reasonable on what basis”, you said.
Then you quote Abraham’s post, which starts off with “More than 100 years of market data for a 60/40 portfolio puts the SWR for the UK at 3.7%”.
That article goes on to talk about the Guyton-Klinger rules, which aim to improve on things, and following those should see you being able to use 5.5%.
So.
Back to your first post on this topic: ‘ I'd be wary about relying on this "rule of thumb" ‘
Why are you wary of using 3-4%?

Or were you mysteriously building up to a punchline of “because you may die leaving too much money - take more!”?

MallyGirl

Anonymous101 said:

I’ve shared this, or something like it, many times with younger posters. Again the investment amounts or growth rates aren’t the main information. I think it illustrates the key take away that compounding is incredibly powerful and by investing whilst you’re letting time do most of the hard work.

Thanks for this - I have seen a few of these images before but this is a nice clear one. I will be having this conversation with my daughter as she will be off to uni this year and I am trying to cover various life lessons in small doses over the next few months.
For myself, I wish someone had pointed this out earlier. I have always been in a pension scheme, have always contributed enough to get the max employer contribution but for many years focussed on paying off the mortgage rather than paying more into the pension. I saw the light as I approached 50, decided that 58 would be a good time to retire (end of DD's uni course and end of mortgage) and then started to look at the numbers. Luckily OH has always paid more generously into a pension so he was in a better place.
I now sal sac 45% of my salary, get the 10% from employer on top but no NI contribution from them - this gets me into BR tax and means I put £40k into the pension. OH sal sac's £40k into his pension too. These are big numbers and they could have been smaller/smoother if I had started planning earlier - OH leaves all that sort of stuff to me. 
We'll have an estimated £1.8m in pensions at 58 plus some ISAs. That will support our 'number'. If the world goes to hell in a handbasket then we could work longer but I would rather not. One tiny DB pension at 60 and then full SP at 67.

AlanP_2

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I disagree to an extent with that statement.

The logical, to my mind, way of planing for retiremement is to identify what your target income is and then  look at what the sources are. The latter, sources stage, is definitely easier with DB pension than with DC pension but the 3-4% guideline is a starting point.

If your target number is £15k a year and State Pension will give you £9k then you don't need a £1m DC pot. If your target is £50k a year then you may need north of £1m.

[Deleted User]

Retiring very soon at 55, 750k in DC
Full State Pensions at 67 and 68
Downsizing, moving abroad and releasing another 100k in Equity
Currently cutting spending but am anticipating 35k a year, more on good years, less in bad   

cfw1994

MallyGirl said:

Anonymous101 said:

I’ve shared this, or something like it, many times with younger posters. Again the investment amounts or growth rates aren’t the main information. I think it illustrates the key take away that compounding is incredibly powerful and by investing whilst you’re letting time do most of the hard work.

Thanks for this - I have seen a few of these images before but this is a nice clear one. I will be having this conversation with my daughter as she will be off to uni this year and I am trying to cover various life lessons in small doses over the next few months.
For myself, I wish someone had pointed this out earlier. I have always been in a pension scheme, have always contributed enough to get the max employer contribution but for many years focussed on paying off the mortgage rather than paying more into the pension. I saw the light as I approached 50, decided that 58 would be a good time to retire (end of DD's uni course and end of mortgage) and then started to look at the numbers. Luckily OH has always paid more generously into a pension so he was in a better place.
I now sal sac 45% of my salary, get the 10% from employer on top but no NI contribution from them - this gets me into BR tax and means I put £40k into the pension. OH sal sac's £40k into his pension too. These are big numbers and they could have been smaller/smoother if I had started planning earlier - OH leaves all that sort of stuff to me. 
We'll have an estimated £1.8m in pensions at 58 plus some ISAs. That will support our 'number'. If the world goes to hell in a handbasket then we could work longer but I would rather not. One tiny DB pension at 60 and then full SP at 67.

Yup - thanks Anonymous101, great reminder!
I knocked up a version that also showed if you kept adding in...or indeed increased payments by the growth % - 5% in the example here:

Sure, there are plenty of unknowns....but if I'd appreciated that sooner, I'd be on my private island by now 
I know I have happened upon some blogs on this over the years....& used this spreadsheet to remind our two about the power of early savings.  

veryintrigued

Deleted_User said:

This is a thread for boasting.  Cool

For anyone who remembers old school calculators the Holy Grail number to achieve was 5,318,008