How Much Could I Withdraw Annually

shinytop

numpty_dumpty said:

Currently 51, what does the hive mind think I could pay myself annually if I jumped next year at 52 based on the numbers below:-
Currently have £470k between DC pensions S&S ISA and cash, will add about £30k before 52, so say £500k at 52.
Will get a 7k DB pension at 60 and full state pension (9.1k) at 6
I have my own number but I'm interested to see what others make of it in comparison.

Take home c.£18-1900/month.  You have a lot of tax free savings so can use that to your advantage.  

TBC15

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

So…I’ve got a 4yr cash buffer/ comfort blanket in retirement( For info I never try to time the market) What does it cost me for the privilege of regarding the market on a day to day basis as  something interesting V tearing my very soul out for selling at a loss?

michaels

TBC15 said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

So…I’ve got a 4yr cash buffer/ comfort blanket in retirement( For info I never try to time the market) What does it cost me for the privilege of regarding the market on a day to day basis as  something interesting V tearing my very soul out for selling at a loss?

You adjust your equities to cash ratio depending on some measure of how high the markets are = timing the market

Linton

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

When you need your drawdown in order to meet your basic expenses, and the market drops 40-50% what would you do?  Continue selling units but at twice the rate?

We are fortunate in that we have over a decade of historical market data to evaluate various strategies and outcomes. For example, imagine if you were an investor with a UK biased portfolio in the 1970s with the drawn out stock market slump and additional pressure being placed on the portfolio with rising interest rates. How much would you allocate to a cash buffer to cater for that?

No strategy can handle a long term fall in the markets, if that is the scenario you are proposing.  Though rising interest rates would benefit a cash buffer.  If you havent got the returns at some stage you wont be able to pay yourself the income to meet your expenses.  The best you can do is to diversify as much as possible - invest globally, invest in all sectors, invest in as many different types of asset and use as many different sources of income as you reasonably can.

The purpose of a cash buffer is to remove all risk in the medium term.  During the recent COVID mini-crash many people on the savings forum were panicking.  I was able to look on with a serene, possibly smug, smile despite my investments being essential for meeting a significant part of living expenses.

But investment strategies can only go so far, they cannot protect you from everything.  Perhaps the best they can do is to help ensure that should the world as we know it collapse one is in at least as good if not better position as everyone else.  

One detailed point - you talk about a decade of historical market data.  That means absolutely nothing.  The past decade has shown unprecedented rises in share prices and is very different to many previous decades.

Sorry, decade should be century .
) I agree that you want diversify globally and across sectors but what asset classes did you have in mind other than equities and bonds?
2) When you say no strategy can survive a long term fall in the markets, we have historical data to suggest that strategies have done and for a given retirement date we can see exactly how each strategy played out
I don't see how the cash buffer removes all risk - how do you know in advance what inflation is likely to be? What is your definition of medium term?
3) Covid (thus far) was a blip and had minimal income on a robust retirement portfolio (it's the long drawn out downturns that have the biggest impact) - we must be clear to differentiate the impact on the portfolio with the impact on the investor - that's a separate discussion.

1) Bonds covers a wide variety of different things.  In addition after a small amount of thought there is cash, direct commercial property, BTL, commodities, art, whisky, what elsewhere has been called contracts - PFI/Solar/ Toll Roads, doctors surgeries and similar infrastructure-type assets where long term agreements exist to provide a service from ownership of the assets, financial wizardry of various forms, loans, private equity/investment as opposed to public shares.  At the moment I rather like infrastructure long term income.  Certainly a better prospect than safe government bonds.
2) How can any strategy survive on long term zero or negative returns?  All expenditure would need to be financed by selling assets which are finite.  Similarly there is no way any strategy can handle global Weimar or Zimbabwe levels of inflation, except perhaps a rifle and an infinite supply of baked beans.  At some stage you must just shrug your shoulders and say that you will sort it out when it happens.  To set up an investment/retirement strategy that could handle the extremes could result in a gross distortion of asset allocation that would jeopardise your ability to handle normal events.
By medium term I am thinking 5-10 years.  This will give more than enough time in almost all cases for economic circumstances to improve or for you to re-adjust your spending requirements to correspond with the new reality.  A cash buffer cannot remove all risk, just the more immediate ones.
3) Yes the portfolio and the effect on you as an investor dependent on your investments are different facets of the equation.  However the two are inextricably linked and in practice the latter is arguably the more important.  For example having a large cash buffer could give you the confidence to invest at a higher risk/return basis than would otherwise be the case.

Linton

michaels said:

TBC15 said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

So…I’ve got a 4yr cash buffer/ comfort blanket in retirement( For info I never try to time the market) What does it cost me for the privilege of regarding the market on a day to day basis as  something interesting V tearing my very soul out for selling at a loss?

You adjust your equities to cash ratio depending on some measure of how high the markets are = timing the market

No - you simply stop selling assets after a large fall in price.  You arent trying to time the market, you are protecting the income you need for an acceptable standard of living for a while longer than would otherwise be the case.  You dont care what the markets do in the short term but hope that they recover at some stage.  If they dont then you will eventuually have problems, but perhaps they wont be as bad as many other people's.

TBC15

michaels said:

TBC15 said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

So…I’ve got a 4yr cash buffer/ comfort blanket in retirement( For info I never try to time the market) What does it cost me for the privilege of regarding the market on a day to day basis as  something interesting V tearing my very soul out for selling at a loss?

You adjust your equities to cash ratio depending on some measure of how high the markets are = timing the market

Smoothing based on my timescale V real time having a go based on right here right now I think there is a subtle difference. But how much could I save based on a STD 4% drawdown by putting up with the ulcers.

BritishInvestor

Linton said:

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

When you need your drawdown in order to meet your basic expenses, and the market drops 40-50% what would you do?  Continue selling units but at twice the rate?

We are fortunate in that we have over a decade of historical market data to evaluate various strategies and outcomes. For example, imagine if you were an investor with a UK biased portfolio in the 1970s with the drawn out stock market slump and additional pressure being placed on the portfolio with rising interest rates. How much would you allocate to a cash buffer to cater for that?

No strategy can handle a long term fall in the markets, if that is the scenario you are proposing.  Though rising interest rates would benefit a cash buffer.  If you havent got the returns at some stage you wont be able to pay yourself the income to meet your expenses.  The best you can do is to diversify as much as possible - invest globally, invest in all sectors, invest in as many different types of asset and use as many different sources of income as you reasonably can.

The purpose of a cash buffer is to remove all risk in the medium term.  During the recent COVID mini-crash many people on the savings forum were panicking.  I was able to look on with a serene, possibly smug, smile despite my investments being essential for meeting a significant part of living expenses.

But investment strategies can only go so far, they cannot protect you from everything.  Perhaps the best they can do is to help ensure that should the world as we know it collapse one is in at least as good if not better position as everyone else.  

One detailed point - you talk about a decade of historical market data.  That means absolutely nothing.  The past decade has shown unprecedented rises in share prices and is very different to many previous decades.

Sorry, decade should be century .
) I agree that you want diversify globally and across sectors but what asset classes did you have in mind other than equities and bonds?
2) When you say no strategy can survive a long term fall in the markets, we have historical data to suggest that strategies have done and for a given retirement date we can see exactly how each strategy played out
I don't see how the cash buffer removes all risk - how do you know in advance what inflation is likely to be? What is your definition of medium term?
3) Covid (thus far) was a blip and had minimal income on a robust retirement portfolio (it's the long drawn out downturns that have the biggest impact) - we must be clear to differentiate the impact on the portfolio with the impact on the investor - that's a separate discussion.

1) Bonds covers a wide variety of different things.  In addition after a small amount of thought there is cash, direct commercial property, BTL, commodities, art, whisky, what elsewhere has been called contracts - PFI/Solar/ Toll Roads, doctors surgeries and similar infrastructure-type assets where long term agreements exist to provide a service from ownership of the assets, financial wizardry of various forms, loans, private equity/investment as opposed to public shares.  At the moment I rather like infrastructure long term income.  Certainly a better prospect than safe government bonds.
2) How can any strategy survive on long term zero or negative returns?  All expenditure would need to be financed by selling assets which are finite.  Similarly there is no way any strategy can handle global Weimar or Zimbabwe levels of inflation, except perhaps a rifle and an infinite supply of baked beans.  At some stage you must just shrug your shoulders and say that you will sort it out when it happens.  To set up an investment/retirement strategy that could handle the extremes could result in a gross distortion of asset allocation that would jeopardise your ability to handle normal events.
By medium term I am thinking 5-10 years.  This will give more than enough time in almost all cases for economic circumstances to improve or for you to re-adjust your spending requirements to correspond with the new reality.  A cash buffer cannot remove all risk, just the more immediate ones.
3) Yes the portfolio and the effect on you as an investor dependent on your investments are different facets of the equation.  However the two are inextricably linked and in practice the latter is arguably the more important.  For example having a large cash buffer could give you the confidence to invest at a higher risk/return basis than would otherwise be the case.

1. We all have our views on non-bond/equity assets so therefore these are just my opinion on potential downsides
Direct commercial property:Liquidity, drawdowns
BTL: Ditto (how do you sell a few bricks to buy your weekly food) + taxation 
Commodities: I struggle to see how they are an investment when they don't pay a dividend/coupon
Art/Whisky: Tough to value, dealing spread, storage costs, potential damage
Infrastructure: What drawdowns did you see during Covid? Is it a defensive or a growth asset?
Private equity: I think you'd need to be very comfortable that you understood what you were doing
With all the above it starts to introduce complexity IMO. Do you really want to be running a BTL portfolio aged 75+?

2. This is in reference to historical data. If we have a global Weimar situation we have more important things to worry about as you say.
Medium term @5-10 years. With a withdrawal rate of say 3% that's approx 15-20% of the portfolio in cash? Even if you take it out of the defensive portion of the portfolio it's surely got to have an impact on the "average" outcome?
https://finalytiq.co.uk/cash-reserve-buffers-withdrawal-rates-old-wives-fables-retirement-portfolio/
3) By having a combination of a large pile of cash and a riskier portfolio I would suggest you are moving away from the most efficient portfolio. It goes back to my point on theoretical vs real world SWR I made a few days back. 

kinger101

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

When you need your drawdown in order to meet your basic expenses, and the market drops 40-50% what would you do?  Continue selling units but at twice the rate?

We are fortunate in that we have over a decade of historical market data to evaluate various strategies and outcomes. For example, imagine if you were an investor with a UK biased portfolio in the 1970s with the drawn out stock market slump and additional pressure being placed on the portfolio with rising interest rates. How much would you allocate to a cash buffer to cater for that?

No strategy can handle a long term fall in the markets, if that is the scenario you are proposing.  Though rising interest rates would benefit a cash buffer.  If you havent got the returns at some stage you wont be able to pay yourself the income to meet your expenses.  The best you can do is to diversify as much as possible - invest globally, invest in all sectors, invest in as many different types of asset and use as many different sources of income as you reasonably can.

The purpose of a cash buffer is to remove all risk in the medium term.  During the recent COVID mini-crash many people on the savings forum were panicking.  I was able to look on with a serene, possibly smug, smile despite my investments being essential for meeting a significant part of living expenses.

But investment strategies can only go so far, they cannot protect you from everything.  Perhaps the best they can do is to help ensure that should the world as we know it collapse one is in at least as good if not better position as everyone else.  

One detailed point - you talk about a decade of historical market data.  That means absolutely nothing.  The past decade has shown unprecedented rises in share prices and is very different to many previous decades.

Sorry, decade should be century .
) I agree that you want diversify globally and across sectors but what asset classes did you have in mind other than equities and bonds?
2) When you say no strategy can survive a long term fall in the markets, we have historical data to suggest that strategies have done and for a given retirement date we can see exactly how each strategy played out
I don't see how the cash buffer removes all risk - how do you know in advance what inflation is likely to be? What is your definition of medium term?
3) Covid (thus far) was a blip and had minimal income on a robust retirement portfolio (it's the long drawn out downturns that have the biggest impact) - we must be clear to differentiate the impact on the portfolio with the impact on the investor - that's a separate discussion.

1) Bonds covers a wide variety of different things.  In addition after a small amount of thought there is cash, direct commercial property, BTL, commodities, art, whisky, what elsewhere has been called contracts - PFI/Solar/ Toll Roads, doctors surgeries and similar infrastructure-type assets where long term agreements exist to provide a service from ownership of the assets, financial wizardry of various forms, loans, private equity/investment as opposed to public shares.  At the moment I rather like infrastructure long term income.  Certainly a better prospect than safe government bonds.
2) How can any strategy survive on long term zero or negative returns?  All expenditure would need to be financed by selling assets which are finite.  Similarly there is no way any strategy can handle global Weimar or Zimbabwe levels of inflation, except perhaps a rifle and an infinite supply of baked beans.  At some stage you must just shrug your shoulders and say that you will sort it out when it happens.  To set up an investment/retirement strategy that could handle the extremes could result in a gross distortion of asset allocation that would jeopardise your ability to handle normal events.
By medium term I am thinking 5-10 years.  This will give more than enough time in almost all cases for economic circumstances to improve or for you to re-adjust your spending requirements to correspond with the new reality.  A cash buffer cannot remove all risk, just the more immediate ones.
3) Yes the portfolio and the effect on you as an investor dependent on your investments are different facets of the equation.  However the two are inextricably linked and in practice the latter is arguably the more important.  For example having a large cash buffer could give you the confidence to invest at a higher risk/return basis than would otherwise be the case.

Medium term @5-10 years. With a withdrawal rate of say 3% that's approx 15-20% of the portfolio in cash? Even if you take it out of the defensive portion of the portfolio it's surely got to have an impact on the "average" outcome?
https://finalytiq.co.uk/cash-reserve-buffers-withdrawal-rates-old-wives-fables-retirement-portfolio/
3) By having a combination of a large pile of cash and a riskier portfolio I would suggest you are moving away from the most efficient portfolio. It goes back to my point on theoretical vs real world SWR I made a few days back. 

It's an interesting article, but too limited a set of scenarios to draw any firm conclusions.  My understanding from a little playing around with cFireSim is that nobody would pick such a high bond allocation if they were basing their split on historic data.
There's a similar article here, which is also unsatisfactory in that many of the differences reported are unlikely to be statistically significant.
https://edrempel.com/reliably-maximize-retirement-income-4-rule-safe/

All of this is however is only historic data.  So it's based on assumption that there will be no periods during retirement worse than the dataset used.  Slightly more than a century of data suddenly doesn't seem much at all when we're taking possibly 4 decades of retirement.  I'm sure a data scientist could come up with something better.

shinytop

Having a cash buffer may be in the same category as paying off a mortgage early.  A mathematically poorer but psychologically superior choice. 

On SWR, when we are working we often have variable incomes and always have variable expenses and most of us manage this just fine.  Some of us even managed for years without inflation-matching pay rises (or even any pay rises).  Why as retirees do we need a 100% guaranteed, constant, inflation-matching income for the next 30 years when we managed for the previous 30 without this?  I suspect some of the SWR messaging may lead to people living below their means and dying rich instead of applying a bit of common sense to manage the ups and downs.    

BritishInvestor

kinger101 said:

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

BritishInvestor said:

Linton said:

michaels said:

BritishInvestor said:

Albermarle said:

I would say the cash element is too low . Especially when you get to the point of drawing from the DC pension , you need a bigger cash buffer to get through market downturns.

Why do you "need" a bigger cash buffer? How does it improve overall outcomes?

I don't think it matters how matters how many times you point out the research on this, people still imagine you can have a nice cash pot to avoid 'drawdown' when markets are low - the same people who would claim they have no intention of ever trying to 'time the markets'....

When you need your drawdown in order to meet your basic expenses, and the market drops 40-50% what would you do?  Continue selling units but at twice the rate?

We are fortunate in that we have over a decade of historical market data to evaluate various strategies and outcomes. For example, imagine if you were an investor with a UK biased portfolio in the 1970s with the drawn out stock market slump and additional pressure being placed on the portfolio with rising interest rates. How much would you allocate to a cash buffer to cater for that?

No strategy can handle a long term fall in the markets, if that is the scenario you are proposing.  Though rising interest rates would benefit a cash buffer.  If you havent got the returns at some stage you wont be able to pay yourself the income to meet your expenses.  The best you can do is to diversify as much as possible - invest globally, invest in all sectors, invest in as many different types of asset and use as many different sources of income as you reasonably can.

The purpose of a cash buffer is to remove all risk in the medium term.  During the recent COVID mini-crash many people on the savings forum were panicking.  I was able to look on with a serene, possibly smug, smile despite my investments being essential for meeting a significant part of living expenses.

But investment strategies can only go so far, they cannot protect you from everything.  Perhaps the best they can do is to help ensure that should the world as we know it collapse one is in at least as good if not better position as everyone else.  

One detailed point - you talk about a decade of historical market data.  That means absolutely nothing.  The past decade has shown unprecedented rises in share prices and is very different to many previous decades.

Sorry, decade should be century .
) I agree that you want diversify globally and across sectors but what asset classes did you have in mind other than equities and bonds?
2) When you say no strategy can survive a long term fall in the markets, we have historical data to suggest that strategies have done and for a given retirement date we can see exactly how each strategy played out
I don't see how the cash buffer removes all risk - how do you know in advance what inflation is likely to be? What is your definition of medium term?
3) Covid (thus far) was a blip and had minimal income on a robust retirement portfolio (it's the long drawn out downturns that have the biggest impact) - we must be clear to differentiate the impact on the portfolio with the impact on the investor - that's a separate discussion.

1) Bonds covers a wide variety of different things.  In addition after a small amount of thought there is cash, direct commercial property, BTL, commodities, art, whisky, what elsewhere has been called contracts - PFI/Solar/ Toll Roads, doctors surgeries and similar infrastructure-type assets where long term agreements exist to provide a service from ownership of the assets, financial wizardry of various forms, loans, private equity/investment as opposed to public shares.  At the moment I rather like infrastructure long term income.  Certainly a better prospect than safe government bonds.
2) How can any strategy survive on long term zero or negative returns?  All expenditure would need to be financed by selling assets which are finite.  Similarly there is no way any strategy can handle global Weimar or Zimbabwe levels of inflation, except perhaps a rifle and an infinite supply of baked beans.  At some stage you must just shrug your shoulders and say that you will sort it out when it happens.  To set up an investment/retirement strategy that could handle the extremes could result in a gross distortion of asset allocation that would jeopardise your ability to handle normal events.
By medium term I am thinking 5-10 years.  This will give more than enough time in almost all cases for economic circumstances to improve or for you to re-adjust your spending requirements to correspond with the new reality.  A cash buffer cannot remove all risk, just the more immediate ones.
3) Yes the portfolio and the effect on you as an investor dependent on your investments are different facets of the equation.  However the two are inextricably linked and in practice the latter is arguably the more important.  For example having a large cash buffer could give you the confidence to invest at a higher risk/return basis than would otherwise be the case.

Medium term @5-10 years. With a withdrawal rate of say 3% that's approx 15-20% of the portfolio in cash? Even if you take it out of the defensive portion of the portfolio it's surely got to have an impact on the "average" outcome?
https://finalytiq.co.uk/cash-reserve-buffers-withdrawal-rates-old-wives-fables-retirement-portfolio/
3) By having a combination of a large pile of cash and a riskier portfolio I would suggest you are moving away from the most efficient portfolio. It goes back to my point on theoretical vs real world SWR I made a few days back. 

It's an interesting article, but too limited a set of scenarios to draw any firm conclusions.  My understanding from a little playing around with cFireSim is that nobody would pick such a high bond allocation if they were basing their split on historic data.
There's a similar article here, which is also unsatisfactory in that many of the differences reported are unlikely to be statistically significant.
https://edrempel.com/reliably-maximize-retirement-income-4-rule-safe/

All of this is however is only historic data.  So it's based on assumption that there will be no periods during retirement worse than the dataset used.  Slightly more than a century of data suddenly doesn't seem much at all when we're taking possibly 4 decades of retirement.  I'm sure a data scientist could come up with something better.

What in particular do you feel was too limiting in the scenarios? 
I'm not clear what you mean regarding high bond allocations with reference to historical scenarios.
Historical data may not be perfect, but it's all we currently have.
I'[m sure Abraham (author) would be very interested in what a data scientist could come up with considering he employs quants etc to help him build his market-leading retirement tool