750k Drawdown at 58

BritishInvestor

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

cfw1994 said:

jamesd said:

Thrugelmir said:

 The economic and financial realities of the impact of Covid are going to take time to sink in. This is by far the worst crisis in a hundred years. There can only be a rocky road ahead. 

To put that into context:

WW1 killed 867,829 to 1,011,687 in UK and colonies, 1.91% to 2.23% of prewar population.
1918 flu pandemic killed around 250k more in just Britain.
WW2 killed 450,900, 0.94% of prewar population in UK and Crown colonies as well as destroying much economic infrastructure.

Covid is nasty but it's not as bad, at least so far. It's very far from being the worst crisis in the last hundred years and while there are rocks around we've seen worse and drawdown safe withdrawal rates have been set to handle them.

Indeed.
Thruglemir is always a ray of sunshine & unbridled optimism on these boards, eh 
For my part, I believe the world is a VERY different place than it was 100 years ago.  Sure, there are and will be dips, and maybe we are entering a period of flatness, but where some businesses and sectors will struggle or fail, others will rise up.

Quite agree with communication and technology so different and advanced on what it was, it’s not comparing apples with apples. The world still trades, but it is a very different place.
I tried pulling together numbers for a cashflow retirement planner as I thought my FA’s one is a bit crude and I could provide a bit more detail. In truth easier said than done though! Without seeing a complete breakdown he used growth as 3%, inflation as 2% giving a real return of 1%. The outgoings were a consistent £36k. Surely these should go up with inflation as well, unless that’s built in (maybe it is!). My state pension was £9k. Surely that will look different in 20 years time. It’s going to need some work on it all though before I am happy and can see I will have to go through several developments of it chopping and changing before I get there.
My wife’s pension should start in two years when she is 55 and is currently £173k. From a fidelity retirement calculator that suggests currently we’ll be able to drawdown £7k a year in ‘average market conditions’, the middle of their 3 choices with that money ‘running out in her nineties. It obviously doesn’t take account of her state pension as well, so a lot of things to bring together. Of there’s inheritance as well, but will leave that!

You'd need to understand the total charges to understand whether a 1% real return was reasonable (and also with the caveat that straight-line assumptions come with drawbacks).
I'd also be wary of provider retirement calculators unless you really understand the assumptions they are making.

If my FA’s calculation of 1% real return is based on 3% growth less 2% inflation. I may have the wrong end of the stick here but can you use the growth less inflation in the same calculation? I would assume growth is what happens to the pension fund and inflation is your outgoings. With the different amounts on both, there is a different effect and you can only apply one relevant to each not to both, then subtract from one another?

Referring back to the conversation around safe withdrawal rate, where we look at how much money we can take out per year without running out of money (in simple terms, and based on historical data i.e. not straight-line returns).
This SWR number could be an ideal world implementation, and might not be adjusted for investment costs etc. So if your SWR was 4% with no costs (gross), after the costs incurred by your adviser, fund manager, platform etc, this might come down to 3% (net)
This also applies to straight-line assumption, so while a 2% (for example) straight line real return might be realistic for a no-cost scenario, once costs are applied it might not be. (hope that makes sense).
Assumptions need to be reasoned and reasonable and it's worth being happy that those chosen by the adviser are.

While trawling through my history of withdrawals, I was seeing what the fund balance was the day before each withdrawal. My balance now after 3 years of drawdown is the same as after my first withdrawal.
Above in the many posts there’s a mention of ‘not dying rich’. While I’m not rich, I am able to live on the money.
Another question is should it be the fund balance that determines the ‘health’ of the fund? While my withdrawals have been very high in these first few years, I always have an eye on the fund balance and accept that if it crashes, my behaviour would change as well. Such a crash that happened in Spring did seem to signal a more general change on behaviour everywhere, and people’s non ability to spend money.
Again from FA, I think we ascertained his concern was my high withdrawal rate. But what he has never remarked on is my fund balance is not too dissimilar to when I first started. Could go either way but is there a chance if I rein in too much I could miss that opportunity to enjoy the money rather than worrying about it for the rest of my life and die with a lot more money than I needed.

"Another question is should it be the fund balance that determines the ‘health’ of the fund?"

You can't read too much into a fund balance to determine "health". Certainly the market returns are key during the first decade of retirement, but 3 years worth of data doesn't really tell you much. In addition, a robust retirement plan might allow for prolonged market falls yet still sustain your desired income for the rest of your life (e.g. your plan would've coped with a rerun of this https://en.wikipedia.org/wiki/1973–1974_stock_market_crash)
The balance "could" be important if you were following some of the rules jamesd covered earlier (as you may have to adjust your spending at some point), but I don't think you currently have this in place. 

" I always have an eye on the fund balance and accept that if it crashes, my behaviour would change as well."

It could therefore make sense to build a retirement plan based on that. For some people, they want an income that doesn't fluctuate based on market performance (and are happy to accept a lower starting withdrawals). Others prefer a higher starting value and are more flexible if markets have a poor series of returns (potentially you ). 

"I could miss that opportunity to enjoy the money rather than worrying about it for the rest of my life and die with a lot more money than I needed."

Yep, spot on, and your adviser should be giving you the confidence to spend the agreed amount of money without running out/being the richest person in the graveyard. 

GSP

jamesd said:

GSP said:

what he has never remarked on is my fund balance is not too dissimilar to when I first started. 

Kitces: Why Most Retirees Will Never Draw Down Their Retirement Portfolio   

"the reality is that for a long-term retirement, where compounding inflation can double or even quadruple spending needs after 30 years, retirees actually should allow their portfolios to grow at least slightly for at least the first half of retirement. It’s a necessity just to cover later-years’ spending needs at their inflation-adjusted levels."

You've survived your first crash but have you worked out how the after inflation value compares?

Fund value matters but it's expected to eventually decrease over time. For a while things could be steady but eventually there will come a time when you're drawing vs high inflation or a down market. Inheritance may well counteract this.

GSP said:

is there a chance if I rein in too much I could miss that opportunity to enjoy the money rather than worrying about it for the rest of my life and die with a lot more money than I needed.

It's the most likely outcome if you stick to a long-term safe rate that doesn't adjust. See Kitces again, The Extraordinary Upside Potential Of Sequence Of Return Risk In Retirement:

"taking a 4% initial withdrawal rate has an equal (10%) likelihood of leaving all the retiree’s principal left over at the end of retirement… or leaving 6X ...the starting account balance remaining instead
...

even at a 5% withdrawal rate, the odds of depleting the portfolio early are equal to the odds of tripling the retiree’s starting principal on top of taking an initial withdrawal rate of 5% with 30 years of annual inflation adjustments.

So what’s the alternative? To plan, in advance, for retirement spending strategies to be more dynamic… at minimum, to have a ratcheting plan in place to lift a low initial spending rate higher if the sequence is favorable (or at least, is not unfavorable), and for those who are willing to be more flexible in their retirement spending, to set guardrails in advance to know both when to cut spending in a bad sequence, and when to lift it higher in a more favorable one"

Thanks James. Very useful. Towards the end there’s a section called “

Can Retirees Ever Really Spend Down Their Principal?

I suppose it’s common sense, but It spells out the importance in those early years of excessive spending having a bad impact later on. The safety first approach in those earlier intends to ease the uncertainty for later on.

GSP

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

cfw1994 said:

jamesd said:

Thrugelmir said:

 The economic and financial realities of the impact of Covid are going to take time to sink in. This is by far the worst crisis in a hundred years. There can only be a rocky road ahead. 

To put that into context:

WW1 killed 867,829 to 1,011,687 in UK and colonies, 1.91% to 2.23% of prewar population.
1918 flu pandemic killed around 250k more in just Britain.
WW2 killed 450,900, 0.94% of prewar population in UK and Crown colonies as well as destroying much economic infrastructure.

Covid is nasty but it's not as bad, at least so far. It's very far from being the worst crisis in the last hundred years and while there are rocks around we've seen worse and drawdown safe withdrawal rates have been set to handle them.

Indeed.
Thruglemir is always a ray of sunshine & unbridled optimism on these boards, eh 
For my part, I believe the world is a VERY different place than it was 100 years ago.  Sure, there are and will be dips, and maybe we are entering a period of flatness, but where some businesses and sectors will struggle or fail, others will rise up.

Quite agree with communication and technology so different and advanced on what it was, it’s not comparing apples with apples. The world still trades, but it is a very different place.
I tried pulling together numbers for a cashflow retirement planner as I thought my FA’s one is a bit crude and I could provide a bit more detail. In truth easier said than done though! Without seeing a complete breakdown he used growth as 3%, inflation as 2% giving a real return of 1%. The outgoings were a consistent £36k. Surely these should go up with inflation as well, unless that’s built in (maybe it is!). My state pension was £9k. Surely that will look different in 20 years time. It’s going to need some work on it all though before I am happy and can see I will have to go through several developments of it chopping and changing before I get there.
My wife’s pension should start in two years when she is 55 and is currently £173k. From a fidelity retirement calculator that suggests currently we’ll be able to drawdown £7k a year in ‘average market conditions’, the middle of their 3 choices with that money ‘running out in her nineties. It obviously doesn’t take account of her state pension as well, so a lot of things to bring together. Of there’s inheritance as well, but will leave that!

You'd need to understand the total charges to understand whether a 1% real return was reasonable (and also with the caveat that straight-line assumptions come with drawbacks).
I'd also be wary of provider retirement calculators unless you really understand the assumptions they are making.

If my FA’s calculation of 1% real return is based on 3% growth less 2% inflation. I may have the wrong end of the stick here but can you use the growth less inflation in the same calculation? I would assume growth is what happens to the pension fund and inflation is your outgoings. With the different amounts on both, there is a different effect and you can only apply one relevant to each not to both, then subtract from one another?

Referring back to the conversation around safe withdrawal rate, where we look at how much money we can take out per year without running out of money (in simple terms, and based on historical data i.e. not straight-line returns).
This SWR number could be an ideal world implementation, and might not be adjusted for investment costs etc. So if your SWR was 4% with no costs (gross), after the costs incurred by your adviser, fund manager, platform etc, this might come down to 3% (net)
This also applies to straight-line assumption, so while a 2% (for example) straight line real return might be realistic for a no-cost scenario, once costs are applied it might not be. (hope that makes sense).
Assumptions need to be reasoned and reasonable and it's worth being happy that those chosen by the adviser are.

While trawling through my history of withdrawals, I was seeing what the fund balance was the day before each withdrawal. My balance now after 3 years of drawdown is the same as after my first withdrawal.
Above in the many posts there’s a mention of ‘not dying rich’. While I’m not rich, I am able to live on the money.
Another question is should it be the fund balance that determines the ‘health’ of the fund? While my withdrawals have been very high in these first few years, I always have an eye on the fund balance and accept that if it crashes, my behaviour would change as well. Such a crash that happened in Spring did seem to signal a more general change on behaviour everywhere, and people’s non ability to spend money.
Again from FA, I think we ascertained his concern was my high withdrawal rate. But what he has never remarked on is my fund balance is not too dissimilar to when I first started. Could go either way but is there a chance if I rein in too much I could miss that opportunity to enjoy the money rather than worrying about it for the rest of my life and die with a lot more money than I needed.

"Another question is should it be the fund balance that determines the ‘health’ of the fund?"

You can't read too much into a fund balance to determine "health". Certainly the market returns are key during the first decade of retirement, but 3 years worth of data doesn't really tell you much. In addition, a robust retirement plan might allow for prolonged market falls yet still sustain your desired income for the rest of your life (e.g. your plan would've coped with a rerun of this https://en.wikipedia.org/wiki/1973–1974_stock_market_crash)
The balance "could" be important if you were following some of the rules jamesd covered earlier (as you may have to adjust your spending at some point), but I don't think you currently have this in place. 

" I always have an eye on the fund balance and accept that if it crashes, my behaviour would change as well."

It could therefore make sense to build a retirement plan based on that. For some people, they want an income that doesn't fluctuate based on market performance (and are happy to accept a lower starting withdrawals). Others prefer a higher starting value and are more flexible if markets have a poor series of returns (potentially you ). 

"I could miss that opportunity to enjoy the money rather than worrying about it for the rest of my life and die with a lot more money than I needed."

Yep, spot on, and your adviser should be giving you the confidence to spend the agreed amount of money without running out/being the richest person in the graveyard. 

Thanks BI. I never had an agreed amount of money to spend each year with the FA. Perhaps he thought I wouldn’t need or spend so much, but can see the brakes need to come on somewhat.

GSP

Just taking stock on one area of comments about helping my kids out.
Seems from the latest advice and links I have seen irrespective of my withdrawal behaviour, to give them anything of note now in these early years would have a very big potentially fatal effect on the longevity of my fund.
It suggests we may be able to give them something in the latter years, before we die if possible, but to do it so early will make the fund drop off a cliff perhaps.

BritishInvestor

GSP said:

Just taking stock on one area of comments about helping my kids out.
Seems from the latest advice and links I have seen irrespective of my withdrawal behaviour, to give them anything of note now in these early years would have a very big potentially fatal effect on the longevity of my fund.
It suggests we may be able to give them something in the latter years, before we die if possible, but to do it so early will make the fund drop off a cliff perhaps.

I don't think you'd know for sure until you'd been through the planning exercise. We can post lots of links and give examples of scenarios but I think you need to push your adviser to steer you through this as it's going to be very particular to you and your family. 

michaels

GSP said:

Just taking stock on one area of comments about helping my kids out.
Seems from the latest advice and links I have seen irrespective of my withdrawal behaviour, to give them anything of note now in these early years would have a very big potentially fatal effect on the longevity of my fund.
It suggests we may be able to give them something in the latter years, before we die if possible, but to do it so early will make the fund drop off a cliff perhaps.

You could see it as them inheriting the value of your house early and that if your investments head south you instead use the house equity through equity withdrawal?

GSP

michaels said:

GSP said:

Just taking stock on one area of comments about helping my kids out.
Seems from the latest advice and links I have seen irrespective of my withdrawal behaviour, to give them anything of note now in these early years would have a very big potentially fatal effect on the longevity of my fund.
It suggests we may be able to give them something in the latter years, before we die if possible, but to do it so early will make the fund drop off a cliff perhaps.

You could see it as them inheriting the value of your house early and that if your investments head south you instead use the house equity through equity withdrawal?

Never looked at equity withdrawal, but would of thought it was a very last resort for people wanting to stump up cash? Signing your house over?

GSP

Thrugelmir said:

GSP said:

Thrugelmir said:

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

cfw1994 said:

jamesd said:

Thrugelmir said:

 The economic and financial realities of the impact of Covid are going to take time to sink in. This is by far the worst crisis in a hundred years. There can only be a rocky road ahead. 

To put that into context:

WW1 killed 867,829 to 1,011,687 in UK and colonies, 1.91% to 2.23% of prewar population.
1918 flu pandemic killed around 250k more in just Britain.
WW2 killed 450,900, 0.94% of prewar population in UK and Crown colonies as well as destroying much economic infrastructure.

Covid is nasty but it's not as bad, at least so far. It's very far from being the worst crisis in the last hundred years and while there are rocks around we've seen worse and drawdown safe withdrawal rates have been set to handle them.

Indeed.
Thruglemir is always a ray of sunshine & unbridled optimism on these boards, eh 
For my part, I believe the world is a VERY different place than it was 100 years ago.  Sure, there are and will be dips, and maybe we are entering a period of flatness, but where some businesses and sectors will struggle or fail, others will rise up.

Quite agree with communication and technology so different and advanced on what it was, it’s not comparing apples with apples. The world still trades, but it is a very different place.
I tried pulling together numbers for a cashflow retirement planner as I thought my FA’s one is a bit crude and I could provide a bit more detail. In truth easier said than done though! Without seeing a complete breakdown he used growth as 3%, inflation as 2% giving a real return of 1%. The outgoings were a consistent £36k. Surely these should go up with inflation as well, unless that’s built in (maybe it is!). My state pension was £9k. Surely that will look different in 20 years time. It’s going to need some work on it all though before I am happy and can see I will have to go through several developments of it chopping and changing before I get there.
My wife’s pension should start in two years when she is 55 and is currently £173k. From a fidelity retirement calculator that suggests currently we’ll be able to drawdown £7k a year in ‘average market conditions’, the middle of their 3 choices with that money ‘running out in her nineties. It obviously doesn’t take account of her state pension as well, so a lot of things to bring together. Of there’s inheritance as well, but will leave that!

You'd need to understand the total charges to understand whether a 1% real return was reasonable (and also with the caveat that straight-line assumptions come with drawbacks).
I'd also be wary of provider retirement calculators unless you really understand the assumptions they are making.

If my FA’s calculation of 1% real return is based on 3% growth less 2% inflation. I may have the wrong end of the stick here but can you use the growth less inflation in the same calculation? I would assume growth is what happens to the pension fund and inflation is your outgoings. With the different amounts on both, there is a different effect and you can only apply one relevant to each not to both, then subtract from one another?

Referring back to the conversation around safe withdrawal rate, where we look at how much money we can take out per year without running out of money (in simple terms, and based on historical data i.e. not straight-line returns).
This SWR number could be an ideal world implementation, and might not be adjusted for investment costs etc. So if your SWR was 4% with no costs (gross), after the costs incurred by your adviser, fund manager, platform etc, this might come down to 3% (net)
This also applies to straight-line assumption, so while a 2% (for example) straight line real return might be realistic for a no-cost scenario, once costs are applied it might not be. (hope that makes sense).
Assumptions need to be reasoned and reasonable and it's worth being happy that those chosen by the adviser are.

Again from FA, I think we ascertained his concern was my high withdrawal rate. But what he has never remarked on is my fund balance is not too dissimilar to when I first started. 

Simplistic answer. You now own fewer Amazon shares however those that you have left are worth 228% than they were 3 years ago. Under the bonnet there's actually a lot going on. Your FA is not a market analyst and as a consequence won't have an in depth view of the stock. 

Thanks for that. Keep seeing the word units so perhaps that’s the word for shares? If that’s the case though, in a crash would this mean my balances would fall faster if I had these shares/units at a certain price?

In essence yes. Each unit will represent a part holding in a swathe of investments. 

I suspect my FA’s concern is me taking out £10k more than he thinks reasonable or sustainable, and is backed up by a couple of drawdown calculators. Quite amazing really as I have seen a number of daily swings of £10k-£15k either way, so you wouldn’t have thought this would have too much effect further down the line.

jamesd

GSP said:

I suspect my FA’s concern is me taking out £10k more than he thinks reasonable or sustainable, and is backed up by a couple of drawdown calculators.

Two possible solutions to that, but in essence the same. First listen to this podcast where Michael Kitces interviews Jon Guyton and perhaps do what he does for his clients. The withdrawal statement mentioned in that is the one linked to  earlier in this discussion.

GSP said:

michaels said:

GSP said:

Just taking stock on one area of comments about helping my kids out.
Seems from the latest advice and links I have seen irrespective of my withdrawal behaviour, to give them anything of note now in these early years would have a very big potentially fatal effect on the longevity of my fund.
It suggests we may be able to give them something in the latter years, before we die if possible, but to do it so early will make the fund drop off a cliff perhaps.

You could see it as them inheriting the value of your house early and that if your investments head south you instead use the house equity through equity withdrawal?

Never looked at equity withdrawal, but would of thought it was a very last resort for people wanting to stump up cash? Signing your house over?

Equity withdrawal is a mortgage and as with any mortgage you remain the owner of the property.. If you die with a mortgage the lender can sell the property and hand back the excess money. Equity release products that roll up the interest come with a no negative equity guarantee but there are also products that let you pay the interest.

Introduced in the last few years are more mainstream "retirement interest only" mortgages that are just ordinary mortgages with an end date that makes it quite likely that you'll die first, or one that ends only when you (the last living partner) go into care.

For children, having part of an inheritance skip your own generation can be efficient because it avoids  one generation of inheritance tax. If a will leaves it to you, you can unilaterally use a "deed of variation" after the death to modify this and have some go to them.

With inheritance expected, a higher income and giving to children doesn't have to worry an adviser. Instead you can have a conditional planning rule which says If x inheritance not received by year y, use RIO o lifetime mortgage to top up funds". What this does is support you giving some house value to kids when they can benefit most instead of waiting for your death. And a drawdown with a safe withdrawal rate strategy means that you're likely to die with enough to repay the mortgage anyway.

What we've gradually been doing is talking you through setting up a fully integrated lifetime  planning  picture and this is just one part.

Thrugelmir

GSP said:

Thrugelmir said:

GSP said:

Thrugelmir said:

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

cfw1994 said:

jamesd said:

Thrugelmir said:

 The economic and financial realities of the impact of Covid are going to take time to sink in. This is by far the worst crisis in a hundred years. There can only be a rocky road ahead. 

To put that into context:

WW1 killed 867,829 to 1,011,687 in UK and colonies, 1.91% to 2.23% of prewar population.
1918 flu pandemic killed around 250k more in just Britain.
WW2 killed 450,900, 0.94% of prewar population in UK and Crown colonies as well as destroying much economic infrastructure.

Covid is nasty but it's not as bad, at least so far. It's very far from being the worst crisis in the last hundred years and while there are rocks around we've seen worse and drawdown safe withdrawal rates have been set to handle them.

Indeed.
Thruglemir is always a ray of sunshine & unbridled optimism on these boards, eh 
For my part, I believe the world is a VERY different place than it was 100 years ago.  Sure, there are and will be dips, and maybe we are entering a period of flatness, but where some businesses and sectors will struggle or fail, others will rise up.

Quite agree with communication and technology so different and advanced on what it was, it’s not comparing apples with apples. The world still trades, but it is a very different place.
I tried pulling together numbers for a cashflow retirement planner as I thought my FA’s one is a bit crude and I could provide a bit more detail. In truth easier said than done though! Without seeing a complete breakdown he used growth as 3%, inflation as 2% giving a real return of 1%. The outgoings were a consistent £36k. Surely these should go up with inflation as well, unless that’s built in (maybe it is!). My state pension was £9k. Surely that will look different in 20 years time. It’s going to need some work on it all though before I am happy and can see I will have to go through several developments of it chopping and changing before I get there.
My wife’s pension should start in two years when she is 55 and is currently £173k. From a fidelity retirement calculator that suggests currently we’ll be able to drawdown £7k a year in ‘average market conditions’, the middle of their 3 choices with that money ‘running out in her nineties. It obviously doesn’t take account of her state pension as well, so a lot of things to bring together. Of there’s inheritance as well, but will leave that!

You'd need to understand the total charges to understand whether a 1% real return was reasonable (and also with the caveat that straight-line assumptions come with drawbacks).
I'd also be wary of provider retirement calculators unless you really understand the assumptions they are making.

If my FA’s calculation of 1% real return is based on 3% growth less 2% inflation. I may have the wrong end of the stick here but can you use the growth less inflation in the same calculation? I would assume growth is what happens to the pension fund and inflation is your outgoings. With the different amounts on both, there is a different effect and you can only apply one relevant to each not to both, then subtract from one another?

Referring back to the conversation around safe withdrawal rate, where we look at how much money we can take out per year without running out of money (in simple terms, and based on historical data i.e. not straight-line returns).
This SWR number could be an ideal world implementation, and might not be adjusted for investment costs etc. So if your SWR was 4% with no costs (gross), after the costs incurred by your adviser, fund manager, platform etc, this might come down to 3% (net)
This also applies to straight-line assumption, so while a 2% (for example) straight line real return might be realistic for a no-cost scenario, once costs are applied it might not be. (hope that makes sense).
Assumptions need to be reasoned and reasonable and it's worth being happy that those chosen by the adviser are.

Again from FA, I think we ascertained his concern was my high withdrawal rate. But what he has never remarked on is my fund balance is not too dissimilar to when I first started. 

Simplistic answer. You now own fewer Amazon shares however those that you have left are worth 228% than they were 3 years ago. Under the bonnet there's actually a lot going on. Your FA is not a market analyst and as a consequence won't have an in depth view of the stock. 

Thanks for that. Keep seeing the word units so perhaps that’s the word for shares? If that’s the case though, in a crash would this mean my balances would fall faster if I had these shares/units at a certain price?

In essence yes. Each unit will represent a part holding in a swathe of investments. 

I suspect my FA’s concern is me taking out £10k more than he thinks reasonable or sustainable, and is backed up by a couple of drawdown calculators. Quite amazing really as I have seen a number of daily swings of £10k-£15k either way, so you wouldn’t have thought this would have too much effect further down the line.

On £750k (?) that's a minimal swing. You ain't seen nothing yet!  When markets become truly volatile you learn the extent of your own comfort zone.