750k Drawdown at 58

GSP

cfw1994 said:

GSP said:

Mickey666 said:

Gary1984 said:

How old are the kids? Would it be more beneficial for them if you took some of your tax free cash and gifted it to them now rather than getting it decades down the line when they may not have as much need for it? As you say they'll inherit the house anyway. 

Hear hear!  If they are over 18 (ish) I'd give them the earmarked £50k each now, when it could help them start their independent lives running.  Wait another 20/25 years and they might not really need it - yes, always nice to have at anytime in life, but perhaps more valuable when just starting out.

Very interesting thought. 

My financial adviser would have a fit as he is suggesting I am taking a bit too much out now. I suppose that’s his job, to advise and such a reduction would only take us nearer the abyss of running out of money, or so he would say. Quite agree about the usefulness of it though as probably by the time we both die the kids would have already made their retirement plans.

Maybe he’d have a fit if you took 50-100k out of his “control” & he lost a chunk of his % management fee with that?  I assume he charges for the amount he is managing?  

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I suspect you are right.   Our faint thinking on those lines is that the house could become the finance for that, but the reality is that only a small number have expensive care home costs.  If you try to prepare for that, you’ll need a helluva lot bigger pot that if you don’t.....what are your thoughts, @Bobziz? How are you or she managing that cost?

Cfw1994 - My adviser gets his monthly fee based on the size of my fund. His best interests is for me to keep as much money as I can in there.

Thrugelmir

GSP said:

cfw1994 said:

GSP said:

Mickey666 said:

Gary1984 said:

How old are the kids? Would it be more beneficial for them if you took some of your tax free cash and gifted it to them now rather than getting it decades down the line when they may not have as much need for it? As you say they'll inherit the house anyway. 

Hear hear!  If they are over 18 (ish) I'd give them the earmarked £50k each now, when it could help them start their independent lives running.  Wait another 20/25 years and they might not really need it - yes, always nice to have at anytime in life, but perhaps more valuable when just starting out.

Very interesting thought. 

My financial adviser would have a fit as he is suggesting I am taking a bit too much out now. I suppose that’s his job, to advise and such a reduction would only take us nearer the abyss of running out of money, or so he would say. Quite agree about the usefulness of it though as probably by the time we both die the kids would have already made their retirement plans.

Maybe he’d have a fit if you took 50-100k out of his “control” & he lost a chunk of his % management fee with that?  I assume he charges for the amount he is managing?  

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I suspect you are right.   Our faint thinking on those lines is that the house could become the finance for that, but the reality is that only a small number have expensive care home costs.  If you try to prepare for that, you’ll need a helluva lot bigger pot that if you don’t.....what are your thoughts, @Bobziz? How are you or she managing that cost?

Cfw1994 - My adviser gets his monthly fee based on the size of my fund. His best interests is for me to keep as much money as I can in there.

What % are you paying?  

GSP

Thrugelmir said:

GSP said:

cfw1994 said:

GSP said:

Mickey666 said:

Gary1984 said:

How old are the kids? Would it be more beneficial for them if you took some of your tax free cash and gifted it to them now rather than getting it decades down the line when they may not have as much need for it? As you say they'll inherit the house anyway. 

Hear hear!  If they are over 18 (ish) I'd give them the earmarked £50k each now, when it could help them start their independent lives running.  Wait another 20/25 years and they might not really need it - yes, always nice to have at anytime in life, but perhaps more valuable when just starting out.

Very interesting thought. 

My financial adviser would have a fit as he is suggesting I am taking a bit too much out now. I suppose that’s his job, to advise and such a reduction would only take us nearer the abyss of running out of money, or so he would say. Quite agree about the usefulness of it though as probably by the time we both die the kids would have already made their retirement plans.

Maybe he’d have a fit if you took 50-100k out of his “control” & he lost a chunk of his % management fee with that?  I assume he charges for the amount he is managing?  

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I suspect you are right.   Our faint thinking on those lines is that the house could become the finance for that, but the reality is that only a small number have expensive care home costs.  If you try to prepare for that, you’ll need a helluva lot bigger pot that if you don’t.....what are your thoughts, @Bobziz? How are you or she managing that cost?

Cfw1994 - My adviser gets his monthly fee based on the size of my fund. His best interests is for me to keep as much money as I can in there.

What % are you paying?  

0.5% a year, give or take £300 a month.

Gary1984

Wait, do you mean 0.5% a year but paid monthly? Surely not really 0.5% a month (6% a year)?

garmeg

GSP said:

Thrugelmir said:

GSP said:

cfw1994 said:

GSP said:

Mickey666 said:

Gary1984 said:

How old are the kids? Would it be more beneficial for them if you took some of your tax free cash and gifted it to them now rather than getting it decades down the line when they may not have as much need for it? As you say they'll inherit the house anyway. 

Hear hear!  If they are over 18 (ish) I'd give them the earmarked £50k each now, when it could help them start their independent lives running.  Wait another 20/25 years and they might not really need it - yes, always nice to have at anytime in life, but perhaps more valuable when just starting out.

Very interesting thought. 

My financial adviser would have a fit as he is suggesting I am taking a bit too much out now. I suppose that’s his job, to advise and such a reduction would only take us nearer the abyss of running out of money, or so he would say. Quite agree about the usefulness of it though as probably by the time we both die the kids would have already made their retirement plans.

Maybe he’d have a fit if you took 50-100k out of his “control” & he lost a chunk of his % management fee with that?  I assume he charges for the amount he is managing?  

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I suspect you are right.   Our faint thinking on those lines is that the house could become the finance for that, but the reality is that only a small number have expensive care home costs.  If you try to prepare for that, you’ll need a helluva lot bigger pot that if you don’t.....what are your thoughts, @Bobziz? How are you or she managing that cost?

Cfw1994 - My adviser gets his monthly fee based on the size of my fund. His best interests is for me to keep as much money as I can in there.

What % are you paying?  

0.5% a month.

GSP

Gary1984 said:

Wait, do you mean 0.5% a year but paid monthly? Surely not really 0.5% a month (6% a year)?

Whoops. Amended!

GSP

garmeg said:

GSP said:

Thrugelmir said:

GSP said:

cfw1994 said:

GSP said:

Mickey666 said:

Gary1984 said:

How old are the kids? Would it be more beneficial for them if you took some of your tax free cash and gifted it to them now rather than getting it decades down the line when they may not have as much need for it? As you say they'll inherit the house anyway. 

Hear hear!  If they are over 18 (ish) I'd give them the earmarked £50k each now, when it could help them start their independent lives running.  Wait another 20/25 years and they might not really need it - yes, always nice to have at anytime in life, but perhaps more valuable when just starting out.

Very interesting thought. 

My financial adviser would have a fit as he is suggesting I am taking a bit too much out now. I suppose that’s his job, to advise and such a reduction would only take us nearer the abyss of running out of money, or so he would say. Quite agree about the usefulness of it though as probably by the time we both die the kids would have already made their retirement plans.

Maybe he’d have a fit if you took 50-100k out of his “control” & he lost a chunk of his % management fee with that?  I assume he charges for the amount he is managing?  

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I suspect you are right.   Our faint thinking on those lines is that the house could become the finance for that, but the reality is that only a small number have expensive care home costs.  If you try to prepare for that, you’ll need a helluva lot bigger pot that if you don’t.....what are your thoughts, @Bobziz? How are you or she managing that cost?

Cfw1994 - My adviser gets his monthly fee based on the size of my fund. His best interests is for me to keep as much money as I can in there.

What % are you paying?  

0.5% a month.

Yes, every reason for your picture. Should be a year. 

Don’t make them like Benny anymore. Terrible how he was treated.

Albermarle

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I would agree that you can not really factor in a kind of worse case scenario, such as paying £86K pa ( seems high even by care home fees standard) for an extended number of years . Or both parts of a couple going into expensive care,
However as I understand it the majority of older people do not end up in a care home, and stays are on average only a couple of years due to people passing on, and they more typically cost around £50k pa? So maybe you could factor in care home fees to some extent at this more manageable level. 

garmeg

Albermarle said:

garmeg said:

Bobziz said:

Not much comentary about care fees. How are people factoring this in to their plans ? My mothers care home is costing £86k/year.

Realistically I dont think you can.

I would agree that you can not really factor in a kind of worse case scenario, such as paying £86K pa ( seems high even by care home fees standard) for an extended number of years . Or both parts of a couple going into expensive care,
However as I understand it the majority of older people do not end up in a care home, and stays are on average only a couple of years due to people passing on, and they more typically cost around £50k pa? So maybe you could factor in care home fees to some extent at this more manageable level. 

Or assume house sale covers it perhaps?

BritishInvestor

jamesd said:

BritishInvestor said:

I think you'd need to be very happy with potential the cuts in real income if using Guyton-Klinger and if a poor series of returns was encountered in early retirement, especially if the guardrails were applied annually.

Being willing to skip inflation increases or take cuts above inflation is the trade off for starting at 5% instead of 3.2% (5.5% used in the guard rail calculation). For those unfamiliar with G-K, the withdrawal statement linked to earlier includes those rules, part including guard rail prosperity and inflation rules being:

"your Annual withdrawal amount will increase by the prior year’s inflation rate, unless:

A) you decide instead to keep your withdrawal amount the same in some years.

B) next year’s WD amount would make your WD Rate more than 6.5%. If so, next year’s WD amount is reduced by 10% from what it would have been with the inflation adjustment.

C) next year’s WD amount would make your WD Rate less than 4.3%. If so, next year’s WD amount is increased by 10% from what it would have been with the inflation adjustment.

D) neither B nor C applies, but the prior year’s investment return was negative. If so, your WD amount remains the same as it was the prior year."

A fairly severe worked example might be a 40% equity drop in a 65:35 £500k mixture followed by nil investment growth and nil inflation (a simplifying alternative to 2% each). 5.5% initial, upper guard rail 20% higher at 6.6%, lower (prosperity) 20% lower is 4.4%. For comparison 4% rule (UK 30 years before costs) at 3.7% is £18,500 and an age 55 single life RPI annuity with 5 year guarantee quotes 1.624% which on £500,000 is £8,120. This initially looks like:

Year 1 take 5.5%, £27,500 and see equity drop, ending value £370,000.
Year 2 planned taking is £27,500 after 0% inflation increase, which is 7.4% of £370,000. Above upper guard rail 6.6% so reduce by 10% to £24,750. Ending value £345,250.
Year 3 planned £24,750 is 7.2% of £345,250 so reduce to £22,275. Ending value £322,975.
Year 4 planned £22,275 is 6.9% so reduce to £20,047. Ending value £302,928.
Year 5 planned £20,047 is 6.61% so using that extra digit cut to £18,042. Final value £284,886. (4% rule final value £305,000)
Year 6 planned £18,042 is 6.3%, below 6.6% so no change. Final value £266,844.
Year 7 planned £18,042 is 6.8% so reduce to £16,237. Final value £250,607.
Year 8 planned £16,237 is 6.5%. Final value £234,370.
Year 9 planned £16,237 is 6.9% so reduce to £14,613. Final value £219,757.
Year 10 planned £14,613 is 6.7% so reduce to £13,151. Final value £206,606. (4% rule final value £212,500).

Ten years in G-K has paid more and is now paying enough less than 4% rule to have recovered from most of the earlier lack of the pessimism that's built into the 4% rule but more cuts will be needed. Both remain well above the annuity £8,120 final value £nil. Note that this is with G-K on a tougher 40 vs 30 year path.

Within G-K calculators there can be adjustments to limit the drop potential. One is to cut by 20% instead of 10% if the upper guard rail is exceeded, so it more rapidly adjusts towards a long term stable value that's higher, a change I like. Another is to set an income floor, which can reduce initial income; I tend to use annuity or DB alternatives.

Beyond G-K parts of a pot can be using different rules.

Personally I like the lower initial pessimism of Guyton-Klinger because it tends to favour higher income at younger ages, which is desirable if age-related spending decrease is expected.

I take your point on the lower pessimism but I still think the potential drops in real income must be emphasised and could (if we use history as a guide) be worse than your illustration above. For example, historical worse case I see real income decimated if someone had followed that approach in the late 60s and had to live through the 70s inflationary/market slump horror.
As an aside I don't see 5.5% being sustainable which is odd as I'm using Abraham's tool - could be a different dataset he was using back then but just goes to show how sensitive the approach can be.