750k Drawdown at 58

BritishInvestor

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.

Assuming you build out your financial plan to age 100, you could assume one partner goes into care/care at home for a period of (for example) 3 years (lots of data around how long people require care) at 97 at a cost that reflects care fees in your area (potentially minus personal expenses).
If the second partner goes into care, the house might well be sold to fund the care. 
The reason for 97 is if the care is affordable at 97 it should be affordable earlier (on the assumption that pots will typically be declining over time, so if it can be afforded then, it can be afforded earlier, if required).
But care is obviously very, very specific to the individual, so the above is a generic starting point.

BritishInvestor

garmeg said:

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.

@jamesd thanks i will try and model this in Excel.

I'm intrigued as to why you would bother given there are (I believe) free tools out there that will do this for you, using historical data that would be a pain to emulate in Excel.

jamesd

garmeg said:

@jamesd thanks i will try and model this in Excel.

Please do also try the 20% cut variation.

If continued with no growth this scenario is so severe that the 4% rule fails after 20 years at 65:35 (74% after initial drop), though that should really be using 60:40 (76% after initial drop, 20 years) or 50:50 (80% after initial drop, 21 years), so it's tougher than can really be expected. Guyton-Klinger will just keep cutting, managing it unless 10% cuts aren't fast enough.

Prism

The benefit of a well planned retirement strategy covering allocation, rebalancing and variable withdrawals is as much to do with not running out of cash as allowing you to increase withdrawals safely. Over the last 100 years a 4% rate has been very achievable with little effort but it has also been possible to get that up to a 9% rate at certain times. The goal is to safely work out when that is possible. 
Obviously the future could be different.

Bobziz

BritishInvestor 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.

Assuming you build out your financial plan to age 100, you could assume one partner goes into care/care at home for a period of (for example) 3 years (lots of data around how long people require care) at 97 at a cost that reflects care fees in your area (potentially minus personal expenses).
If the second partner goes into care, the house might well be sold to fund the care. 
The reason for 97 is if the care is affordable at 97 it should be affordable earlier (on the assumption that pots will typically be declining over time, so if it can be afforded then, it can be afforded earlier, if required).
But care is obviously very, very specific to the individual, so the above is a generic starting point.

This is pretty much exactly my plan. I'm fortunate that I believe I'll be able to live a comfortable retirement without eating into capital, but will ensure I have 3 years of fees availabe in any event should I need it. I like the idea of spending it all, but the prospect of spending my final days in a local authority funded home is not appealing to say the least. My mums home is a nursing home, she has Alzheimer's, and is towards the top end of the price scale at 86k/year, but there are plenty that are more expensive. We're in the process of selling her home to pay for it.

semiplural

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.

Lots of interesting things for you to think about in these responses, but Gary hit the first thing that came to my mind.

Very much depends on the age and status of you kids, but they might benefit more from having that cash early, especially if they have not yet got their feet firmly on the property ladder. On the other hand, their pension position is likely to be worse than yours and all being well, they may be retired themselves once you shuffle off this mortal coil - so perhaps that is exactly the time they will require a boost.

Also re "they'll inherit the house anyway". If you do think they would benefit from receiving the cash earlier, it would be worth thinking about a lifetime mortgage to release some capital for them early. You'll read a lot on the subject that in my view is unduly negative such as the fact that at a rate of 5% pa (current rates I think are somewhat lower) the debt will double in 15 years. Whilst this is true, if you borrow 30% of the property value and the kids use this to buy a house - you effectively have 130% of your property value invested in (erm) property, which only requires a c. 3.2% pa increase in house prices to offset the increased debt (in absolute not real terms-  I should add for the purists).

Mickey666

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.

That was my rationale, give it to them while they're young - and is what I did.

As for the 'abyss of running out of money', I see it as one of life's great challenges to die broke, on the basis that any money I have left was of no real benefit to me.  I being somewhat flippant, but you get the idea - spend it or give it away rather than leave a large estate.  By 'money' I basically mean everything except my home, so in practice there is always some contingency, whether by selling up or by equity release.

Mickey666

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.

I wonder how much live-in care at home could be bought for £86k/year?

I really can't imagine ending my days in a care home and unless something sudden happens and I lose control of myself then I'm pretty resolute about not letting it come to that.  This is probably not the forum to discuss such things but I can easily imagine a number of options to avoid ending my days in a care home.  In short, care fees are not part of my plans.

GSP

Reading comments on here and going back to the cashflow retirement planner from my FA.
While anything could happen, I am tending to disagree with his rationale which does not take into account the less withdrawals as we become older. 

Increased withdrawals earlier would take us faster towards the end of money predictions, but I would see we would need less money later on, and state pensions would take account of most of the household bills and expenditure.
As an aside, has anyone had any disagreements with their FA? Have you ever overruled them? Did this lead to any friction/a change in FA as the ‘relationship’ was broken?
.

GSP

Mickey666 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.

That was my rationale, give it to them while they're young - and is what I did.

As for the 'abyss of running out of money', I see it as one of life's great challenges to die broke, on the basis that any money I have left was of no real benefit to me.  I being somewhat flippant, but you get the idea - spend it or give it away rather than leave a large estate.  By 'money' I basically mean everything except my home, so in practice there is always some contingency, whether by selling up or by equity release.

Before retirement, I have juggled with finances since I was 18. Gone on some holidays we should never have, bought a car we should never had, but we always got through. As my post above, there was never any account taken of 3 inheritances which in total should be £750k.
I want to help my kids and as you say there are means to achieve that.