Pension Cashflow Retirement Planner - Key Info?

GSP

NottinghamKnight said:

I think you'd want to vary the numbers to determine sensitivity and also look at sequence of return, the latter for an initial few years of poor returns to see the long term impacts. 

I’ve been going 3 years with Growth before withdrawals c15% over that period.
When I have withdrawn money, which I probably done on seven occasions now the fund has always been ‘healthy’ and never in a falling sequence. The fund is now at the same level as it was after my first withdrawal.
So in perfect world do you ‘take advantage’ when things are good. And when things are not so good, limit withdrawals as much as you can until the fund recovers somewhat?

Thrugelmir

Perhaps being conservative to cover the eventuality that your portfolio takes a sizable hit in the near term.  At the outset is the worse time as mathematically it's a position you'd struggle to ever recover from. 

jamesd

GSP said:

From what I can see, he has used real return of 1% throughout based on 2% inflation throughout, outgoings of £36,000 throughout and pension when it kicks in in 9 years time of £9k throughout. He has also combined my fund with my wife’s, though that does not start until two years time.

Constant 36,000 is not consistent with the research on real spending, which shows substantial drops: "The next chart below shows that, from age 65, spending typically declines progressively and is about 35% lower at age 80" and your spending pattern seems to be that of those whose spending drops more. So you might build in a spending drop of say 3% a year from 65, ceasing at some spending floor. What that will do is allow shifting more spending to earlier ages.

Combining your wife's pot is OK for quick and dirty but not for tax effect on income planning when there are two personal allowances.

1% is too low for growth of  your investment mixture but there are reasons to expect less over the next ten yeas so you might use 1% plus inflation followed by 3% plus inflation and anticipate 1% more than those.

Linton

I used 3% inflation and a1% real return for my spreadsheet retirement plan 15 years ago and still use the same assumptions. Assuming average returns would be foolish.....
- average means a 50% chance of being wrong. Way too high for comfort given that by the time any failure becomes really obvious it will be too late to do anything about it.
- you need some way of allowing for crashes.
- the future may be very different to the past.
- when drawing down one is likely to invest more cautiously than when accumulating.
People retiring now may be fooled by the returns they have had over the past 12 years. I believe  these are historically unprecedented.

NottinghamKnight

GSP said:

NottinghamKnight said:

I think you'd want to vary the numbers to determine sensitivity and also look at sequence of return, the latter for an initial few years of poor returns to see the long term impacts. 

I’ve been going 3 years with Growth before withdrawals c15% over that period.
When I have withdrawn money, which I probably done on seven occasions now the fund has always been ‘healthy’ and never in a falling sequence. The fund is now at the same level as it was after my first withdrawal.
So in perfect world do you ‘take advantage’ when things are good. And when things are not so good, limit withdrawals as much as you can until the fund recovers somewhat?

That's great then, the ability to be flexible is the best defensive method. It just seems odd that the IFA has been as lazy as you suggest when he is trying to show you are not being conservative enough, variable returns and certainly a high impact initial sequence of return risk would be the way to stress test the withdrawal strategy and support his approach. 

GSP

jamesd said:

GSP said:

From what I can see, he has used real return of 1% throughout based on 2% inflation throughout, outgoings of £36,000 throughout and pension when it kicks in in 9 years time of £9k throughout. He has also combined my fund with my wife’s, though that does not start until two years time.

Constant 36,000 is not consistent with the research on real spending, which shows substantial drops: "The next chart below shows that, from age 65, spending typically declines progressively and is about 35% lower at age 80" and your spending pattern seems to be that of those whose spending drops more. So you might build in a spending drop of say 3% a year from 65, ceasing at some spending floor. What that will do is allow shifting more spending to earlier ages.

Combining your wife's pot is OK for quick and dirty but not for tax effect on income planning when there are two personal allowances.

1% is too low for growth of  your investment mixture but there are reasons to expect less over the next ten yeas so you might use 1% plus inflation followed by 3% plus inflation and anticipate 1% more than those.

Interesting where I have seen my older siblings in their sixties have plans changed and reduced spending. The main driver of this is looking after the grandkids! It seems a gimme now that Grandparents look after kids more than they used to, seems to be ‘expected’ from their children. Perhaps its because they need two incomes coming in, mortgage payments are so high now. All being well, we should be in the same position in 3-5 years to look after our grandchildren, and looking forward to it as well! 

True also about the personal allowance and with the FA combining the two. Best kept separate!
My excel spreadsheet planner being created is looking ‘busy’ already! And there’s quite a bit more to add in it seems.

GSP

Linton said:

I used 3% inflation and a1% real return for my spreadsheet retirement plan 15 years ago and still use the same assumptions. Assuming average returns would be foolish.....
- average means a 50% chance of being wrong. Way too high for comfort given that by the time any failure becomes really obvious it will be too late to do anything about it.
- you need some way of allowing for crashes.
- the future may be very different to the past.
- when drawing down one is likely to invest more cautiously than when accumulating.
People retiring now may be fooled by the returns they have had over the past 12 years. I believe  these are historically unprecedented.

Yes agree, drawdown seems like walking a tightrope. Any plans, projections are probably out of date after a couple of months on occasions. There’s too many outside factors ‘upsetting’ the numbers.

GSP

NottinghamKnight said:

GSP said:

NottinghamKnight said:

I think you'd want to vary the numbers to determine sensitivity and also look at sequence of return, the latter for an initial few years of poor returns to see the long term impacts. 

I’ve been going 3 years with Growth before withdrawals c15% over that period.
When I have withdrawn money, which I probably done on seven occasions now the fund has always been ‘healthy’ and never in a falling sequence. The fund is now at the same level as it was after my first withdrawal.
So in perfect world do you ‘take advantage’ when things are good. And when things are not so good, limit withdrawals as much as you can until the fund recovers somewhat?

That's great then, the ability to be flexible is the best defensive method. It just seems odd that the IFA has been as lazy as you suggest when he is trying to show you are not being conservative enough, variable returns and certainly a high impact initial sequence of return risk would be the way to stress test the withdrawal strategy and support his approach. 

It seems with drawdown you have to be flexible and react when necessary. These planners and projections I am looking at quickly become out of date it seems. I can see their existence is a long term goal, but boy are there so many factors at play. You can only concentrate on the key drivers, whatever they are!
Pound cost ravaging appears deadly to the pot. Those withdrawals at this time have to be the minimal, perhaps just drawing very small monthly amounts if you need to get by until the fund recovers somewhat. Maybe take a loan out!
At the other end of the scale and in my other thread on drawdown of £750k, we don’t want to die ‘rich’ either.
To me it’s about striking a balance. Enjoy any good growth in your fund when you can, tighten the belts when you can’t. As James pointed out above, our spending becomes less from mid sixties it seems, just around the time the state pension kicks in it seems.

GSP

Are the any FA’s or advice suggesting ‘enjoy‘ your fund in good growth, tighten your belts in bad times, and avoid pound cost ravaging at all costs?

Linton

GSP said:

Are the any FA’s or advice suggesting ‘enjoy‘ your fund in good growth, tighten your belts in bad times, and avoid pound cost ravaging at all costs?

That is basically what the Guyton-Klinger rules for drawdown do - see https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/ for example.  The advantage is that your safe (based on historical data) drawdown rate increases by perhaps1.5-2%%. 

The disadvantage is that if drawdown is  a significnt part of your retirement income varying expenditure can be difficult to manage.  You dont want to be switching between a champagne lifestyle and living on the breadline - it's probably not as bad as that but hopefully you get the picture.   Also it can make long-term planning difficult. One way of avoiding changing income is to maintain a cash buffer to use when share prices collapse. However the cash buffer is providing neither significant income nor growth and reduces the effective drawdown rate.   Any rules like this require you to have good knowledge of your finances and the ongoing time and inclination to carry out the management perhaps on a monthly basis.  This may become more difficult as you get into real old age.