IFA Withdrawal Request Timing?

garmeg

jamesd said:

Audaxer said:

jamesd said:

Guyton-Klinger rules in their 2006 article Decision Rules and Maximum Initial Withdrawal Rates.

I've not studied the G-K rules in detail, but it seems to say that by applying these rules to a 65% equities portfolio, an initial withdrawal rate of 5.2% to 5.6% has is a 99% success rate. Have I understood that correctly as it seems an incredibly high 'safe withdrawal rate'?

Yes. That's because it's  a starting rate and adjusts downwards if needed, or upwards. 4% rule can't adjust so it has to start at a level that survives the worst case within the specified success rate. You can see a comparison for an extremely bad sequence calculated in this post.

In more normal times human intervention is routinely needed to recalculate and raise 4% rule spending. Can be sometimes for G-K but the prosperity rule raises income and can take care of it a fair bit of the time.

G-K has modifications like the 20% drop instead of 10% from Klinger's later paper. That more rapidly adjusts down in a persistent crash scenario so it doesn't need to cut income so far. I think that it also better matches how humans want to act after a crash. Some tools let you specify a minimum income and constrain the initial income to achieve it, I used this in some of the examples.

You could think of the 4% rule as a pessimist and G-K as a flexible neutral person. An optimist might start at say 8% and cut much more frequently.

Or use GK starting at 4% perhaps?

GSP

Interesting as looking at our short run of data over the last three years, there have already been a number of instances where growth has gone negative to recover fairly quickly thereafter.
Forget my idea totally of turning all into cash, it does appear though if planned enough you can time your withdrawal when your fund balance has grown somewhat, like taking the profit! That’s the thing, your fund balance is quite unique as it had a different starting point to everyone else. Your growth depending when you started will probably look quite different to someone starting 1,2,3 months down the road. Look after the health of your fund.

[Deleted User]

There could be years when your fund is “under the water” from the moment of retirement. Assuming you only ever withdraw “to take the profit” is an optimistic assumption. The fact we’ve had V shaped recoveries in the market recently does not mean the future ones will be similar.

GSP

Deleted_User said:

There could be years when your fund is “under the water” from the moment of retirement. Assuming you only ever withdraw “to take the profit” is an optimistic assumption. The fact we’ve had V shaped recoveries in the market recently does not mean the future ones will be similar.

Yes agree with that of sorts but depends on the curve where you went in.

garmeg

GSP said:

Deleted_User said:

There could be years when your fund is “under the water” from the moment of retirement. Assuming you only ever withdraw “to take the profit” is an optimistic assumption. The fact we’ve had V shaped recoveries in the market recently does not mean the future ones will be similar.

Yes agree with that of sorts but depends on the curve where you went in.

Depends on what you invested in as well. Some UK investment trusts are still significantly (40%) down on the year, eg ...

Thrugelmir

garmeg said:

GSP said:

Deleted_User said:

There could be years when your fund is “under the water” from the moment of retirement. Assuming you only ever withdraw “to take the profit” is an optimistic assumption. The fact we’ve had V shaped recoveries in the market recently does not mean the future ones will be similar.

Yes agree with that of sorts but depends on the curve where you went in.

Depends on what you invested in as well. Some UK investment trusts are still significantly (40%) down on the year, eg ...

So are the majority of US S&P stocks.  The terminology "markets" hides a multitude of individual price movements.  Which then leads to all sorts of unfounded perceptions. 

[Deleted User]

GSP said:

Deleted_User said:

There could be years when your fund is “under the water” from the moment of retirement. Assuming you only ever withdraw “to take the profit” is an optimistic assumption. The fact we’ve had V shaped recoveries in the market recently does not mean the future ones will be similar.

Yes agree with that of sorts but depends on the curve where you went in.

Not if it is a Random Walk. https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

jamesd

garmeg said:

jamesd said:

G-K has modifications like the 20% drop instead of 10% from Klinger's later paper. That more rapidly adjusts down in a persistent crash scenario so it doesn't need to cut income so far. I think that it also better matches how humans want to act after a crash. Some tools let you specify a minimum income and constrain the initial income to achieve it, I used this in some of the examples.

You could think of the 4% rule as a pessimist and G-K as a flexible neutral person. An optimist might start at say 8% and cut much more frequently.

Or use GK starting at 4% perhaps?

You could but the guardrail would then be at 4.8% and prosperity rule at 3.2%. That's way lower than G-K is capable of.

Better to start at 5.5% before costs to set upper guard rail at 6.6% and prosperity to 4.4% but then choose to draw 4% and skip inflation and/or prosperity rule increases when they are saying that you can take more.

Guyton said in his interview with Kitces that in his practice they only deliver the inflation increases if requested - seldom - and I'm spending less than I could. You'd perfectly free to underspend if you want to.

garmeg

jamesd said:

garmeg said:

jamesd said:

G-K has modifications like the 20% drop instead of 10% from Klinger's later paper. That more rapidly adjusts down in a persistent crash scenario so it doesn't need to cut income so far. I think that it also better matches how humans want to act after a crash. Some tools let you specify a minimum income and constrain the initial income to achieve it, I used this in some of the examples.

You could think of the 4% rule as a pessimist and G-K as a flexible neutral person. An optimist might start at say 8% and cut much more frequently.

Or use GK starting at 4% perhaps?

You could but the guardrail would then be at 4.8% and prosperity rule at 3.2%. That's way lower than G-K is capable of.

Better to start at 5.5% before costs to set upper guard rail at 6.6% and prosperity to 4.4% but then choose to draw 4% and skip inflation and/or prosperity rule increases when they are saying that you can take more.

Guyton said in his interview with Kitces that in his practice they only deliver the inflation increases if requested - seldom - and I'm spending less than I could. You'd perfectly free to underspend if you want to.

I would be more concerned about overspending if I was honest.

But I wouldn't want to pay the LTA charge at 75 either so would need to monitor more closely as I get to, say 70, so I keep the same initial start value of the SIPP (or slightly below) to avoid LTA charges.

NB: Currently it is about 15% below the initial crystallised post PCLS value due to COVID and my unbalanced high UK equity allocation.

EDIT: I have took the PCLS only from DC (nothing drawn yet). I have also asked to take an actuarially reduced pension early, no PCLS, from DB mainly due to the LTA - I would have waited until NRA otherwise. If I have any LTA left post DB, it won't be much, assuming my expected early DB is what I have estimated.

So I can hopefully crystallise a small bit of DC within LTA plus I have 2 small pots left to take as well. I am only paying in to my work scheme for the employer match otherwise no point due to likely LTA charges.

Anything uncrystallised after full LTA usage will just sit there (fully invested) until age 75 I guess because I doubt that LTA is going away any time soon.

Audaxer

jamesd said:

Audaxer said:

jamesd said:

Guyton-Klinger rules in their 2006 article Decision Rules and Maximum Initial Withdrawal Rates.

I've not studied the G-K rules in detail, but it seems to say that by applying these rules to a 65% equities portfolio, an initial withdrawal rate of 5.2% to 5.6% has is a 99% success rate. Have I understood that correctly as it seems an incredibly high 'safe withdrawal rate'?

Yes. That's because it's  a starting rate and adjusts downwards if needed, or upwards. 4% rule can't adjust so it has to start at a level that survives the worst case within the specified success rate. You can see a comparison for an extremely bad sequence calculated in this post.

Thanks jamesd. In the bad sequence example linked above, Year 1 indicates that you take a £27,500 withdrawal from a £500k portfolio of 65% equities and see a 40% equity drop which has an end balance of £370,000. That balance of £370,000 is the result of the 40% equity drop from £500k but doesn't take account of the £27,500 withdrawal as far as I can see. Should it not be a 40% equity drop from the portfolio balance of £472,500 (after the withdrawal) which would mean a Year 1 end balance of £349,650?