IFA Withdrawal Request Timing?

AnotherJoe

Audaxer said:

Thrugelmir said:

GSP said:

AnotherJoe said:

GSP said:

QAnotherJoe said:

GSP said:

AnotherJoe said:

GSP said:

jamesd said:

GSP said:

In drawdown, from your request to your IFA to take x amount from your fund, how long does it take before your fund is debited and your bank account credited

If not using an IFA but instead giving online instructions at a place like HL:

1. sell ETF or investment trust and you'll be quoted a price with about ten seconds to accept. Accept and the deal is done at that price and shows up in lists of recent trades. Outside market hours you can set a minimum price if you want the deal done when the market next opens.
2. give an instruction to sell an ordinary fund by 8AM and the noon price on that day will be used. Later, the next day though you can cancel before 8AM.

In both cases settlement - the cash arriving in the account - is the standard three days later. You can then ask to withdraw the money.

So your exposure to market moves without an IFA in the middle can be none at all to four hours.

Thanks jamesd. I had to look up ETF - Exchange Traded Funds. Think reading through ETF’s aim to track the performance of a specific index such as the FTSE 100, so not sure if this would extend to all the other types of funds, stocks, bonds, equities etc that are usually held across a diverse portfolio.
I would never go it alone with looking after my own finds and would always use an IFA. It seems, if possible that to take out ALL the risk from your overall fund balance, you need to turn everything into cash on the day of instruction to the IFA to withdraw. The market can go up as well as down of course, but at least by doing this, if possible has frozen your balance, there is no risk of ‘wild’ movements? Once the money has been credited to your bank account 1, 2 or 3 weeks later, your fund is then turned back into all the investments you had previously.
Does this all sound feasible, and doable? 

It sounds idiotic and over time will lower the return from your investments because they will be in cash for an appreciable % of time. And its misplaced because all you are covering is the downside risk and forgetting the upside risk (eg it goes up after you sold) and statistically thats more likely to happen and absolutely certain over a long period.

Just keep (say) one years drawdown in cash, drawdown from that and occasionally top it up selling just what you need to top it up.

Really, with the shenanigans you are contemplating i wonder if investing is for you because you are so worried about the downside, and you'd be better with an annuity.

You seem to be soemone who might panic and go to cash every time theres a market drop and then you'll never get up the nerve to reinvest.

Yes agree, this is a bonkers idea as acknowledged in the Retirement Planner Key Info thread. I am not looking and trying to anticipate falls in the market, just looking at ways that might ‘maximise’ my fund.
Rather than sticking to a plan made 1,2,3 years previous, I am exploring the timing of withdrawals if there was some leeway in when these are done. Better to take from your fund if the balance is healthy rather than one that has contracted. If annuity rates ever picked up to an acceptable level, I’d certainly look at them. No, I would never panic, that bit you have got wrong, this is a marathon not a sprint. Sometimes it can be a case of just sitting tight and trying to make a better call on things rather than staying with a rigid planner.

The answer to that is keep it invested and not try to time the market, which essentially is what you are planning to do however much you try to pretend you arent. "I  am exploring the timing of withdrawals" - how is that not market timing?

Just sell on your regular basis, either each month / three months / six months / yearly / 137 days,  (whatever works for you) unless theres been a  crash (of a magnitude as determined by you)  in which case take some out of your cash buffer instead and dont sell  anything or sell less and take out less, depending how severe a crash and what flexibility you have .

The only timing feature I am looking at is withdrawing when my fund has grown rather than withdrawing when it has contracted and delaying that decision on the latter if possible. Is it beneficial to withdraw when your fund has grown, rather than withdraw when your fund balance has fallen?

Yes it is. Avoids getting into a spiral of decreasing pool with constant amount withdrawal meaning increasingly higher % withdrawal. If you withdrew a constant % it would be b better because that would reduce the amount the pot fell by, however are you withdrawals such that (say) a 30% drop in withdrawal didn't affect you. 

This is why many propose a cash buffer you withdraw from after a decrease in the pot. 

Of course this depends if you didn't wish to decrease the pot, maybe your plans mean that's fine. Either because other pensions mean you can cope or because you,plan to decrease it anyway

Thanks AJ. If you mean one year with a 30% drop in withdrawal, I am sure we could live with that or at least do whatever it takes to get through.
I am in the process of running all sorts of scenario’s (perhaps some I haven’t thought of yet) to see how these project forward. Just an example of one of many a contraction every 3 years followed by fairly good growth of 4% and 6% with withdrawal size differing for all 3, with less in fact than the 30% drop you mention when it contracts. With this my fund balance is more or less protected and is bolstered in 9 years when my state pension kicks in.
My plan is that I decrease the pot and enjoy it while I can. Then at a certain level SP covers around a third to a quarter of outgoings, and this “should” keep the fund fairly stable thereafter with less spending also apparently not far after this time.

Question is will you pick the right days to liquidate holdings or the wrong ones?  Get it wrong consistently and eventual returns could be considerably lower. As your capital depletes. 

That's true. It is more difficult with funds as you don't know the price you are going to get when you put the order in. I think that is an advantage of IT's as you know the price you are buying and selling at.

Id say thats incorrect for the following reasons.

1. Since statistically its more likely that a fund will be a higher price tomorrow than a lower one a delay selling is likely to be in your favour. (also works the other way round of course)

2. Yes you can choose the IT price when you sell but you dont know if thats a good price or not, maybe (and statistically it will be) higher in an hour. If you really can tell if it will be cheaper or more expensive in an hour then quit  the current job and start daytrading.

jamesd

Linton said:

jamesd said:

If you use multi-asset you'll end up selling equities when they are down unless you do have at least some split holdings. Not really what you want to be doing

This isnt actually true.  Take a simple example.  £60K equity + £40K bond.  The price of equity drops 50% whilst bonds remain constant.  You withdraw £4K/year:

Initial £60K equity £40K bond
After drop by £30K: £70K- rebalance to £42K Equity £28K bond
Take £4K - total £66K: rebalance to  £39600 equity £26400 bond.
So overall you have effectively spent £13600 of your bonds, £4k to you and £9600 to buying equity at its new very low price.

You seem to have rebalanced after the income is taken, not before,  so were using a non-rebalancing fund calculation:

Initial £60k equity £40k bond. Equity drop by £30k to £40k equity, £30k bond. Sell 4k bond for income, leaving £40k:26k. Rebalance the £66k to £39.6k:26.4k.

While this is how a rebalancing fund rebalancing after an immediate 30k equity drop looks:

Initial £60k equity £40k bond. Equity drop by £30k to £40k equity, £30k bond. Rebalance to £42k:28k. Sell 4k, leaves £66k at £39.6:26.4k.

Which is the same end result, when trading after the whole drop has happened.

But have you considered how it might differ for a gradual fall over say nine months with monthly selling, so rebalancing is adding to downward-bound equities each time?

jamesd

Prism said:

I am not sure if anyone has ever done a comparison of manual annual rebalancing vs multi asset rebalancing. My gut tells me the annual rebalance would perform slightly better, partly down to lower transaction costs and partly down to helping with a bit of a momentum play.

There have been studies of optimal rebalancing interval like that linked Kitces article using Vanguard results.

Audaxer

jamesd said:

Linton said:

jamesd said:

If you use multi-asset you'll end up selling equities when they are down unless you do have at least some split holdings. Not really what you want to be doing

This isnt actually true.  Take a simple example.  £60K equity + £40K bond.  The price of equity drops 50% whilst bonds remain constant.  You withdraw £4K/year:

Initial £60K equity £40K bond
After drop by £30K: £70K- rebalance to £42K Equity £28K bond
Take £4K - total £66K: rebalance to  £39600 equity £26400 bond.
So overall you have effectively spent £13600 of your bonds, £4k to you and £9600 to buying equity at its new very low price.

You seem to have rebalanced after the income is taken, not before,  so were using a non-rebalancing fund calculation:

Initial £60k equity £40k bond. Equity drop by £30k to £40k equity, £30k bond. Sell 4k bond for income, leaving £40k:26k. Rebalance the £66k to £39.6k:26.4k.

While this is how a rebalancing fund rebalancing after an immediate 30k equity drop looks:

Initial £60k equity £40k bond. Equity drop by £30k to £40k equity, £30k bond. Rebalance to £42k:28k. Sell 4k, leaves £66k at £39.6:26.4k.

Which is the same end result, when trading after the whole drop has happened.

But have you considered how it might differ for a gradual fall over say nine months with monthly selling, so rebalancing is adding to downward-bound equities each time?

That would be the same result if you had a VLS60 rather than separate equity and bond funds. The £100k VLS60 would drop by 30% to £70k and you would draw out £4k leaving £66k of which 60% would be equities and 40% bonds.

jamesd

Prism said:

jamesd said:

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

I wasn't referring to the withdrawal rate part of the decision rules, just rebalancing. That is one area where McClung includes Guyton-Klinger and a bunch of other rebalancing strategies and compares them to the standard fixed allocation annual rebalance. The conclusion is that standard annual rebalancing is fine and Guyton-Klinger's keeping excess returns in cash is a tiny bit better but not much different. He claims that Klinger in 2007 also states that it is not significantly better - I haven't read that paper myself.

For others, McClung is Living Off Your Money and we're discussing pages 50-51 which are available in the free downloadable first three chapters vs Guyton-Klinger rules in their 2006 article Decision Rules and Maximum Initial Withdrawal Rates.

If you look at table 2 in the G-K work they show just the portfolio management rule as increasing the safe withdrawal rate with 90% success rate not at all and at 95% success not at all with 50:50 equities:bonds, 3.1% to 3.3% with 65:35 and 3.0 to 3.2% with 80:20. The text says:

"The portfolio management rule provides modest benefits to withdrawal rates when high probability of success are desired. (Additional testing showed that it also lowered the chance of failure by nearly 20% - from 6 percent to 5 percent - at the applicable withdrawal rate."

So I've no reason to disagree with the result of McClung's analysis of just the PMR, the two seem consistent.

Might be interesting to some that G-K sells both overweight equities and bonds while Guyton's example withdrawal policy only mentions selling overweight equities, leaving income taking to cut bonds.

Prism said:

So my thoughts were that if someone wanted to use a variable withdrawal strategy such as Guyton-Klinger decision rules but keep their investments in a single multi-asset range then it would still work almost as well.

I suppose that would depend more on the frequency of rebalancing, since doing it during a fall wouldn't be desirable. Which is really more about rebalancing  theory.

Prism

jamesd said:

Prism said:

jamesd said:

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

I wasn't referring to the withdrawal rate part of the decision rules, just rebalancing. That is one area where McClung includes Guyton-Klinger and a bunch of other rebalancing strategies and compares them to the standard fixed allocation annual rebalance. The conclusion is that standard annual rebalancing is fine and Guyton-Klinger's keeping excess returns in cash is a tiny bit better but not much different. He claims that Klinger in 2007 also states that it is not significantly better - I haven't read that paper myself.

For others, McClung is Living Off Your Money and we're discussing pages 50-51 which are available in the free downloadable first three chapters vs Guyton-Klinger rules in their 2006 article Decision Rules and Maximum Initial Withdrawal Rates.

If you look at table 2 in the G-K work they show just the portfolio management rule as increasing the safe withdrawal rate with 90% success rate not at all and at 95% success not at all with 50:50 equities:bonds, 3.1% to 3.3% with 65:35 and 3.0 to 3.2% with 80:20. The text says:

"The portfolio management rule provides modest benefits to withdrawal rates when high probability of success are desired. (Additional testing showed that it also lowered the chance of failure by nearly 20% - from 6 percent to 5 percent - at the applicable withdrawal rate."

So I've no reason to disagree with the result of McClung's analysis of just the PMR, the two seem consistent.

Might be interesting to some that G-K sells both overweight equities and bonds while Guyton's example withdrawal policy only mentions selling overweight equities, leaving income taking to cut bonds.

Prism said:

So my thoughts were that if someone wanted to use a variable withdrawal strategy such as Guyton-Klinger decision rules but keep their investments in a single multi-asset range then it would still work almost as well.

I suppose that would depend more on the frequency of rebalancing, since doing it during a fall wouldn't be desirable. Which is really more about rebalancing  theory.

I guess for me the important thing is that although the rebalancing (or harvesting or PMR) can add a little to the overall success rate I find that people often want something a bit simpler If someone wants to stick with VLS60 for example it should still work just fine. The more important thing to take away from Guyton-Klinger is the variable withdrawal rate and actual guidance to work it out. Retirement can be so much better than a 3.7% withdrawal, especially considering that actually many retirements would be too conservative and the variable withdrawals often allow for much higher rates.

jamesd

Agreed that it's the variable aspect that's most important and that multi-asset isn't horrible.

Audaxer

jamesd said:

Prism said:

jamesd said:

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

I wasn't referring to the withdrawal rate part of the decision rules, just rebalancing. That is one area where McClung includes Guyton-Klinger and a bunch of other rebalancing strategies and compares them to the standard fixed allocation annual rebalance. The conclusion is that standard annual rebalancing is fine and Guyton-Klinger's keeping excess returns in cash is a tiny bit better but not much different. He claims that Klinger in 2007 also states that it is not significantly better - I haven't read that paper myself.

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'?

coyrls

Audaxer said:

jamesd said:

Prism said:

jamesd said:

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

I wasn't referring to the withdrawal rate part of the decision rules, just rebalancing. That is one area where McClung includes Guyton-Klinger and a bunch of other rebalancing strategies and compares them to the standard fixed allocation annual rebalance. The conclusion is that standard annual rebalancing is fine and Guyton-Klinger's keeping excess returns in cash is a tiny bit better but not much different. He claims that Klinger in 2007 also states that it is not significantly better - I haven't read that paper myself.

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'?

It's a variable rate depending on portfolio performance, it starts higher than an fixed rate but can go lower than a fixed rate over time.

jamesd

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.