Depletion of pot in retirement

SouthCoastBoy

Unfortunately I don't have a DB pension and therefore have the risk of running out of money. I have my own spreadsheet and also have looked at this, https://engaging-data.com/will-money-last-retire-early/. I know the url is based on US projections, does anybody have any indications what is a safe withdrawal rate for somebody based in UK? I am not solely invested in UK equities but I guess around 50% of my portfolio is.

Stubod

4% used to be mentioned a lot, but I think most people now are suggesting around 3%?......

....I am sure there will be better qualified persons who can give you a more definitive answer shortly!

xylophone

https://forums.moneysavingexpert.com/discussion/comment/76683660#Comment_76683660

garmeg

Stubod said:

4% used to be mentioned a lot, but I think most people now are suggesting around 3%?......

....I am sure there will be better qualified persons who can give you a more definitive answer shortly!

4% may be OK at 65 but 3% safer at 55.

AnotherJoe

I dont think it makes sense to have one withdrawal rate.

You're going to get (presumably) SP at 66, 67, right? Maybe two SP's if you live with someone.

So you could (for example) take a higher % to start with) and then drop to cater for SP.

And maybe you'd like a higher % initially and then a lower one at SP age and then a lower one at (say) age 80 when you arent going on many world cruise or hiking holidays etc. For those who jump in and say they still walk the pennine way every week aged 95, its a fact, peoples spending does drop off in later life.

And then theres the element of choice, eg maybe markets drop and you can reduce expenditure for a while to cater for that rather than dig too much into your pot.

You could model this in a spreadsheet or there are services you can use - retireeasy for example, so much a month, use it for a couple of months to get you started, or theres a couple of free charting tools (grrr senior moment forget the names) which use previous history of stock market performance to show how you'd have done in previous times as a rough judge of how risky your plans are - eg maybe you'd run out of money in 90% of past scenarios or 1%.

Or pay an IFA for a couple of hours work to run up some projections with you.

TL:DR Too simplistic to have one rate over your lifetime.

p.s. Why on earth is 50% your portfolio UK shares? That isn't going to do your withdrawal rate any favours.

xylophone

You're going to get (presumably) SP at 66, 67, right? Maybe two SP's if you live with someone.

See link in my previous.

BritishInvestor

Stubod said:

4% used to be mentioned a lot, but I think most people now are suggesting around 3%?......

....I am sure there will be better qualified persons who can give you a more definitive answer shortly!

It's going to be very tricky without knowing a huge amount more info

BritishInvestor

AnotherJoe said:

I dont think it makes sense to have one withdrawal rate.

You're going to get (presumably) SP at 66, 67, right? Maybe two SP's if you live with someone.

So you could (for example) take a higher % to start with) and then drop to cater for SP.

And maybe you'd like a higher % initially and then a lower one at SP age and then a lower one at (say) age 80 when you arent going on many world cruise or hiking holidays etc. For those who jump in and say they still walk the pennine way every week aged 95, its a fact, peoples spending does drop off in later life.

And then theres the element of choice, eg maybe markets drop and you can reduce expenditure for a while to cater for that rather than dig too much into your pot.

You could model this in a spreadsheet or there are services you can use - retireeasy for example, so much a month, use it for a couple of months to get you started, or theres a couple of free charting tools (grrr senior moment forget the names) which use previous history of stock market performance to show how you'd have done in previous times as a rough judge of how risky your plans are - eg maybe you'd run out of money in 90% of past scenarios or 1%.

Or pay an IFA for a couple of hours work to run up some projections with you.

TL:DR Too simplistic to have one rate over your lifetime.

p.s. Why on earth is 50% your portfolio UK shares? That isn't going to do your withdrawal rate any favours.

"p.s. Why on earth is 50% your portfolio UK shares? That isn't going to do your withdrawal rate any favours."
vs what alternative?

cfw1994

AnotherJoe said:

I dont think it makes sense to have one withdrawal rate.

You're going to get (presumably) SP at 66, 67, right? Maybe two SP's if you live with someone.

So you could (for example) take a higher % to start with) and then drop to cater for SP.

And maybe you'd like a higher % initially and then a lower one at SP age and then a lower one at (say) age 80 when you arent going on many world cruise or hiking holidays etc. For those who jump in and say they still walk the pennine way every week aged 95, its a fact, peoples spending does drop off in later life.

And then theres the element of choice, eg maybe markets drop and you can reduce expenditure for a while to cater for that rather than dig too much into your pot.

You could model this in a spreadsheet or there are services you can use - retireeasy for example, so much a month, use it for a couple of months to get you started, or theres a couple of free charting tools (grrr senior moment forget the names) which use previous history of stock market performance to show how you'd have done in previous times as a rough judge of how risky your plans are - eg maybe you'd run out of money in 90% of past scenarios or 1%.

Or pay an IFA for a couple of hours work to run up some projections with you.

TL:DR Too simplistic to have one rate over your lifetime.

p.s. Why on earth is 50% your portfolio UK shares? That isn't going to do your withdrawal rate any favours.

I'm at a similar age to SCB, with a plan to stop my regular paid employment next May....so treat my words with the knowledge that I am Captain Theory on this stuff....
.....but I agree 100% with AnotherJoe here.   

There are so many articles and analyses on the SWR, including some good stuff shown by people on this forum....& yes, if you want a SWR, go with 3%.   Maybe 3.5%.....maybe 4-5% if you have flexibility.   
Oh wait - maybe....maybe...a bit more, if you genuinely can and will rein things in if funds underperform.

However, my personal expectation is that the years from mid-50s to around 65-70 will be the more expensive ones, with more exotic travel (except...Covid....!).  Once I hit the 65-70'ish age, I expect us to be travelling less....then from 80 onwards, if still around, & unless we are particularly fortunate, the costs for things will drop.  Clearly health care could impact that....but hard to plan for that (our plan is the property is the flexible pot of last resort....)
Or to put it another way, the Go-Go, Slow-Go, and No-Go years.....
So: my personal spreadsheet allows me to factor in a plan to reduce the money needed whenever I feel appropriate.
Of course you cannot take 15% out in the first 10 years and realistically hope for things to still look rosy....but 5% is feasible (in my humble and theoretical opinion!)

Will it be right?   Who knows: only time will tell.
Can and WILL we adjust if we need to?   Absolutely yes.   Flexibility is the name of the game!

Oh, final comment - of course none of us know if we might slide into a lengthy flat depression.   No-one expected Covid, and when it struck and markets dropped, no-one knew that within 6 months, monies would be back up or even above the highs before the 'crash'.  I remain an optimist, and whilst some firms will struggle or disappear entirely due to the horrendous impact of Covid, others will thrive.

LHW99

Stubod said:

..........a more definitive answer .........

Maybe..... but only if they have a crystal ball and can predict what the stock market will do over maybe 20-30 years.

FatherAbraham

SouthCoastBoy said:

Unfortunately I don't have a DB pension and therefore have the risk of running out of money.

Congratulations for acknowledging the risk of depletion - some people don't even analyse that far.
You can, of course, buy yourself a defined-benefit pension. It's called an annuity, and it guarantees that the income will be reliable for as long as you live.
Looking at the prices of annuities, and in particular, how they've changed over the last decade, gives some harsh insight into the increasing cost of income generation. A lot of people prefer not to look at this uncomfortable picture.
Annuity rates give insight into income-generation level with a large pool of longevity risk, which is a fairly efficient way to deal with highly-variable lifetimes. Carrying longevity risk on a single life tends to mean that one ought to build in a depressing amount of safety margin.
I think you're right to be careful in this area.  Mistakes in withdrawal rate don't become apparent until the situation is unsalvageable.  It's notable that people who're quite dogmatic about simpler rules, such as the good old, bad old 4% rule, often haven't done much contemporary analysis