Pension withdrawal tool

Linton

gm0 said:

I think variable income appetite (vs fixed once and indexed) is one of the most useful mitigation approaches to reduce drawdown failure risk alongside the arrival of guaranteed income be it DB or SP.   Whether this is willingness to vary is taken as a mild increase in possible WR at the same backtesting risk - or as a reduced risk (backtesting safe with a buffer to speculative/swan risk).  GK, VPW, EM with variable floor etc. etc.  Plenty of options.

It mustn't degenerate into an annually resetting plan.  Or no plan at all.   But just because flexibility is harder to do all cohort modelling on does not mean it is wrong in managing an individual journey.  We don't get the average journey.  We get the SOR we get. Once the growth assets are sold. Future excellent returns on them are irrelevant.  Selling fewer equities in the teeth of a major correction cycle is just - better. How you do that is where the fun begins. 

So the plan must seek to avoid this overselling (equity %, bonds, gold, variable income, cash buffer, even a fuse portfolio to sell for cash and rebalance into equities and carry on) there are many options and no single solution which just fixes it or works for all shapes or durations of slumps - the decade long ones are harsh..

I think I will seek to mitigate the overselling for a while. And thus need to have a point of view in advance upon the market conditions in which I would likely start to reduce or suspend draw, and burn a cash buffer as income substitution etc, prune discretionary expenditure either lightly or more harshly to stretch said buffer while looking at the next section of sequence. 

My plan is modestly conservative (in the generally racy context of drawdown) Guide rails - 3.5% WR normal target with a 2.5% floor. EM. 40 years).  Reduced WR later (IHT/spend last strategy) - post 67 & 75. Cash buffer on the front end for exactly this sort of SORR handling early on.

This won't be mechanical as the taxation, inflation and other economic conditions of the day of troubles are not known today.  So the plan won't fully survive contact with the enemy but it at least structures the thinking away from emotion and panic towards sensible actions that can be taken on the income side and the expenditure side.

Having been retired for 15+ years I have been planning my retirement, both before and after the event, for the part 20 years.  Based on experience I would take a completely opposite view.  It is essential that you reset your plan annually.

The purpose of a pre-retirement plan is to give you the confidence to jump when conditions are right. You can make the plan as simple or as complex as you like.  You can use SWRs, simulations based on historic data, worst case scenarios, Guyton-Klinger, whatever, it doesnt fundamentally matter.  If it gives you the confidence to retire that's it. WIthin a year your plan will probably be noticeably wrong.  Within 5 it will certainly be very wrong.  Within 10 years, changes to tax, the law, or to the world could have invalidated your basic assumptions.  Each year has to be the start of a new plan based on the circumstances you are actually in at the time.

cfw1994

Linton said:

gm0 said:

I think variable income appetite (vs fixed once and indexed) is one of the most useful mitigation approaches to reduce drawdown failure risk alongside the arrival of guaranteed income be it DB or SP.   Whether this is willingness to vary is taken as a mild increase in possible WR at the same backtesting risk - or as a reduced risk (backtesting safe with a buffer to speculative/swan risk).  GK, VPW, EM with variable floor etc. etc.  Plenty of options.

It mustn't degenerate into an annually resetting plan.  Or no plan at all.   But just because flexibility is harder to do all cohort modelling on does not mean it is wrong in managing an individual journey.  We don't get the average journey.  We get the SOR we get. Once the growth assets are sold. Future excellent returns on them are irrelevant.  Selling fewer equities in the teeth of a major correction cycle is just - better. How you do that is where the fun begins. 

So the plan must seek to avoid this overselling (equity %, bonds, gold, variable income, cash buffer, even a fuse portfolio to sell for cash and rebalance into equities and carry on) there are many options and no single solution which just fixes it or works for all shapes or durations of slumps - the decade long ones are harsh..

I think I will seek to mitigate the overselling for a while. And thus need to have a point of view in advance upon the market conditions in which I would likely start to reduce or suspend draw, and burn a cash buffer as income substitution etc, prune discretionary expenditure either lightly or more harshly to stretch said buffer while looking at the next section of sequence. 

My plan is modestly conservative (in the generally racy context of drawdown) Guide rails - 3.5% WR normal target with a 2.5% floor. EM. 40 years).  Reduced WR later (IHT/spend last strategy) - post 67 & 75. Cash buffer on the front end for exactly this sort of SORR handling early on.

This won't be mechanical as the taxation, inflation and other economic conditions of the day of troubles are not known today.  So the plan won't fully survive contact with the enemy but it at least structures the thinking away from emotion and panic towards sensible actions that can be taken on the income side and the expenditure side.

Having been retired for 15+ years I have been planning my retirement, both before and after the event, for the part 20 years.  Based on experience I would take a completely opposite view.  It is essential that you reset your plan annually.

The purpose of a pre-retirement plan is to give you the confidence to jump when conditions are right. You can make the plan as simple or as complex as you like.  You can use SWRs, simulations based on historic data, worst case scenarios, Guyton-Klinger, whatever, it doesnt fundamentally matter.  If it gives you the confidence to retire that's it. WIthin a year your plan will probably be noticeably wrong.  Within 5 it will certainly be very wrong.  Within 10 years, changes to tax, the law, or to the world could have invalidated your basic assumptions.  Each year has to be the start of a new plan based on the circumstances you are actually in at the time.

As the experienced one here....if you don’t mind the questions: what sort of adjustments have you made in the past 12-18 months?

I have this vision that if you get through the first 5-10 years, the ‘risk’ could be ending up with more money than you can use, as people take cautious steps into retirement.....

gm0

What I meant is that you can't year zero the plan every year and fiddle the WR arbitrarily as a "fresh start" based on good performance being "exceptional" or "bad performance" being explained away and then needing a higher WR for the same cash and doing that as another year 1.  Well you can do that but it's probably not a good idea vs the backtested approaches

GK = Guyton-Klinger rules from the literature (and backtesting software).

You can end up dancing on the head of the pin about what the US or global backtesting data says about method a or b or and how that relates to a fixed amount indexed with annual rebalancing of the portfolio.  And it may not in the end tell you anything useful if it is an noise item in historic data.  One thing I like about McClung over a lot of US only studies is that he tests his ideas once formed with a 2nd data set to see if perceived effect is still there with another data set.  More likely to be real. Not proof. But more likely. 

The issue with a lot of this angels/pins business is that 0.25% or 0.5% marginal gains aren't a lot. But in a world of 3.5% draw, and (possible) 4.5% long term equity returns.  As with cost differentials on holding the same assets cheaply or expensively.  0.25% becomes a useful and material difference.

A level of due diligence to your boredom threshold on drawdown mechanics and then choosing something "good enough" (not the unknowable best) but enough with some solidity from backtesting and MC simulation rather than from someone with something to sell like an american televangelist. 

gm0

And the value of a plan is not really the statistical basis but forethought - yes with some flex to conditions in it
In that it helps to stop you being emotional arbitrary and loss averse or subjected to media panic into making terrible choices.  All of which is human nature.  And people do it - all the time.
As Linton says - confidence building to jump and forethought to do the right things (or nothing) when it gets scary and noisy. 

How much detail and evidence we all need to achieve this level of serenity varies with personality.

MK62

cfw1994 said:

Linton said:

gm0 said:

I think variable income appetite (vs fixed once and indexed) is one of the most useful mitigation approaches to reduce drawdown failure risk alongside the arrival of guaranteed income be it DB or SP.   Whether this is willingness to vary is taken as a mild increase in possible WR at the same backtesting risk - or as a reduced risk (backtesting safe with a buffer to speculative/swan risk).  GK, VPW, EM with variable floor etc. etc.  Plenty of options.

It mustn't degenerate into an annually resetting plan.  Or no plan at all.   But just because flexibility is harder to do all cohort modelling on does not mean it is wrong in managing an individual journey.  We don't get the average journey.  We get the SOR we get. Once the growth assets are sold. Future excellent returns on them are irrelevant.  Selling fewer equities in the teeth of a major correction cycle is just - better. How you do that is where the fun begins. 

So the plan must seek to avoid this overselling (equity %, bonds, gold, variable income, cash buffer, even a fuse portfolio to sell for cash and rebalance into equities and carry on) there are many options and no single solution which just fixes it or works for all shapes or durations of slumps - the decade long ones are harsh..

I think I will seek to mitigate the overselling for a while. And thus need to have a point of view in advance upon the market conditions in which I would likely start to reduce or suspend draw, and burn a cash buffer as income substitution etc, prune discretionary expenditure either lightly or more harshly to stretch said buffer while looking at the next section of sequence. 

My plan is modestly conservative (in the generally racy context of drawdown) Guide rails - 3.5% WR normal target with a 2.5% floor. EM. 40 years).  Reduced WR later (IHT/spend last strategy) - post 67 & 75. Cash buffer on the front end for exactly this sort of SORR handling early on.

This won't be mechanical as the taxation, inflation and other economic conditions of the day of troubles are not known today.  So the plan won't fully survive contact with the enemy but it at least structures the thinking away from emotion and panic towards sensible actions that can be taken on the income side and the expenditure side.

Having been retired for 15+ years I have been planning my retirement, both before and after the event, for the part 20 years.  Based on experience I would take a completely opposite view.  It is essential that you reset your plan annually.

The purpose of a pre-retirement plan is to give you the confidence to jump when conditions are right. You can make the plan as simple or as complex as you like.  You can use SWRs, simulations based on historic data, worst case scenarios, Guyton-Klinger, whatever, it doesnt fundamentally matter.  If it gives you the confidence to retire that's it. WIthin a year your plan will probably be noticeably wrong.  Within 5 it will certainly be very wrong.  Within 10 years, changes to tax, the law, or to the world could have invalidated your basic assumptions.  Each year has to be the start of a new plan based on the circumstances you are actually in at the time.

As the experienced one here....if you don’t mind the questions: what sort of adjustments have you made in the past 12-18 months?

I have this vision that if you get through the first 5-10 years, the ‘risk’ could be ending up with more money than you can use, as people take cautious steps into retirement.....

There's always going to be a risk of that, as you don't usually know your date of death......and if the "risk" of dying with money is a concern, you could always purchase an annuity now, and then be certain you'll die with nothing.....

Joking aside, I don't really see dying with money as a "risk"..........more of an aspiration of sorts tbh.

It's all a question of balance and outlook imho......sure, I'm not going to live a life of penury in an attempt to have as much money as possible on my deathbed........but then again I'm not going to bankrupt myself in an attempt to die penniless either.

NedS

MK62 said:

cfw1994 said:

I have this vision that if you get through the first 5-10 years, the ‘risk’ could be ending up with more money than you can use, as people take cautious steps into retirement.....

There's always going to be a risk of that, as you don't usually know your date of death......and if the "risk" of dying with money is a concern, you could always purchase an annuity now, and then be certain you'll die with nothing.....

Joking aside, I don't really see dying with money as a "risk"..........more of an aspiration of sorts tbh.

It's all a question of balance and outlook imho......sure, I'm not going to live a life of penury in an attempt to have as much money as possible on my deathbed........but then again I'm not going to bankrupt myself in an attempt to die penniless either.

I think it's only a risk if you have no one to leave it to. I don't think my children would view it as a risk

Thrugelmir

cfw1994 said:

Linton said:

gm0 said:

I think variable income appetite (vs fixed once and indexed) is one of the most useful mitigation approaches to reduce drawdown failure risk alongside the arrival of guaranteed income be it DB or SP.   Whether this is willingness to vary is taken as a mild increase in possible WR at the same backtesting risk - or as a reduced risk (backtesting safe with a buffer to speculative/swan risk).  GK, VPW, EM with variable floor etc. etc.  Plenty of options.

It mustn't degenerate into an annually resetting plan.  Or no plan at all.   But just because flexibility is harder to do all cohort modelling on does not mean it is wrong in managing an individual journey.  We don't get the average journey.  We get the SOR we get. Once the growth assets are sold. Future excellent returns on them are irrelevant.  Selling fewer equities in the teeth of a major correction cycle is just - better. How you do that is where the fun begins. 

So the plan must seek to avoid this overselling (equity %, bonds, gold, variable income, cash buffer, even a fuse portfolio to sell for cash and rebalance into equities and carry on) there are many options and no single solution which just fixes it or works for all shapes or durations of slumps - the decade long ones are harsh..

I think I will seek to mitigate the overselling for a while. And thus need to have a point of view in advance upon the market conditions in which I would likely start to reduce or suspend draw, and burn a cash buffer as income substitution etc, prune discretionary expenditure either lightly or more harshly to stretch said buffer while looking at the next section of sequence. 

My plan is modestly conservative (in the generally racy context of drawdown) Guide rails - 3.5% WR normal target with a 2.5% floor. EM. 40 years).  Reduced WR later (IHT/spend last strategy) - post 67 & 75. Cash buffer on the front end for exactly this sort of SORR handling early on.

This won't be mechanical as the taxation, inflation and other economic conditions of the day of troubles are not known today.  So the plan won't fully survive contact with the enemy but it at least structures the thinking away from emotion and panic towards sensible actions that can be taken on the income side and the expenditure side.

Having been retired for 15+ years I have been planning my retirement, both before and after the event, for the part 20 years.  Based on experience I would take a completely opposite view.  It is essential that you reset your plan annually.

The purpose of a pre-retirement plan is to give you the confidence to jump when conditions are right. You can make the plan as simple or as complex as you like.  You can use SWRs, simulations based on historic data, worst case scenarios, Guyton-Klinger, whatever, it doesnt fundamentally matter.  If it gives you the confidence to retire that's it. WIthin a year your plan will probably be noticeably wrong.  Within 5 it will certainly be very wrong.  Within 10 years, changes to tax, the law, or to the world could have invalidated your basic assumptions.  Each year has to be the start of a new plan based on the circumstances you are actually in at the time.

I have this vision that if you get through the first 5-10 years, the ‘risk’ could be ending up with more money than you can use, as people take cautious steps into retirement.....

If you don't need the money why take the risk?  Not difficult to spend money. Takes seconds. 

Linton

cfw1994 said:

Linton said:

gm0 said:

I think variable income appetite (vs fixed once and indexed) is one of the most useful mitigation approaches to reduce drawdown failure risk alongside the arrival of guaranteed income be it DB or SP.   Whether this is willingness to vary is taken as a mild increase in possible WR at the same backtesting risk - or as a reduced risk (backtesting safe with a buffer to speculative/swan risk).  GK, VPW, EM with variable floor etc. etc.  Plenty of options.

It mustn't degenerate into an annually resetting plan.  Or no plan at all.   But just because flexibility is harder to do all cohort modelling on does not mean it is wrong in managing an individual journey.  We don't get the average journey.  We get the SOR we get. Once the growth assets are sold. Future excellent returns on them are irrelevant.  Selling fewer equities in the teeth of a major correction cycle is just - better. How you do that is where the fun begins. 

So the plan must seek to avoid this overselling (equity %, bonds, gold, variable income, cash buffer, even a fuse portfolio to sell for cash and rebalance into equities and carry on) there are many options and no single solution which just fixes it or works for all shapes or durations of slumps - the decade long ones are harsh..

I think I will seek to mitigate the overselling for a while. And thus need to have a point of view in advance upon the market conditions in which I would likely start to reduce or suspend draw, and burn a cash buffer as income substitution etc, prune discretionary expenditure either lightly or more harshly to stretch said buffer while looking at the next section of sequence. 

My plan is modestly conservative (in the generally racy context of drawdown) Guide rails - 3.5% WR normal target with a 2.5% floor. EM. 40 years).  Reduced WR later (IHT/spend last strategy) - post 67 & 75. Cash buffer on the front end for exactly this sort of SORR handling early on.

This won't be mechanical as the taxation, inflation and other economic conditions of the day of troubles are not known today.  So the plan won't fully survive contact with the enemy but it at least structures the thinking away from emotion and panic towards sensible actions that can be taken on the income side and the expenditure side.

Having been retired for 15+ years I have been planning my retirement, both before and after the event, for the part 20 years.  Based on experience I would take a completely opposite view.  It is essential that you reset your plan annually.

The purpose of a pre-retirement plan is to give you the confidence to jump when conditions are right. You can make the plan as simple or as complex as you like.  You can use SWRs, simulations based on historic data, worst case scenarios, Guyton-Klinger, whatever, it doesnt fundamentally matter.  If it gives you the confidence to retire that's it. WIthin a year your plan will probably be noticeably wrong.  Within 5 it will certainly be very wrong.  Within 10 years, changes to tax, the law, or to the world could have invalidated your basic assumptions.  Each year has to be the start of a new plan based on the circumstances you are actually in at the time.

1) As the experienced one here....if you don’t mind the questions: what sort of adjustments have you made in the past 12-18 months?

I have this vision that if you get through the first 5-10 years, the ‘risk’ could be ending up with more money than you can use, as people take cautious steps into retirement.....

The plan is based on a very cautious spreadsheet-like year by year model (it's MS Money though it could be done with a spreadsheet) which assumes inflation at 3% and investment returns at 4% in £ terms.  Given an inflation linked expenditure value it calculates how much we have left at age 91.  I then adjust the expenditure level until the pot left at 91 is a predefined suitably high value to cover care costs and much more.  That expenditure level becomes the ongoing budget and I am happy to drawdown as much as necessary within the budget.  So everything is run on the basis of a rolling annual plan recalculated daily - it's minimal effort since values are updated pretty automatically by MS Money.

The effect of any major changes in investment values is spread over a long time period.  Therefore there will never be any panic reining back of planned expenditure in a crash.  During the past year the budget dropped by10% but it was at that level for only a short time and now is about 5% above its value at the start of the year.

For the past few years the budget has been well beyond our normal expenditure because of the effect you identify despite our valiant efforts to correct that problem (expnsive holidays, more expensive wines etc) and is now more than 20% above its value when we retired after adjusting for inflation.  You have to plan for the possibility of major disruptions duiring the early years of retirement, but for most people, most of the time, the disasters wont happen.  Therefore you are probably going to end up with far more money than you planned for.

cfw1994

Thanks for that reply, Linton: useful detail!  You clearly need to take even more expensive holidays, buy that Tesla/Rolls, etc!!

I read plenty of very cautious people on here, & that is fine: humans are naturally broadly risk averse.   
Equally, leaving money behind is also absolutely fine - my personal preference is to try to help fund savings for our kids early - give them the power of compounding and almost an early inheritance start rather than waiting until we might be in our 80/90s and they in their 50s.....but either is fine.

I am also very conscious of the OMY syndrome (One More Year!), & my point in asking was that I suspect IFAs and FAs prefer to encourage extreme caution in their clients.....when perhaps they should be planning to end the daily toiler earlier.  If they want, of course!

Thrugelmir

cfw1994 said:

I read plenty of very cautious people on here, & that is fine: humans are naturally broadly risk averse.   

Noticeable how complacency creeps in the longer a bull market continues. As if there's a new paradigm. That all previous experience and knowledge becomes irrelevant, and the basic fundamentals of investing are discarded aside. As long as investors are making paper profits who cares if it's sustainable or not.