Pension withdrawal tool

BritishInvestor

cfw1994 said:

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!

"& my point in asking was that I suspect IFAs and FAs prefer to encourage extreme caution in their clients"
Do you have experience of this or are you making it up?

BritishInvestor

gm0 said:

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. 

"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. "
Ah, understand what you are saying, and yes, agreed. 
I thought you were implying that a GK approach might not need frequent downward adjustment if we hit a bad patch.

BritishInvestor

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.

Yep, very rare for a plan to remain unchanged year to year, either pre or post-retirement.

[Deleted User]

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

BritishInvestor

Deleted_User said:

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

How could you anticipate your adult child splitting up with their partner and wanting to help them out, 5 years down the road, for example? 
What about in the early years of retirement you realise you are really enjoying this stage of life and realise your bucket list is steadily growing?
Some might not be ready to start planning for gifting at retirement but it might be something that comes into focus as the years go by and they want to help their children out rather than pay the taxman.
For some people, the act of sitting down and building a plan of their future is tough and is constantly evolving.

Linton

Mordko said:

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

When I retired in 2005 annuities were mainstream and drawdown was hedged in with restrictions making it of marginal interest, especially as annuity rates were much higher than now.  My plan was to live off savings and S&S ISAs until my 60's to get better rates on an annuity.

So when annuity rates fell in 2008 I switched my plan to drawdown.  Clearly I was wrong, or perhaps my plans should have included the possibility of a future revolution in retirement financing.  Please help out here by letting us know the future events you are planning for.

LHW99

Thrugelmir said:

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. 

Thrugelmir said:

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. 

"This time it's different...."?

MK62

Deleted_User said:

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

How can a plan anticipate and, presumably, implement changes which you've already decided shouldn't be happening?..

Without a crystal ball I'm really not sure how you can develop a plan which can anticipate future events before they happen......it's one thing to say a major crash is likely in the next 20 years, but quite another to predict exactly when it will happen.....and the outcomes might well be radically different depending on the timing of this event.

cfw1994

MK62 said:

Deleted_User said:

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

How can a plan anticipate and, presumably, implement changes which you've already decided shouldn't be happening?..

Without a crystal ball I'm really not sure how you can develop a plan which can anticipate future events before they happen......it's one thing to say a major crash is likely in the next 20 years, but quite another to predict exactly when it will happen.....and the outcomes might well be radically different depending on the timing of this event.

The only crystal ball I have that I *know* to be 100% accurate is that every year I keep working is one year closer to the grey wedge....https://engaging-data.com/will-money-last-retire-early

shinytop

cfw1994 said:

MK62 said:

Deleted_User said:

The plan should not be changing every year. It should be good enough to anticipate changes and plan for them in advance rather than after or during the event.  

How can a plan anticipate and, presumably, implement changes which you've already decided shouldn't be happening?..

Without a crystal ball I'm really not sure how you can develop a plan which can anticipate future events before they happen......it's one thing to say a major crash is likely in the next 20 years, but quite another to predict exactly when it will happen.....and the outcomes might well be radically different depending on the timing of this event.

The only crystal ball I have that I *know* to be 100% accurate is that every year I keep working is one year closer to the grey wedge....https://engaging-data.com/will-money-last-retire-early

I like that!