Drawdown in Practice

Nick9967

Says who Thrugelmir? 2 things , firstly its meant as a calculation guide to help me plan, Croeso69 was very helpful in this regard, secondly what would you suggest is a good rate to use when using as the basis for a calculation like this.
take 2% inflation and 0.25% fees (which is what i pay currently then i can play with the figures , good and bad , but over 20-30 years i cant see that being to dramatically out can you? if so what base to use?

Thrugelmir

Nick9967 said:

Says who Thrugelmir? 

Anybody can plug numbers into a spreadsheet. Though normally it's the complexity of what if scenarios that makes forecasting very difficult.  What's required is flesh on the bone. Looking forward and determining where are these returns to be found. Good ideas tend to have a limited time window before many others join the party negating the return. . 

Albermarle

manicmaggi said:

If I take my tax free 25% as a lump sum from my personal pension.

Could I take another amount in the same financial year without incurring tax (assuming that I do not earn/take more than that personal allowance in said year)

Many people take a one off payment each year of £16666. Usually as UFPLS payment .
£12500 taxable and £4166 tax free . If you have no other taxable income then you pay no tax .
Note the figure will change marginally next tax year.

jamesd

Nick9967 said:

Says who Thrugelmir? ... over 20-30 years i cant see that being to dramatically out can you? if so what base to use?

Say the researchers who've studied it. If you want income that goes up with inflation each year then 3.7% before costs or 3.2% after costs of 1.5% is what you need for 60% equities to 40% bonds on a thirty year plan.

Nick9967

Hi jamesd, 
That cost of 1.5% seems excessive,  I pay 0.25% for some quite basic but reasonable advice pa. I don't see the cost of the funds that goes prior to me seeing my pot so I ignore it.
I'm not an expert, very far from it, but my question would be , the researches you mention , who are they ? are there alternative researches who stand by 4.5% or indeed 3%  etc , this is quite likely, although i dont know, so which to you stake your claim on!!
 Thrugelmir's point is over complicating a bit for me , how do you determine the future, you can't, so using a guide ( with a safety net in the background just in case) 
I do understand that its dangerous trying to make a % return on a spreadsheet fit your criteria! but you need something to create a plan in the first place

 

Albermarle

That cost of 1.5% seems excessive

Yes I thought that as well , buts as he also said 3.7% before costs or 3.2% after costs of 1.5% I presumed it was an error .

I'm not an expert, very far from it, but my question would be , the researches you mention , who are they

There is a large body of very detailed research , mainly in the US I think . Unless you have many hours to spare and are very good at statistical maths, then I would not pursue this question too deeply  

Malthusian

5% per year above inflation is a very optimistic assumption for someone in drawdown. Both academic research and the regulator agree on this. 5% above inflation is used as the optimistic scenario in statutory illustrations, but only for high risk equity-heavy investments. So it's already an optimistic assumption for accumulation purposes. But you're depleting your capital so you also have to take into account either pound-cost ravaging (taking withdrawals while markets are falling depletes your fund has a greater effect than the sum of those two things on their own) or cash drag (holding a large chunk of money in cash, which won't be growing, to ensure you don't need to sell investments while markets are falling). Both of which reduce potential growth compared to what someone saving for their retirement would experience. 

0.25% is unusually low for ongoing financial advice. I'm intrigued by what you mean by "quite basic but reasonable advice" because in reality, you are either giving advice and taking liability for what happens next or you aren't. All-in costs for someone taking advice would generally range from 1% to 2.5%pa. If you are only paying 0.25%pa for ongoing advice then your costs might be at the lower end, but without knowing what you are paying for administration and fund costs it's impossible to say for certain.

You do need to assume something but generally it is better to be pessimistic and pleasantly surprised than optimistic and disappointing.

dunstonh

0.25% is unusually low for ongoing financial advice. I'm intrigued by what you mean by "quite basic but reasonable advice" because in reality, you are either giving advice and taking liability for what happens next or you aren't. 

I agree.   Although I came across a firm recently that had multiple ongoing propositions and their basic one was 0.25% and it was little more than a valuation once a year and a newsletter and a reactive advice service.      I had the view it probably wasn't compliant as there was nothing proactive.   However, there does seem to be a number of firms that have a "service" charge and seem to be getting away with it.   So, perhaps it is compliant and I am wrong.

That cost of 1.5% seems excessive,  I pay 0.25% for some quite basic but reasonable advice pa. I don't see the cost of the funds that goes prior to me seeing my pot so I ignore it.

If you do not know the provider/platform costs and the fund charges then you dont know if the 1.5% bottom line is excessive or not.  Indeed, you could be paying more than 1.5% as a bottom line.

Nick9967

I pay 0.25% to a very well known FA company , on the back of an old company agreed advisory rate (i no longer work there) the advice is give once a year and based on a few hours of conversation and my aversion to risk or not as the case maybe, at that point they send me a report with advice on funds for the following 12 months , i agree or not (always agree) and they advise SW on which funds  to put the money into.
So for a few hundred quid i get proffesional advise on which funds to go with for 12 months and in the last 10 years they have done me very very well , check an IFA to do the same 1.5% , £50 per month retainer and 4% of pot ! no brainer really

dunstonh

Nick9967 said:

I pay 0.25% to a very well known FA company , on the back of an old company agreed advisory rate (i no longer work there) the advice is give once a year and based on a few hours of conversation and my aversion to risk or not as the case maybe, at that point they send me a report with advice on funds for the following 12 months , i agree or not (always agree) and they advise SW on which funds  to put the money into.
So for a few hundred quid i get proffesional advise on which funds to go with for 12 months and in the last 10 years they have done me very very well , check an IFA to do the same 1.5% , £50 per month retainer and 4% of pot ! no brainer really

 Why do you think an IFA would be charging 1.5%?    0.5% is the most common figure.  Smaller values head towards 1.0%.    
Retainers are not allowed with advisers.  And 4% of pot is more than twice the average.