Drawdown in Practice

coyrls

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

Have you discussed your drawdown strategy with them?

Malthusian

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.

What does SW charge you each year?

I would not be at all surprised if you were paying more in total, despite the low ongoing advice fee, than you would be paying if you were paying an adviser 0.5% a year. (Your idea of what advisers generally charge is way off, and makes me wonder who fed you that line.)

Or you could be paying less. Only one way to find out.

There is no evidence that anyone can consistently predict which funds will do well, so if that is all you are getting for your 0.25% per year - no help with planning your retirement, no help with the most tax-efficient way of funding it, no help with working out whether your planned expenditure is sustainable - you are not getting an awful lot.

Regulated advisers earn their money by helping you with issues like the one you are currently grappling with in this thread with anonymous people down the pub. You are paying your current adviser 25-50% of the going rate for that kind of advice but getting 0% of the help you need with your current issue.

Thrugelmir

Nick9967 said:

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

Past 10 years has been a bull market. Even poorly performing investments have beaten the historical long term averages in that time frame. Investment management comes into it's own when markets are volatile, flat or depressed. With bull markets comes complacency. As investors lose sight of the fact that they are investing in real living breathing companies that face new challenges every day of the week. Not just numbers on a computer screen that rise in response to the amount of money that Central Banks print and helicopter drop into peoples pockets. All this money is going to be clawed back in one form or another. Whether it's an increase in taxation, an increase in minimum wage rates or simply inflation to erode the value of the money itself. 

westv

Surely the current bull market has only been going a year. 

Malthusian

westv said:

Surely the current bull market has only been going a year. 

The corona crash and recovery was so quick that 5 / 10 year performance statistics are still those of a long-term bull market. Which would not have been the case in, say, 2010 or 2011.

2018 was a worse year for investors than 2020 but nobody claimed that 2018 marked the end of the bull market. A bull market only ends with a prolonged fall, not a flat year.

FWIW I think a 30% - 40% crash marks the end of the 2009 - 2020 bull market and the beginning of a new one no matter how quick the recovery was. (The 2010s were an exceptionally lousy year for investment - history says that it's exceptional for crashes to take three years to recover from, even if two such crashes came in succession with the dot-com crash and the credit crisis.) I can however see the viewpoint of those who claim that 2020 amounted to a "flash crash" and this is still the same bull market.

jamesd

The topic Drawdown: safe withdrawal rates is where you can find an introduction to the topic and links to both US and UK research.

Albermarle said:

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 .

The effect of charges on safe withdrawal rate is a reduction by about a third of the costs. 0.5% deduction with 1.5% total costs isn't a mistake. Kitces explains in The Impact of Fees And Investment Costs on Safe Withdrawal Rates.

Nick9967 said:

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!!
 

The research uses pure index performance. Real funds have a wide range of costs including legal, regulatory, research and trading. A platform and possible adviser will also charge. I picked 1.5% because it's a bit on the cautious side but I told you what I did so you can adjust if you like. The costs incurred by the funds matters if you truly want the SWR to be valid but SWRs are so pessimistic that you'll probably be fine anyway.

There are alternative "rules" that can be used for drawdown and those give different answers because they behave differently. The underlying data is the same so different investment mixtures, assumed life expectancy and country are where different researchers get different answers. So do different success rate targets.

For one different answer, I prefer the Guyton-Klinger rules. After the same allowance for charges that starts at 5.0% for a UK investor using 65% equities and 35% bonds with a 99% success rate for a forty year plan. GK usually has inflation increases but depending on the conditions you live through it'll skip them or add extra drops or increases. This lets it start closer to average performance than the constant inflation-adjusted income's 3.2%, which assumes you live through the worst sequence considered. The limiting factor for the UK is starting just before the second world war and 99% success means that extra adjustment will be needed if you experience a world war.

cfw1994

The very same Michael Kitces suggests a 50% Probability Of Success Is Actually A Viable Monte Carlo Retirement Projection - provided you can and do adjust along the way.
Sometimes I suspect humans over-think these things.   I clearly do, since I spend *far* too long on this forum (& others!)