Pension Drawdown Calculators

Pat38493

OldScientist said:

Pat38493 said:

dunstonh said:

whilst I picked way to optimistic, I wonder if you have picked the worst case year to measure it on.  Or maybe that other model is wrong, but that model claims to have incorporated the real historical inflation into all its calculations as well.

Below is a £750k with values adjusted for inflation and starting at age 55 with the maximum amount you could draw each year without the money running about before age 98 (it assumes £1 left in the post at age 98).  Green indicates the best period, red the worst.  The purple line shows your £31,500 draw



It indicates that only in 26% of time periods a £31,500 draw would have been sustainable without running out of money.  That is based on a 50/50 mixed asset portfolio. 
 So, apart from the post WWI boom the period of globalisation in recent times the rest of the periods failed or only just made it.  Globalisation is now in decline.   Commodities are heavily controlled by China and Russia.  So, does that bode well for pushing limits?

The same charting but assuming age 87 as the point of running out:
That is a 52% success rate.

Very interesting.  The other model I mentioned shows 44% compared to your model 26% based on the same numbers plugged in, and they don’t give enough information to analyse why your model is significantly different to theirs as the high level claims seems the same.

Actually - the other model claims to be looking at 121 years of data, but, it does not make sense to include data for times which goes outside the period you are requesting and would require forecasting - e.g. according to their description, if I am looking over 43 years, they should only be looking at retirement dates up to 1979.  Maybe this is automatically done behind the scenes but it doesn’t specifically say that.

The 2020finance site uses the Barclay's dataset of returns and inflation (there's some information towards the bottom) which is a well regarded dataset, although there are arguably better ones. The inflation values are quite optimistic compared to the ones held by the ONS (prior to 1949 there was no single official measure of inflation in the UK and there are at least 4 different attempts to estimate historical inflation).

I note 2020finance say that "in simulations that go beyond the present year, it will wrap back to 1928 and count up from there" which may explain why there are 122 simulations regardless of what duration you set.

Dunstonh - please satisfy my curiosity - what package are you using there (and are the years on the x-axis start years)?

Thanks I had not spotted the details at the bottom that you can open up.

Can you help me understand what it means by:
"The numbers this calculator outputs are not inflation adjusted, they are nominal values. The numbers don’t translate to actual purchasing power in the starting year of the simulation. However, this calculator does adjust the withdraw amount by the CPI each year of the simulation."

The "starting year of the simulation" means right now today or means 1928.

Also I now not clear why they claim it uses data across 120 years, but then in the details it implies that all simulations start in 1928.

I was also curious about the software that Dunstonh is using - it looks quite useful but it probably costs a fortune  

cfw1994

Calculators for the future are, let's be honest, pretty close to crystal ball gazing.   
If anyone thinks they can guarantee their funds according to any tool predicting the next 20-40 years, good luck 🤣

Of course, if you want to "guarantee" not running out of funds, you should probably pick 2% as a drawdown number.   Should beat any foreseeable issues in the future.  
I know one or two regulars here pontificate widely & deeply on many topics regarding drawdown methods, etc, with their words of advice, or dark & stormy warnings.....but then only drawdown that kind of number. 
It is always easy to play safe whilst mouthing dire warnings to everyone else 👀

However....
...as I was reminded once again this week, when I heard of a former fantastic colleague of mine passing away at a similar age to me (not forgetting Shane Warne today - RIP)..... the one certainty is that we will all ultimately pass on, and some will have had no retirement years at all 😳

If you manage to find a job you love so that it is really your life, then well done - crack on with it 👍😎

If not, then do some sums, prepare to be flexible, & live your best life! 
Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   
Check you have full State Pension, & factor that in.....should be a nice boost in your late 60s

I suspect many (like me) who have packed in the day job over the past couple of years will need to pay very close attention to their funds - it does feel like a textbook situation where the 'sequencing risk' needs accounting for.   Belts are being gently tightened here...but not yet at the point of charging friends to mow their lawns (or worse 🤣)

Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 🤷‍♂️

Thrugelmir

Pat38493 said:

Thrugelmir said:

In the same way that night follows day. Always a new generation of investors that on the back of a long bull market that believe that " This Time Is Different".  Said to be the 4 more expensive words in the English language. Confirmation bias abounds.  High CETV's are offered for good reason. Pension schemes want to offload liabilities while markets are exceptionally buoyant. Once markets fall back CETV's will do likewise. 

Yes this is actually the thing I am also thinking now.  If pension companies are offering CETV values that seem to be better than what they would have needed to fund any liability in the last more than 100 years, the question is why.

A 12/13 year bull market that has pushed equity valuations in some markets to extreme levels and a diminishing lack of return on Government bonds and Blue Chip corporate debt. Makes for an opportune window. Though this might well shut very quickly if events continue to unfold.  

Not simply a question of paying Joe Bloggs £5k a year indexed for life or his named dependent. The macro picture is far far bigger. Gets over looked that DB schemes cost significant sums of money to run. Depending on the number of members in the scheme anything between £200 and £1,000 per individual per annum. Then there's levies to pay and costs of acturial valuations.

https://www.ppf.co.uk/levy-payers/what-levy-and-who-has-pay-it/how-calculate-levy

DT2001

cfw1994 said:

Calculators for the future are, let's be honest, pretty close to crystal ball gazing.   
If anyone thinks they can guarantee their funds according to any tool predicting the next 20-40 years, good luck 🤣

Of course, if you want to "guarantee" not running out of funds, you should probably pick 2% as a drawdown number.   Should beat any foreseeable issues in the future.  
I know one or two regulars here pontificate widely & deeply on many topics regarding drawdown methods, etc, with their words of advice, or dark & stormy warnings.....but then only drawdown that kind of number. 
It is always easy to play safe whilst mouthing dire warnings to everyone else 👀

However....
...as I was reminded once again this week, when I heard of a former fantastic colleague of mine passing away at a similar age to me (not forgetting Shane Warne today - RIP)..... the one certainty is that we will all ultimately pass on, and some will have had no retirement years at all 😳

If you manage to find a job you love so that it is really your life, then well done - crack on with it 👍😎

If not, then do some sums, prepare to be flexible, & live your best life! 
Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   
Check you have full State Pension, & factor that in.....should be a nice boost in your late 60s

I suspect many (like me) who have packed in the day job over the past couple of years will need to pay very close attention to their funds - it does feel like a textbook situation where the 'sequencing risk' needs accounting for.   Belts are being gently tightened here...but not yet at the point of charging friends to mow their lawns (or worse 🤣)

Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 🤷‍♂️

As usual a pragmatic approach to retirement and forecasting, thank you 👍.

I am convinced the key is planning and being flexible. I have been reading another thread about cash buffers and the counter argument that having more than the minimum in cash, understandably, works statistically against the end value of your pot. This is because the ‘cash’ element will miss out on the statistical average rise in equities. However I think most people’s priority is income over a larger inheritance so the plan should concentrate on an SORR in the early years and what YOU are willing to do about it - bigger cash buffer, buy an annuity with part of your funds, have a very flexible expenditure plan, be willing to downsize, be willing to do some p/t work. All of these factors can alter your own initial SWR. A DB pension as part of your income stream allows the necessity for less flexibility and maybe adopting the theoretical optimum 60/40 portfolio with no cash buffer.

I digressed, sorry, but the point is we each have our own SWR. If you have £750k and want £30k p.a. you can have it but for how long depends on the unknown future so concentrate on strategies to deal with different scenarios. If you then decide the strategies are not for you then lower your initial income.

BritishInvestor

Pat38493 said:

dunstonh said:

whilst I picked way to optimistic, I wonder if you have picked the worst case year to measure it on.  Or maybe that other model is wrong, but that model claims to have incorporated the real historical inflation into all its calculations as well.

Below is a £750k with values adjusted for inflation and starting at age 55 with the maximum amount you could draw each year without the money running about before age 98 (it assumes £1 left in the post at age 98).  Green indicates the best period, red the worst.  The purple line shows your £31,500 draw



It indicates that only in 26% of time periods a £31,500 draw would have been sustainable without running out of money.  That is based on a 50/50 mixed asset portfolio. 
 So, apart from the post WWI boom the period of globalisation in recent times the rest of the periods failed or only just made it.  Globalisation is now in decline.   Commodities are heavily controlled by China and Russia.  So, does that bode well for pushing limits?

The same charting but assuming age 87 as the point of running out:
That is a 52% success rate.

Very interesting.  The other model I mentioned shows 44% compared to your model 26% based on the same numbers plugged in, and they don’t give enough information to analyse why your model is significantly different to theirs as the high level claims seems the same.

Actually - the other model claims to be looking at 121 years of data, but, it does not make sense to include data for times which goes outside the period you are requesting and would require forecasting - e.g. according to their description, if I am looking over 43 years, they should only be looking at retirement dates up to 1979.  Maybe this is automatically done behind the scenes but it doesn’t specifically say that.

I think you will tie yourself up in knots trying to work out why the output from one model differs from another. Even a 50/50 mixed asset portfolio as dunstonh posted can vary depending on the assets that are used:

For example:

Global equities may or may not include emerging markets. There might also be an assumption on what is a "fair" weighting for each country, and this may change in the dataset over time due to differing availability of data.
Bonds could be local or global, and have differing durations.

BritishInvestor

cfw1994 said:

Calculators for the future are, let's be honest, pretty close to crystal ball gazing.   
If anyone thinks they can guarantee their funds according to any tool predicting the next 20-40 years, good luck 🤣

Of course, if you want to "guarantee" not running out of funds, you should probably pick 2% as a drawdown number.   Should beat any foreseeable issues in the future.  
I know one or two regulars here pontificate widely & deeply on many topics regarding drawdown methods, etc, with their words of advice, or dark & stormy warnings.....but then only drawdown that kind of number. 
It is always easy to play safe whilst mouthing dire warnings to everyone else 👀

However....
...as I was reminded once again this week, when I heard of a former fantastic colleague of mine passing away at a similar age to me (not forgetting Shane Warne today - RIP)..... the one certainty is that we will all ultimately pass on, and some will have had no retirement years at all 😳

If you manage to find a job you love so that it is really your life, then well done - crack on with it 👍😎

If not, then do some sums, prepare to be flexible, & live your best life! 
Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   
Check you have full State Pension, & factor that in.....should be a nice boost in your late 60s

I suspect many (like me) who have packed in the day job over the past couple of years will need to pay very close attention to their funds - it does feel like a textbook situation where the 'sequencing risk' needs accounting for.   Belts are being gently tightened here...but not yet at the point of charging friends to mow their lawns (or worse 🤣)

Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 🤷‍♂️

"Of course, if you want to "guarantee" not running out of funds, you should probably pick 2% as a drawdown number.   Should beat any foreseeable issues in the future.  "

Very much depends on personal setup.

1. Paying excessive fees
2. Having a portfolio that consists of shares with high valuations that could suffer if sustained inflation were to occur.

Can make a "guaranteed" 2% look questionable, especially if you are planning for decent longevity.

" it does feel like a textbook situation where the 'sequencing risk' needs accounting for."

For someone with a diversified portfolio (which, let's not forget, is still in positive territory over the last year),  it doesn't (yet)

Albermarle

Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   

You will know there is a regular ( long and detailed ) poster on the forum ( although has been quiet for a few weeks now ) who says that by using Guyton-Klinger rules ( which basically seems to mean adjusting withdrawal rates regularly as markets rise and fall ) you can easily and safely take 5% pa increasing with inflation , and even a bit more .

However the poster above says 2% might even be a struggle in certain circumstances. Or Dunstons graphs saying 4% with no inflation could mean disaster .

As you say Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 

BritishInvestor

Albermarle said:

Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   

You will know there is a regular ( long and detailed ) poster on the forum ( although has been quiet for a few weeks now ) who says that by using Guyton-Klinger rules ( which basically seems to mean adjusting withdrawal rates regularly as markets rise and fall ) you can easily and safely take 5% pa increasing with inflation , and even a bit more .

However the poster above says 2% might even be a struggle in certain circumstances. Or Dunstons graphs saying 4% with no inflation could mean disaster .

As you say Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 

But I think all three of those examples are valid - it's just that the underlying datasets/approach is different.

1. Using GK can allow you to take more out initially, but you can get pummelled in real terms if inflation/markets don't go your way.
2. Dunstonh is using a diversified portfolio with (I assume) zero fees and annual inflation adjustments
3. My examples were situations where a). lumpy fees, or b).  portfolios that were completely unrelated to those involved in historical studies, might give you a completely different outcome.

So in a way, these "differences" are unrelated to what the future might bring us (hope that makes sense)

 Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 

dunstonh

2. Dunstonh is using a diversified portfolio with (I assume) zero fees and annual inflation adjustments

annual inflation increase,  net of fund charges but an extra loading of 0.25% for platform charge.   50/50 example was global equity and UK gilts.

Pat38493

Albermarle said:

Some may "front load" their drawdowns at 4, 5 maybe even 6%: I feel it is important to have a plan how you will manage if (when!) you do need to pull up the drawbridge if (when!) markets fall on you.   

You will know there is a regular ( long and detailed ) poster on the forum ( although has been quiet for a few weeks now ) who says that by using Guyton-Klinger rules ( which basically seems to mean adjusting withdrawal rates regularly as markets rise and fall ) you can easily and safely take 5% pa increasing with inflation , and even a bit more .

However the poster above says 2% might even be a struggle in certain circumstances. Or Dunstons graphs saying 4% with no inflation could mean disaster .

As you say Nobody will know until we have the benefit of 20:20 hindsight, of course - the accurate calculator is only backward looking 

Thankyou to everyone who replied with their different perspectives - this is really helpful for me.

 I had a look at those rules and yes they look quite good.  However, the issue of whether it's a good idea to cash in my DB scheme is somewhat of a side issue if I look at the most obvious scenario.

According to my calculations, my current DB and state pension combined, would give me an pension of about 31K in today's terms, from age 67.  By an amazing coincidence, although this is a massive cut compared to what I earn now, it's almost exactly the amount to cover my current planned outgoings, assuming that we downsize the house and pay off the mortgage, (which we are planning to do anyway).   This includes "savings" for holidays and everything that I am spending now except costs that are directly related to holidays.  In fact it also includes quite a few discretionary items that in reality I probably wouldn't miss much.

So if I start from the assumption that this 31K will be sufficient, and taking into account that my wife has a gold plated NHS DB pension fully accrued on MHO status, the key question is - how early can I "risk" to retire.

I have 2 DC pots with a combined value today of £303K.  I am putting £1700 per month into one of them right now and intend to continue doing so until I retire (unless I think I will breach the LFA whereupon I will study the situation again, but there is 7% matching so for sure I would at least continue with that).

Therefore the key question is, with a 303K pot expected to grow to £348K by the time I am 55 (assuming 0 growth during next 2 years) could this be enough to already stop work at 55, or if not, when would it be safe to do so?

I would hope to have something like the £31K per year from 55 to 67, so I would have to withdraw roughly £31K in first 10 years then about 10K in the following 2 years if I cash in the DB scheme at 65.

All the above would have to be adjusted for inflation I guess - it's all in today's terms.

It would also be nice to have 100K or so on retirement to buy a new car and a few luxury things but it's not a must.

Further - I am open to the idea that during first 10 years, I might still do some consulting work or need to earn some money in some other way if I want to have a more expensive holiday or the economy looks bad or whatever - I am not necessarily planning to never work again. 

However to be honest, I've been working for the same company for 30 years and although I am financially secure and have a really good job, I don't really enjoy it anymore - I just need the money   .  Therefore the other way I look at it is that if I have that baseline comfort that I can cover my expenses by retirement funds, I can then take some risks to do what I want to do rather than staying in the same job because I am very well paid.