Pension Drawdown Calculators

cfw1994

BritishInvestor said:

cfw1994 said:

BritishInvestor said:

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)

Just to bring some reality into this theoretical discussion: you are suggesting that someone with £1million might struggle to make it last, when they only take £20k a year from it?
You must despair at people who take 3-5% pa!
Please show your workings 🤣

I suggest to people - do some sums, prepare to be flexible, check your State pension is "paid up" and in the mix......

You also don't think the events and impact to the markets of the past couple of years, when balanced with the uncertain medium term for investors, make this a classic possibility that SORR might be worth being aware of?
I guess we will have to agree to disagree then: but that is fine: nobody here has a real crystal ball 🤷‍♂️

As I said above: "Nobody will know until we have the benefit of 20:20 hindsight" 😉

 "Please show your workings 🤣"

1. Paying excessive fees:

A couple aged 50 and 55 - 40 year retirement horizon. 50% equities (developed only)/50 global agg bonds portfolio, 2.5% fees.

£1m pot for simplicity

"In this case, the worst-case historical scenario has a single maximum sustainable spending level of £19,602 and a best-case has a level of £72,635 per year. We would be looking for a spending level that would be sustainable in most scenarios."


https://finalytiq.co.uk/withdrawal-rates-in-retirement-portfolios-is-the-4-rule-safe-for-uk-clients/

"Perhaps worryingly, Pfau’s research assumed fund charges and the adviser fee to be 0%. This is of course unrealistic, and if we were to deduct a conservative fee to account for the adviser fee, fund and platform charges, SWR for UK would be closer to 2% than 4%! (And around 3% for a 30% failure rate)."


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

30 year zero-fee, 100% DM portfolio, zero fees: 3.5% SWR.

Replace the 100% DM portfolio with 34% EM, 33% DM small, 33% DM value  4.6% SWR

Now this is an extreme example of a portfolio, and it's unlikely that someone would stick with the inevitable periods of underperformance that such a portfolio would suffer.

The complete opposite of this would be someone that invested in developed large-cap growth funds with high valuations (examples of which will no doubt have appeared in 2021 best buy lists). I've seen PEs of over 50! What would you expect to happen if we get big inflation and PE compression? Have a look at multiples in the 70s of the S&P - single digits.

https://www.multpl.com/s-p-500-pe-ratio/table/by-year

"You must despair at people who take 3-5% pa!"

It's unlikely that people on here would find themselves in either of the above positions I would expect.

"You also don't think the events and impact to the markets of the past couple of years,"

A balanced portfolio has risen over the last few years, and inflation has been, on average, benign.

"when balanced with the uncertain medium term for investors"

When is there ever not uncertainty?

"make this a classic possibility that SORR might be worth being aware of?"

A robust retirement plan would cater for this eventuality, but realistically, things have to be pretty bad to start making major adjustments, and given where we are at the moment, that's a long way from happening.


"Nobody will know until we have the benefit of 20:20 hindsight"

Not sure what the relevance is of hindsight - a lot of the above is related to historical data - how you choose to act on it might make a big difference to your chances of success. 

Uh, okay.
"the worst-case historical scenario has a single maximum sustainable spending level of £19,602 and a best-case has a level of £72,635 per year"

I'd take those odds or worst v best case, & would still assert that 2% is pretty well absolutely fine, TBH 🤣

OldScientist

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties - but the lesson I'd take from the example under discussion is that the original plan of using £350k to support a £31k expenditure for 12 years failed rather too many times in history for it to be a plan that I'd have a lot of confidence in at any time. The choice is then to modify the plan to something that stands a bit more chance of working or wait until things are more settled and carry on working.

Pat38493

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties - but the lesson I'd take from the example under discussion is that the original plan of using £350k to support a £31k expenditure for 12 years failed rather too many times in history for it to be a plan that I'd have a lot of confidence in at any time. The choice is then to modify the plan to something that stands a bit more chance of working or wait until things are more settled and carry on working.

Yes exactly - but as I mention above, if I re-run the model on Cfire which gives you the option to program it with state pension and DB figures, and I assume to retire at 55, and taking the DB pension at 57 with ERF, then it gets 100% success.  Maybe this is a better option (at least if there still appears to be many risk factors in the markets etc.

I picked DB pension at 57 because I have a recent estimate from the pension company - maybe it would also work taking the DB immediately at 55.

The other advantage of this approach is that if markets actually perform better than the worst case expectation, I am better positioned to take advantage of it.

I guess the one question is - if you were using those pension drawdown models as a guideline, would you be looking for a scenario that gives 100% success, or would for example 95% success be ok.  I would hazard that in the current risk envorinment, you should be looking for 100% scenario (possibly even more by saying that you want a minimum cushion at the end based on the history).

OldScientist

cfw1994 said:

BritishInvestor said:

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)

Just to bring some reality into this theoretical discussion: you are suggesting that someone with £1million might struggle to make it last, when they only take £20k a year from it?
You must despair at people who take 3-5% pa!
Please show your workings 🤣

I suggest to people - do some sums, prepare to be flexible, check your State pension is "paid up" and in the mix......

As far as I am concerned, people can take what they like from their portfolio (it is their money!). However, 3-5% inflation linked from the portfolio came rather close to portfolio exhaustion historically at the bottom end of that range and at the top end failed too many times for my personal risk tolerance. However, if you are talking about taking 5% of the current portfolio value, then the money will last indefinitely (although withdrawals might get small in real terms).

I completely agree with your approach - do some sums (but the sums have to have sensible inputs and might include at least a glance at historical outcomes as a sense check). The obvious question is how flexible and what triggers the flexibility? And also completely agree that guaranteed income is absolutely key (and maxing out NI payments for the state pension is the cheapest way of obtaining this).

Going back to what British Investor said, paying excessive fees is definitely a way of reducing income - the rule of thumb is that every 1% paid in fees reduces the withdrawal rate by about 0.5%, but I hope few people are paying that much nowadays (one of my pension plans, originating in the 1990s, had a 5% front load and 1% annual fee - yuk!).

BritishInvestor

Pat38493 said:

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties - but the lesson I'd take from the example under discussion is that the original plan of using £350k to support a £31k expenditure for 12 years failed rather too many times in history for it to be a plan that I'd have a lot of confidence in at any time. The choice is then to modify the plan to something that stands a bit more chance of working or wait until things are more settled and carry on working.

Yes exactly - but as I mention above, if I re-run the model on Cfire which gives you the option to program it with state pension and DB figures, and I assume to retire at 55, and taking the DB pension at 57 with ERF, then it gets 100% success.  Maybe this is a better option (at least if there still appears to be many risk factors in the markets etc.

I picked DB pension at 57 because I have a recent estimate from the pension company - maybe it would also work taking the DB immediately at 55.

The other advantage of this approach is that if markets actually perform better than the worst case expectation, I am better positioned to take advantage of it.

I guess the one question is - if you were using those pension drawdown models as a guideline, would you be looking for a scenario that gives 100% success, or would for example 95% success be ok.  I would hazard that in the current risk envorinment, you should be looking for 100% scenario (possibly even more by saying that you want a minimum cushion at the end based on the history).

"I guess the one question is - if you were using those pension drawdown models as a guideline, would you be looking for a scenario that gives 100% success, or would for example 95% success be ok.  I would hazard that in the current risk envorinment, you should be looking for 100% scenario (possibly even more by saying that you want a minimum cushion at the end based on the history)."

" My view is that working to success rate of 80% – 90% is reasonable in retirement income planning"

https://finalytiq.co.uk/longevity/

It's really personal preference, and your willingness to make adjustments along the way, if required.

OldScientist

Pat38493 said:

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties - but the lesson I'd take from the example under discussion is that the original plan of using £350k to support a £31k expenditure for 12 years failed rather too many times in history for it to be a plan that I'd have a lot of confidence in at any time. The choice is then to modify the plan to something that stands a bit more chance of working or wait until things are more settled and carry on working.

Yes exactly - but as I mention above, if I re-run the model on Cfire which gives you the option to program it with state pension and DB figures, and I assume to retire at 55, and taking the DB pension at 57 with ERF, then it gets 100% success.  Maybe this is a better option (at least if there still appears to be many risk factors in the markets etc.

I picked DB pension at 57 because I have a recent estimate from the pension company - maybe it would also work taking the DB immediately at 55.

The other advantage of this approach is that if markets actually perform better than the worst case expectation, I am better positioned to take advantage of it.

I guess the one question is - if you were using those pension drawdown models as a guideline, would you be looking for a scenario that gives 100% success, or would for example 95% success be ok.  I would hazard that in the current risk envorinment, you should be looking for 100% scenario (possibly even more by saying that you want a minimum cushion at the end based on the history).

Do be careful with cfiresim - it is a US site and gives better outcomes than 2020finance (because in the 'American Century' the Americans did rather better than us Brits).

Personally I took my DB pension early (by about 7 years with something like a 30% actuarial reduction - for historical reasons I don't fully understand, for me the standard retirement age was 63.5) because otherwise I wouldn't have been able to retire at all and the income currently exceeds our spending requirements (we have a frugal, but very happy existence, on expenditures of less than £20k). This decision was a very personal one - my reasoning was that if I live a long time (beyond about 85), this will financially have been a mistake (but I'll still be alive!), whereas if I do not live a long time then I will have had some very happy years. I took out life insurance to cover the period from when I retired to state pension age to ensure my OH is able to supplement my reduced DB pension (since it halves on my demise).

I am very risk averse, so my personal requirement is for high probabilities of success. My main concern for my DC component is actually for inflation protection (my DB pension has an inflation cap), bridging (in case of my early demise and the insurance proves insufficient - I'd planned for a decade with no more than 10% inflation), and legacy although these aims are somewhat incompatible (there'll be a review as we approach 67).

Thrugelmir

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties -

There are known challenges, the uncertainty lies in their resolution.  Historic datasets unfortunately don't guide you where it's best to invest for the future. Use of US centric websites is where many people trip up as well. 

BritishInvestor

Thrugelmir said:

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties -

There are known challenges, the uncertainty lies in their resolution.  Historic datasets unfortunately don't guide you where it's best to invest for the future. Use of US centric websites is where many people trip up as well. 

"Use of US centric websites is where many people trip up as well. "

Yep, and even more so if it's a 100% equity dataset such as the S&P.

Pat38493

BritishInvestor said:

Thrugelmir said:

OldScientist said:

Thrugelmir said:

OldScientist said:

Pat38493 said:

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.

If you are happy to potentially completely spend down your DC pot in those 12 years, then plugging in £350k for pot size, 31k for annual withdrawal and using 60% stocks, 20% bonds, and 20% cash portfolio, the 2020finance calculator gives a historical failure rate of just over 20%. If you can chip the spending down to £26k then this halves the historical failure rate to 10% (I note that the failure rates don't change a lot with asset allocations between 40% an 80% stocks). Another alternative is to retire later, a 10 year spend (with £31k on a £350k pot) survived 90% of the time, 9 year spend 94% of the time, and 7 years nearly 100% of the time (of course, you would have longer to build up the pot, so if markets are kind might have more than £350k). Of course, this excludes any consideration of taxes or fees and the 2020finance calculator assumes solely UK stocks (a more diverse portfolio may have improved things).

Given the current uncertainties that exist. Better to spend time looking out of the window. Than getting too buried in historical probability for a short term forecast. The risks are weighted heavily to the downside. Events in Ukraine haven't changed the other major issues on the agenda. Just compounded the complexity in addressing them. 

There are always uncertainties -

There are known challenges, the uncertainty lies in their resolution.  Historic datasets unfortunately don't guide you where it's best to invest for the future. Use of US centric websites is where many people trip up as well. 

"Use of US centric websites is where many people trip up as well. "

Yep, and even more so if it's a 100% equity dataset such as the S&P.

OK but just so I understand - how is this relevant because I assume that you can still choose to invest in funds that have a lot of US assets - not living in the US doesn't mean you can't take advantage of US returns?

dunstonh

OK but just so I understand - how is this relevant because I assume that you can still choose to invest in funds that have a lot of US assets - not living in the US doesn't mean you can't take advantage of US returns?

Those US returns are historic.   The UK hit mature market and developed market in decline (for some of it) earlier before the US.   The US was still an emerging market for the early part of the 20th century.  it is not anymore.  So, using historic returns that are not applicable to how things are now is not doing your planning any favours.