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How long pension pot might last - sense check of calculations
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DT2001 said:Thrugelmir said:DT2001 said:Thrugelmir said:getting_better_2 said:
Also does growth of 1% above inflation sound realistic, especially as by the time of drawing down I'll presumably have a very low risk investment0 -
Personally, I would always begin by working out your number (or rather numbers). How much do you need, after tax, to live the lifestyle that you want and, should the worst come to the worst, how much do you need for a basic standard of living.If you are considering retiring at 58 then the state pension will contribute towards that number after 9 or 10 years so a straight percentage of your pot being drawn down annually is a pointless calculation. Everyone has their own ideas on managing their pot, but personally I would effectively treat it as 2 pots - one for the period to state pension age and another thereafter.If you believe in safe withdrawal rates then you can apply that to your second pot when your state pension kicks in, but if you don't need the full 3.5% or 4% to meet yor number then don't draw it all. Your pre state pension pot is likely to be in much lower risk investments (or even a fixed term annuity) as it is needed over a much shorter period of time.
"When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson1 -
If you start out using drawdown, can you then purchase an annuity at a later date?
As already said, yes you can . Also be aware that annuity rates also fluctuate with market/economic conditions . Recently they have been at a very low level, but have increased significantly this year already ( it is mainly related to the outlook for rising interest rates).
Also obviously the rates get better as you get older . Rates also improve if you have a level annuity( no inflation increases) and no spouse payments on your death . The main drawback is that there is nothing left to leave to heirs , whereas with drawdown you would hope there would be .
You can a have a drawdown pot and an annuity at the same time.
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getting_better_2 said:Thanks for the replies. Some really interesting info.
Overriding theme seems to be I'm oversimplifying and the variation in returns is too great to really plan for.
I like the idea of "3.5% drawdown wouldn't run out 95% of the time"... Given that it is uncertain, that's a nice way of thinking of it.
I guess the only way to eliminate the uncertainty is to go with an annuity however generally, these seem to have much lower returns, especially when factoring in inflation and the desire to leave something for spouse.
All in I guess it's a case of aiming to max contributions, aim for lifetime allowance if at all possible and hope for the best. Beyond that it's guessworkSeems sensible to me.WRT to SWR, I guess one way of looking at it is that the cost of purchasing that last 5% of certainty is increasingly expensive. Simplistic SWR studies are often based on fixed assumptions (drawing a SWR rate that rises with inflation), something in reality I guess most people will not blindly follow (if your pot is plummeting and at high risk of running out, would you continue to blindly drawdown your 'SWR' or reduce your spending?). More complex models allow for flexibility in the withdraw rate to accommodate market moves, so if you have some flexibility to tighten your belt or increase your income from a part time job during times of market stress, then you can likely increase that 'safe 95% of the time' to something approaching 100% (depending upon your degree of flexibility).
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MacMickster said:Personally, I would always begin by working out your number (or rather numbers). How much do you need, after tax, to live the lifestyle that you want and, should the worst come to the worst, how much do you need for a basic standard of living.If you are considering retiring at 58 then the state pension will contribute towards that number after 9 or 10 years so a straight percentage of your pot being drawn down annually is a pointless calculation. Everyone has their own ideas on managing their pot, but personally I would effectively treat it as 2 pots - one for the period to state pension age and another thereafter.If you believe in safe withdrawal rates then you can apply that to your second pot when your state pension kicks in, but if you don't need the full 3.5% or 4% to meet yor number then don't draw it all. Your pre state pension pot is likely to be in much lower risk investments (or even a fixed term annuity) as it is needed over a much shorter period of time.
Basic plan is to be spending (or have a budget to spend) slightly more than I currently am from 58-68 then once SP kicks in that will reduce what I need to fund myself by £9k and I'm assuming my spending also drops by £10k at that point to
All very much ifs and buts however I guess I have my number in terms of spending, my reasoning for asking about withdrawal rates was to work back from there to see what size pot would need to be in order to fund retirement given x.x% drawdown
I do feel much better educated (thank you everyone) however ultimately it seems hitting lifetime allowance of £1m (and a bit) is target number 1... At 3.5% that's likely to fund the 68+ bit but not enough for 58-68... I feel I ought to focus more on getting to £1m and worry how to draw it at that point2 -
getting_better_2 said:MacMickster said:Personally, I would always begin by working out your number (or rather numbers). How much do you need, after tax, to live the lifestyle that you want and, should the worst come to the worst, how much do you need for a basic standard of living.If you are considering retiring at 58 then the state pension will contribute towards that number after 9 or 10 years so a straight percentage of your pot being drawn down annually is a pointless calculation. Everyone has their own ideas on managing their pot, but personally I would effectively treat it as 2 pots - one for the period to state pension age and another thereafter.If you believe in safe withdrawal rates then you can apply that to your second pot when your state pension kicks in, but if you don't need the full 3.5% or 4% to meet yor number then don't draw it all. Your pre state pension pot is likely to be in much lower risk investments (or even a fixed term annuity) as it is needed over a much shorter period of time.
Basic plan is to be spending (or have a budget to spend) slightly more than I currently am from 58-68 then once SP kicks in that will reduce what I need to fund myself by £9k and I'm assuming my spending also drops by £10k at that point to
All very much ifs and buts however I guess I have my number in terms of spending, my reasoning for asking about withdrawal rates was to work back from there to see what size pot would need to be in order to fund retirement given x.x% drawdown
I do feel much better educated (thank you everyone) however ultimately it seems hitting lifetime allowance of £1m (and a bit) is target number 1... At 3.5% that's likely to fund the 68+ bit but not enough for 58-68... I feel I ought to focus more on getting to £1m and worry how to draw it at that point
As with all these situations, nothing is guaranteed . For example the market slump could be a long one and your cash could run out .1 -
It's then a judgement call as to whether any particular months "drop" warrants a cash spend instead (and pause or reinvest the DD).
This month, next, or the one after that!!!
Also do you by month, quarter, or year?
It's a minefield....I'm just trying not to get a leg blown off! 😉How's it going, AKA, Nutwatch? - 12 month spends to date = 2.60% of current retirement "pot" (as at end May 2025)0 -
cfw1994 said:DT2001 said:getting_better_2 said:Hi All,
Following some really helpful advice over the last couple of weeks, I've started pulling together a spreadsheet plan of how far my pension pot will take me...
Based on some fairly simple numbers of:
4% growth
3% inflation
3.5% drawdown
My calculations show pot running out after approx 33-34 years does that sound about right? ( current calc based on starting to draw at 58 so would be good until 91/92 which feels suitably ambitious)
Also does growth of 1% above inflation sound realistic, especially as by the time of drawing down I'll presumably have a very low risk investment
Thanks in advance for any thoughts
Is it your intention to reduce your drawdown at SPA? If so you can probably draw more early.
Do you have 2-4years ‘cash’ funds you can access to avoid drawing down if markets are not behaving kindly?
Many can start with more than 3.5% if they can reduce the draw dramatically when SP kicks in.
Inflation is a tricky one. Could be 10% by the end of the year, but the question is more about your ‘personal’ inflation rate. Somethings we cannot impact: council tax, energy prices. Some we can: defer capital purchases, shop around for insurance, the holidays we chose to have, even the shops we visit for food & the food we buy…
Given how none of us have a crystal ball, plan as best you can & be flexible. Good luck!2 -
Sea_Shell said:It's then a judgement call as to whether any particular months "drop" warrants a cash spend instead (and pause or reinvest the DD).
This month, next, or the one after that!!!
Also do you by month, quarter, or year?
It's a minefield....I'm just trying not to get a leg blown off! 😉3 -
getting_better_2 said:Thanks. Interesting stuff.
The idea of potentially increasing/decreasing withdrawal rates according to market makes sense but it's led me to another thought... If you start out using drawdown, can you then purchase an annuity at a later date?
My thinking is that it's all well and good in the early days tracking growth, deciding how much to take etc but what about further down the line when there's an ever increasing chance of losing capacity (or losing marbles depending on levels of P.C.!)...there must be a point where just having a fixed income becomes the better choice?To my currently fairly lucid mind, it makes a lot of sense to consider that when you approach 70-75: annuity rates will naturally be more attractive as you are closer to shuffling off your mortal coil….you might also be less inclined (or capable) to want to manage finances so much at that stage 🤷♂️There may be some desire to have some left in a DC pot for inheritance purposes, but having an annuity (perhaps dovetailed with SP) to ensure all regular outgoings are paid for could make good sense at that stage of the game.Plan for tomorrow, enjoy today!3
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