Drawing a Regular Income which way is best?

Linton

Taking income from investments is a large subject so I will just give an overview and leave it with you to ask more detailed questions 

There are 4 ways to get an income from invested funds

1) Sell funds
2) Use dividends and interest from Inc funds
3) Withdraw money from a cash pot
4) buy an annuity

And one can identify 6 key factors

a) Amount of income - as a % of initial capital
b) Sustainability - over what period do you need the income
c) Loss of capital - do you care if you run out of money once you have no need for the income
d) Variability - to what extent can you accept or require variation in your income
e) Management effort - do you want to check your situation and make decisions frequently or do you want to simply receive the income only reviewing perhaps once a year.
f) Inflation - do you want your income to rise with inflation

Your answers to (a)-(f) will determine which of methods (1) to (4) you should use.  In general as with many investment questions the answer is diversification.  It may well be the case that no single method will meet all your requirements.  I personally use all of (1)-(3) though we do have annuities bought many years ago and may well buy more in the future. My requirements are:

(a)  Currently  about 2%/year of all liquid capital.  In addition all  major one-off expenditure is taken from (1),(3).
(b) for next 30 years
(c) No need for substantial capital to be left on death.  However there should be no worry/stress from the possibility of running out of money.
(d) Enforced variation in ongoing income or restriction in reasonable (eg up to 5% of all liquid assets) one-off expenditure is unacceptable.
(e) Minimal ongoing effort - money for ongoing expenditure should be paid into current account automatically.  One-offs will need more consideration.
(f) Income from investments will need to rise faster than inflation over time as fixed rate annuities decrease in value.

jimjames

datadezign said:

I need to replace my annual income from funds invested.

Where are the funds at the moment? Already invested somewhere?

datadezign

Linton said:

Taking income from investments is a large subject so I will just give an overview and leave it with you to ask more detailed questions 

There are 4 ways to get an income from invested funds

1) Sell funds
2) Use dividends and interest from Inc funds
3) Withdraw money from a cash pot
4) buy an annuity

And one can identify 6 key factors

a) Amount of income - as a % of initial capital
b) Sustainability - over what period do you need the income
c) Loss of capital - do you care if you run out of money once you have no need for the income
d) Variability - to what extent can you accept or require variation in your income
e) Management effort - do you want to check your situation and make decisions frequently or do you want to simply receive the income only reviewing perhaps once a year.
f) Inflation - do you want your income to rise with inflation

Your answers to (a)-(f) will determine which of methods (1) to (4) you should use.  In general as with many investment questions the answer is diversification.  It may well be the case that no single method will meet all your requirements.  I personally use all of (1)-(3) though we do have annuities bought many years ago and may well buy more in the future. My requirements are:

(a)  Currently  about 2%/year of all liquid capital.  In addition all  major one-off expenditure is taken from (1),(3).
(b) for next 30 years
(c) No need for substantial capital to be left on death.  However there should be no worry/stress from the possibility of running out of money.
(d) Enforced variation in ongoing income or restriction in reasonable (eg up to 5% of all liquid assets) one-off expenditure is unacceptable.
(e) Minimal ongoing effort - money for ongoing expenditure should be paid into current account automatically.  One-offs will need more consideration.
(f) Income from investments will need to rise faster than inflation over time as fixed rate annuities decrease in value.

I would say mine is very similar to your except for approx 3-4% value of the capital.

datadezign

jimjames said:

datadezign said:

I need to replace my annual income from funds invested.

Where are the funds at the moment? Already invested somewhere?

Invested elsewhere, but can be realised soon.

adindas

datadezign said:

I need to replace my annual income from funds invested. I have calculated that looking at say a 10-15 year average returns in a medium type risk should achieve this. 

My question is:-

What is the best approach, to enable income drawdown from the invested funds?

ALSO with the current economic volatility should I defer my first time investment into the markets, or drip feed in tranches?

Noone knows for certain. But it is already known that throwing your money now is better than threw your money early this year. Also people are more comfortable to throw their money now then a few months ago.

Generally, people will listen to the authoritative source, expert advice rather than random people on the internet.

Generally speaking DCA is a better strategy in declining / bear market, especially if you are talking about a large sum of money.

https://www.investopedia.com/8-ways-to-survive-a-market-downturn-4773417  Smart Strategies for a Bear Market By The Investopedia Team May 30, 2022 Reviewed by Robert C. Kelly Fact checked by Diane

https://www.investors.com/etfs and funds/mutual funds/dollar cost averaging is good for a falling market/ Dollar Cost Averaging Good In A Falling Market 

https://www.fool.com/investing/stock market/basics/dollar cost averaging/ Generally speaking, dollar cost averaging works best in bear markets and with securities that have dramatic price swings up and down. It is those times, and those types of investments, where reducing investor anxiety and fear of missing out tend to be the most important.

https://www.capitalgroup.com/pcs/insights/articles/benefits of dollar cost averaging spring 2020.html A simple approach can help limit the downside during a bear market

Also there is no evidence those who are suggesting people to throw a few hundred pounds (say £300k) are doing that themselves. At least noone has shown print-screen as evidence. Just imagine what happen to people who threw a few hundred thousand pounds early this years knowing that the market keep declining.

Many people are doing DCA naturally without recognising them as they will  still need to wait until the next month until they get money to invest.

Whether the market already saw the bottom in June 2022 whether all bad factors have been priced in the market. There is a still split decision among analysts. But most of them agree that if there is a new bad news coming, such as unexpected move of both side in the Ukrainian war, more aggressive China pressure to Taiwan, inflation keep soaring, new pandemic, etc it might send the market further down.