Recession, Inflation, War, Energy Crisis, Rising Interest Rates - should I stop or reduce drawdown?

dunstonh

I am not sure they are stabilising?

November 2021  £314,532.00

August 2022       £296,041.00

Low point was around 20th June.  July was on of the best Julys on record.  August is a little up.

[Deleted User]

Asset allocation should be your first question, before getting into withdrawals and taxation.

And that includes all assets and incomes you and your husband have.  

Once you have clarity on that, the easiest and most “hands off” approach, involving the least human emotion is to keep asset allocation constant, say 60/40 between equity and bonds/DB.  If you do that, then you’d be automatically withdrawing from your fixed income whenever stocks underperform and from your equity, whenever stocks do well. No “thinking” involved, so no mistakes and regrets.

As noted above, you appear to have 100% in various forms of fixed income. Thats fine if you are ok with far lower expected growth and therefore withdrawal amount (but also less short term volatility). 

A separate issue is reduction in expenditure whenever your overall portfolio shrinks (variable  percentage withdrawal). That makes sense. Google for VPW and you’ll find a spreadsheet which would automate the decision making process for you.

In general, try to design a plan so you don’t have to think “how much to take from which pot” every time the market makes a move. 

bostonerimus

I think the OP's situation shows how important it is to have a drawdown plan. It looks like the OP didn't go in with a highly developed strategy so maybe now is the time to do that. It will start with a budget and income needs, then an asset allocation and a cash buffer that can be used to draw on in times such as these and then a withdrawal plan ie something like 4% plus inflation or a Guyton Klinger approach. Having a plan will hopefully allow the OP to feel more secure.

Linton

The OPs pot is down 6% in a year and presumably that is after drawdowns.  Surely, any sensible drawdown strategy should be able to cope with that sort of variation in pot valuation without cutting expenditure or depleting cash reserves. 

The far bigger concern I believe is how well the very low % equity portfolio (the global managed fund is 100% equity) will handle long term normal levels of inflation.

Sorry, I misread the amount of RLP Global Managed.  It looks rather cautious but OK to me.

AlanP_2

Deleted_User said:

Asset allocation should be your first question, before getting into withdrawals and taxation.

And that includes all assets and incomes you and your husband have.  

Once you have clarity on that, the easiest and most “hands off” approach, involving the least human emotion is to keep asset allocation constant, say 60/40 between equity and bonds/DB.  If you do that, then you’d be automatically withdrawing from your fixed income whenever stocks underperform and from your equity, whenever stocks do well. No “thinking” involved, so no mistakes and regrets.

As noted above, you appear to have 100% in various forms of fixed income. Thats fine if you are ok with far lower expected growth and therefore withdrawal amount (but also less short term volatility). 

A separate issue is reduction in expenditure whenever your overall portfolio shrinks (variable  percentage withdrawal). That makes sense. Google for VPW and you’ll find a spreadsheet which would automate the decision making process for you.

In general, try to design a plan so you don’t have to think “how much to take from which pot” every time the market makes a move. 

Putting aside views on whether IFAs add value or not, this was put together by an IFA and so there would have been some underpinning for the asset allocation and allowance for risk appetite.

More like 72% fixed income and 28% in equities (RL Global Managed). A lot more cautious than I would, and have, opted for but that doesn't make it wrong for the OP. 

OP is the IFA who set this up still involved or are you know operating on a DIY basis?

What was the value of the pot in June? I have essentially the same range of RL funds as you but my equities are at about 53%. At the end of June it was down 4.7% YTD. By the end of July that had reduced to being 2.5% down and it is up again in August so far.

GazzaBloom

ader42 said:

It sounds like you are roughly following the 4% rule, invested cautiously as your primary intent is keeping an income going for 20 years or more and less concerned with trying for growth or leaving an inheritance with this pot?

If so your current pot would likely last you 20 years with no growth (or increase of withdrawals due to inflation) and perhaps a small amount of growth will still result in you having an inheritance to leave. It’s fairly easy to get scared of recession talk etc. - but remember the average recession only lasts around a year. My pension pot value (100% shares) fell by 25% earlier this year but is back more than half way up to it’s former value already. 

It looks like the cautious profile is working for you as the drop is not as great as it would have been with a riskier profile.

Personally I intend to take more income in my early years of retirement and less later on when the state pension kicks in. I can’t for example see me wanting to do lots of travelling or driving a posh car after I’m 75 and I’d rather take more out early on and be able to help my son out sooner - even if it’s only putting money in a SIPP for him.

I will never take enough to pay 40% tax on any of it, and will have a 2 year savings buffer so I can pause drawdown in years of negative growth, but I won’t be following a cautious approach as I hope to leave a significant pension inheritance. 

Your plan sounds very much like mine!

Albermarle

What was the value of the pot in June? I have essentially the same range of RL funds as you but my equities are at about 53%. At the end of June it was down 4.7% YTD. By the end of July that had reduced to being 2.5% down and it is up again in August so far.

Very similar for me, with a similar equity %. Almost back to where it was June last year. Although I have to say helped by some reduction in bonds % later last year and increase in 'other' .

BritishInvestor

Linton said:

The OPs pot is down 6% in a year and presumably that is after drawdowns.  Surely, any sensible drawdown strategy should be able to cope with that sort of variation in pot valuation without cutting expenditure or depleting cash reserves. 

The far bigger concern I believe is how well the very low % equity portfolio (the global managed fund is 100% equity) will handle long term normal levels of inflation.

Sorry, I misread the amount of RLP Global Managed.  It looks rather cautious but OK to me.

Correct. It's just noise vs what a robust approach should be able to cope with.

thriftytracey

AlanP_2 said:

Deleted_User said:

Asset allocation should be your first question, before getting into withdrawals and taxation.

And that includes all assets and incomes you and your husband have.  

Once you have clarity on that, the easiest and most “hands off” approach, involving the least human emotion is to keep asset allocation constant, say 60/40 between equity and bonds/DB.  If you do that, then you’d be automatically withdrawing from your fixed income whenever stocks underperform and from your equity, whenever stocks do well. No “thinking” involved, so no mistakes and regrets.

As noted above, you appear to have 100% in various forms of fixed income. Thats fine if you are ok with far lower expected growth and therefore withdrawal amount (but also less short term volatility). 

A separate issue is reduction in expenditure whenever your overall portfolio shrinks (variable  percentage withdrawal). That makes sense. Google for VPW and you’ll find a spreadsheet which would automate the decision making process for you.

In general, try to design a plan so you don’t have to think “how much to take from which pot” every time the market makes a move. 

Putting aside views on whether IFAs add value or not, this was put together by an IFA and so there would have been some underpinning for the asset allocation and allowance for risk appetite.

More like 72% fixed income and 28% in equities (RL Global Managed). A lot more cautious than I would, and have, opted for but that doesn't make it wrong for the OP. 

OP is the IFA who set this up still involved or are you know operating on a DIY basis?

What was the value of the pot in June? I have essentially the same range of RL funds as you but my equities are at about 53%. At the end of June it was down 4.7% YTD. By the end of July that had reduced to being 2.5% down and it is up again in August so far.

Alan,

I stopped checking it so often as it was getting obsessive!  However the nearest total fund value to June 2022 was £299,458 on 19 May.  I don't believe there is the facility online to check values/individual fund values at a point in time.

No, I did keep the IFA on for approximately 18 months but when it lost value at the start of the pandemic I decided to dispense with the service as it cost £1500 pa.  We weren't in the position to make new investments and no changes were ever recommended to the RL products (plus it is an off the shelf product and not managed by IFA).  So a slim booklet once a year and one visit stating what I could work out for myself did not seem worth it.

Today the total fund value is £297196 so it has increased slightly which is good.

I am thinking of just drawing down the £350 monthly tax free element from the tax free lump sum - or is it better not to touch this and just use savings/other income instead?

The China/Taiwan conflict is worrying.  

I wouldn't mind doing the £4000 odd pension contribution per year but would I get the tax relief on it as I don't pay tax?

ader42

michaels said:

Surely you would never stop drawing down below the point where you have unused personal tax allowance, even if you simply drawdown and put back into the same funds in an isa. Otherwise you are just choosing to pay more tax than you need to.

Good point, the only rationale I can think of would be to avoid any means testing by having savings, but that isn’t going to happen for me.