Drawdown - interested how people manage this month by month...

ader42

I hear what you are saying, however if I have £500K on April 2024 and by April 2025 an investment drop to £450k I would likely leave it as is and wait a year. Then in 2026 I would re-assess to see if it had risen enough to allow myself a monthly withdrawal for the coming year - unless in dire straits and buffer has already gone of course.

I don't actually intend to draw down the capital to zero - far from it - but no crystal ball and needless to say, no Lambo for me.

cfw1994

ader42 said:

To slightly clarify, I'll probably want the pot to still have grown in total value each year after any drawdown and costs; but the pot should be significant enough for some flexibility.

In any case I can't see myself drawing down more than 4% per annum before state pension age, and will reduce the amount I drawdown after said state pension age, and then reduce again once other half's state pension kicks in.

If grandchildren turn up then things might change of course - particularly if I want to help my son with housing costs. It will be a balance, no point having my son struggle financially and have to wait until he is in his 50s before he gets any inheritance.

I feel that you will manage absolutely fine.  Your logic is sound, your reasoning is fine.  

On that last point….we have been passing a few hundred each month on to our offspring for a few years now, and helped them set up LISA/ISA/pension so they have been effectively saving from what we view as their inheritance “early”, in the hope that the magic of compounding will do it’s thing…..

I started my drawdown last Sept, having stopped the day job in May.

When markets tumbled in Nov/Dec (& yes, I have some Baillie Gifford American, which tumbled more than most 😱…in it’s defence, it had done very well for many years, so I forgive it🤣), we had an actual discussion.   Our plan was to always draw cash during a down market: we agreed this was definitely down, so I halted the drawdown and we have taken our money from cash assets.  Premium bonds so far, but should this be a multi-year downturn, we have other cash (ISA) which could last us 3 years if needed.

Things have started picking up the past few weeks - I still have a habit of keeping a mostly weekly “tally” of how we are doing - so I hope to be able to restart the drawdown before the end of this fiscal year.  At the least I will drawdown the personal allowance (& immediately reinvest in ISA if markets are still down….although our ISAs don’t precisely match the DC pot funds).

In the meantime…yes, you will get many ideas from this thread - just remember we all want to think we are doing then best thing, whereas in reality, all our circumstances are a little different 🤷‍♂️

Find what fits for you, and live your best life, it ain’t all about money…sometimes it might include a Lambo.  Maybe just for a day🤪
 😎👍

bownyboy

Great thread and something we are monitoring closely as I stopped work end of April.

We currently have cash for spending until March 2023 at which point we will assess the markets and decide where to take a years spending from. This will be based on what we agreed in our Withdrawal Policy Statement (WPS).

I found writing one a great exercise (along with our original Investor Policy Statement). It really gets you thinking about the scenarios and various 'what ifs'. 

You can google and find many templates online and blog posts where they are discussed. 

Albermarle

 Premium bonds so far, but should this be a multi-year downturn, we have other cash (ISA) which could last us 3 years if needed.Things have started picking up the past few weeks - I still have a habit of keeping a mostly weekly “tally” of how we are doing - so I hope to be able to restart the drawdown before the end of this fiscal year.  At the least I will drawdown the personal allowance (& immediately reinvest in ISA if markets are still down….although our ISAs don’t precisely match the DC pot funds).

You mention a 'Multi Year Downturn'

However most pension pots are pretty much back where they were 12/18 months ago. Some will be up a bit and some still down a bit, especially is they were aggressively invested ( BG American  ) or too heavy in bonds/gilts, but I do not think you can call it a Multi Year Downturn, not yet anyway. Maybe better to save the cash/PB's in case there is really a crash at some point?

Fermion

dunstonh said:

36 months worth for me with income units on the funds with income going into the cash float.  So, in reality, you are getting longer than 36 months because of the replinishment.   Only refloat back to 36 months when markets are not a low points.

I also have all of my funds held as income units but with circa 12 months cash float rather than 36 months. I take only the natural yield (or slightly less as I plan to pass my pension pot to our children as beneficiaries) and typically amend my monthly drawdown withdrawal annually. I actually check that the cash income yield is on track and matches my pension payments monthly. That's the big advantage of holding funds as income units as you can review cash income against previous years. Works well for me as my income pot has grown by about 15% in 6 years.

dunstonh

Fermion said:

dunstonh said:

36 months worth for me with income units on the funds with income going into the cash float.  So, in reality, you are getting longer than 36 months because of the replinishment.   Only refloat back to 36 months when markets are not a low points.

I also have all of my funds held as income units but with circa 12 months cash float rather than 36 months. I take only the natural yield (or slightly less as I plan to pass my pension pot to our children as beneficiaries) and typically amend my monthly drawdown withdrawal annually. I actually check that the cash income yield is on track and matches my pension payments monthly. That's the big advantage of holding funds as income units as you can review cash income against previous years. Works well for me as my income pot has grown by about 15% in 6 years.

Taking natural yield only requires very little cash to be held as your draw rate is only coming from the distributions.    

Natural yield has been generally lower (unless you take higher risk).   So, total return has been necessary for most people since the credit crunch.   We could be entering a cycle where increasing yields could be sufficient to cover many people's draw rates and that would see the need for a cash float reduce.   For those that like a level income each month that broadly equates to natural yield, the float may just require enough to smooth it out.

bostonerimus

When I did my first drawdown projections early in my career I concluded that rather than emphasizing investment to grow my pot I should also save very aggressively and budget carefully to reduce my spending. If I did see good growth then frugality and saving/investing a lot would make the pot even bigger. I then became even more risk averse and looked at using dividends and interest to fund retirement rather than a combination of spending capital and total return. The next stage was I actively sought out a job with a DB pension and also invested in a rental property for long term income. So I started out with the Bengen/Trinity 4% rule, flirted with Guyton Klinger, then went to a dividend and interest strategy and finally settled on DB pension and rental income plus an equity heavy investment portfolio designed for growth with a mind to inheritance rather than retirement income. I still keep a couple of year's of cash for emergencies, but for day to day retirement income I'm decoupled from the stock markets which means that I don't have to decide what and when to withdraw and keeps my blood pressure down.

coyrls

GSP said:

Thought this thread was about withdrawals, and what frequency to take these. 

Surely talk of cash buffer’s etc can be found in other threads?

No, the OP says:

It seems like best practice is to have a cash reserve of at least 2 years income, and to take from that instead of the drawdown pot, when the funds are performing badly (please correct me if I've got that wrong).

MrBobbins

Wow - thought I'd wait for replies to settle down before following up, but it looks like I've hit a rich vein of opinion/advice! Thanks very much for everyone's contributions so far - this is giving me a lot to mull over! I must admit (mostly based on some YouTube Wealth Managers I follow), I'd assumed the multi-year cash buffer thing was universally acknowledged as a good thing - I now see it's rather more up for discussion! Also, I was aware that the "has pot performed sufficiently well" did always seem to be rather ill-defined. As has already been mentioned, I would probably prefer to avoid having to make such stressful decisions in retirement...

coyrls

MrBobbins said:

Wow - thought I'd wait for replies to settle down before following up, but it looks like I've hit a rich vein of opinion/advice! Thanks very much for everyone's contributions so far - this is giving me a lot to mull over! I must admit (mostly based on some YouTube Wealth Managers I follow), I'd assumed the multi-year cash buffer thing was universally acknowledged as a good thing - I now see it's rather more up for discussion! Also, I was aware that the "has pot performed sufficiently well" did always seem to be rather ill-defined. As has already been mentioned, I would probably prefer to avoid having to make such stressful decisions in retirement...

There is extensive discussion and disagreements on the cash buffer issue in this thread: https://forums.moneysavingexpert.com/discussion/6330736/what-is-your-trigger-point-to-start-spending-from-cash-buffer-qe-does-it-change-the-game/p1