Safe withdrawl rates

Mick70

have seen posts on here before about safe withdrawl rates , and the 4% rule
I realise dc funds can go down as well as up , the past few months being a great example of that 

query I have is 

If have a db of £28.5k  and target is for a joint pension of £50k (gross)

aim is to retire at age 57 (when wife turns 60) , both qualify for full SP at age 67 (currently about 9.5k ea ?)

so will be 10 year for me before sp  and 7 year for my wife.

would it be ok to have a slightly higher withdrawl rate from our combined dc pots and savings (say 5-6%) , for those years until reach SP, and then reduce to 3-4% once receiving SP ?   If that makes sense ?

mick

MX5huggy

Not if you’re using the same pot size at both points. To work out the percentages. 

dunstonh

have seen posts on here before about safe withdrawl rates , and the 4% rule

There is no such thing as a safe withdrawal rate.  It is a theoretical opinion.  And 4% is generally considered too high for the UK. However, it depends on your asset mix.

would it be ok to have a slightly higher withdrawl rate from our combined dc pots and savings (say 5-6%) , for those years until reach SP, and then reduce to 3-4% once receiving SP ?   If that makes sense ?

Often referred to as "funding the gap".  Yes it is very frequently used and can be viable depending on how much extra you are drawing to fund the gap and how much you need post SPA.

If the figures work out ok on your modelling then no harm at all.

squirrelpie

Mick70 said:

have seen posts on here before about safe withdrawl rates , and the 4% rule
I realise dc funds can go down as well as up , the past few months being a great example of that 

query I have is 

If have a db of £28.5k  and target is for a joint pension of £50k (gross)

aim is to retire at age 57 (when wife turns 60) , both qualify for full SP at age 67 (currently about 9.5k ea ?)

so will be 10 year for me before sp  and 7 year for my wife.

would it be ok to have a slightly higher withdrawl rate from our combined dc pots and savings (say 5-6%) , for those years until reach SP, and then reduce to 3-4% once receiving SP ?   If that makes sense ?

mick

You haven't said when your DB pension starts, but your figures don't look consistent to me. When you retire, you'll be taking £50,000 from your pots & savings and you say that is 5-6% of your pots, which puts them between £800,000 and £1,000,000 (congratulations ) But when you have your DB in payment and both your SP, you'll only need £2,500 per year from your pots, which only needs a pot of an order of magnitude less at say 3.5%.

I'd suggest just producing a spreadsheet for the next 10 or 25 years, plug in your actual figures and do a cashflow analysis to see whether your pots will have enough left in them for say a 3% withdrawal rate once everything is in payment. Then look at it again and take your best guess as to what might happen with inflation and investment returns, and cross your fingers and hope.

bostonerimus

Mick70 said:

have seen posts on here before about safe withdrawl rates , and the 4% rule
I realise dc funds can go down as well as up , the past few months being a great example of that 

query I have is 

If have a db of £28.5k  and target is for a joint pension of £50k (gross)

aim is to retire at age 57 (when wife turns 60) , both qualify for full SP at age 67 (currently about 9.5k ea ?)

so will be 10 year for me before sp  and 7 year for my wife.

would it be ok to have a slightly higher withdrawl rate from our combined dc pots and savings (say 5-6%) , for those years until reach SP, and then reduce to 3-4% once receiving SP ?   If that makes sense ?

mick

It all depends on how your investments perform. The 4% rule assumes historical US market returns and inflation. You might want to investigate a variable drawdown rate as proposed by Guyton and Klinger. But the rule of thumb is that higher withdrawal rates early on are risky as they might coincide with a market down turn and then you will find it difficult to recover to adequately fund the rest of retirement. This is called "sequence of return risk".

Albermarle

You haven't said when your DB pension starts, 

The OP is a regular poster and I believe he is receiving his DB pension already ( whilst still working)

have seen posts on here before about safe withdrawl rates , and the 4% rule 

Some people have more faith in the 4% rule than others. As is it is based on historical statistics, it can not be guaranteed for the future. On the more positive side it is based on a low probability of running out of money in your mid 90's. If markets were kind and your investments did well, you could well take 4% and still have a lot left when you die.

westv

Jamesd used to love these types of questions but he seems to have gone away now since January.

Mick70

Yes sorry because I had protected rights when forced out of the db scheme I started to receive it , I am currently working still full time but hope to retire in 5 years time , age. 57/58 

jimi_man

Well at the most basic level and ignoring inflation, you need 7 years of £21,500 (£150,500); 3 years of £12,000 (£36,000); and then £2500 a year going forward as infinitum. So with 25 years of £2500 a year that takes you to age 92. The whole lot comes to £236.5k. 

How do those figures sound? I don’t know how much you have saved. 

As it happens we are doing similar, except we are going to take my wife’s db pensions earlier to smooth it out as otherwise we’ll have far too much at age 67. 

michaels

jimi_man said:

Well at the most basic level and ignoring inflation, you need 7 years of £21,500 (£150,500); 3 years of £12,000 (£36,000); and then £2500 a year going forward as infinitum. So with 25 years of £2500 a year that takes you to age 92. The whole lot comes to £236.5k. 

How do those figures sound? I don’t know how much you have saved. 

As it happens we are doing similar, except we are going to take my wife’s db pensions earlier to smooth it out as otherwise we’ll have far too much at age 67. 

Lots of people model it this way with a fixed sum to cover the gap form no SP until SPA and then the rest of the pot proving a 3.5% per year income on top.  The SWR toolbox spreadsheet will model it better for you.

Mick70

jimi_man said:

Well at the most basic level and ignoring inflation, you need 7 years of £21,500 (£150,500); 3 years of £12,000 (£36,000); and then £2500 a year going forward as infinitum. So with 25 years of £2500 a year that takes you to age 92. The whole lot comes to £236.5k. 

How do those figures sound? I don’t know how much you have saved. 

As it happens we are doing similar, except we are going to take my wife’s db pensions earlier to smooth it out as otherwise we’ll have far too much at age 67. 

As things stand , my current db is 28.5k

my pension savings approx 170k
and have built up £200k for the wife , so combined £370,  I think if I can get the combined amount up to £500k (over next 5 yrs) then we will be fine