Almost embarrassed to ask...

coyrls

Also, a point missed by some, is that 4% applies to the initial withdrawal, the withdrawal amount is then increased by inflation each year.  In a period of high inflation and poor investment performance the annual amount withdrawn could be way in excess of 4% of the current value of the pot.

Bianchiintenso

bakedbeans2045 said:

I am trying to build my understanding of pensions and there is one thing I don't understand.  If you have a SIPP, of say £200,000 at your desired retirement age and you put it in drawdown, most things I have read guide you to take 4% of your pot as your income.  Would this mean that you never really touch the £200,000?  Most people on the forum seem super focused on preserving the actual pot and living on the profit from it.
Is this because people try to leave the actual pot value to relatives/their estate?
If you didn't plan to leave an inheritance, would you factor in using some of the actual pot too for your retirement?
I'm sorry if this is really obvious and I have just missed it, but if someone can help clear this up I'd be very grateful.

Must say it's a great question and some really useful answers, got me looking over history of my pot and the average percentage increases since I took a real interest in 2017 to date. Even given recent Covid, Ukraine and Truss mini budget downturns, today figures leaves me feeling more optimistic.

jim8888

I find pension modelling interesting but frustrating too. I've used the 4% rule as a guide for my DC pension, but I also have a DB pension kicking in too. How does that affect my SWR from the DC pot? Then there's the state pension coming in at 67. Do these additional incomes mean I can take more than 4% from the DC pot and, if so, how do I work out what that is?
It occurs to me that if I needed a net pension income of say, 30k a year and both the DB and state pension chip in £10k each then my 4% on the DC needs to cover a further £10K of that. If my 4% SWR generates more than £10k, then that is potential "bounce" that I can happily spend each year without worrying that my DC pot will run out. Does that make sense? 
As I grow older, my wife and I want to ensure we get maximum value out of our pensions. We don't want to be the richest folk in the graveyard. Frustratingly, however, we seem to be increasingly financially cautious as each year goes by, so I'm always looking for ways to reassure myself that I'm spending our pensions in a way that means we get the best (i.e. the most money) out of them without spending the whole pot!

billy2shots

Mutton_Geoff said:

The 4% "rule" is predominantly an American thing, it's also out of date but the selling point that it was a safe withdrawal rate that left the pot intact for beneficiaries.

Have a play around with this modeller - https://www.2020financial.co.uk/pension-drawdown-calculator/#calculator

That tool gives me some bonkers results. 

The success rate and failure rate are very similar with that of the other tools I use however,

Average finishing pot £18m

Highest pot finish £180m

They seem out of whack by comparison. 

jim8888

Mutton_Geoff said:

The 4% "rule" is predominantly an American thing, it's also out of date but the selling point that it was a safe withdrawal rate that left the pot intact for beneficiaries.

Have a play around with this modeller - https://www.2020financial.co.uk/pension-drawdown-calculator/#calculator

I had a look at the modeller but there isn't guidance about what to fill in on the "Social security/Pension" box? Any ideas what this is for and what the "Pension Start Year" needs to be? 

NoMore

jim8888 said:

Mutton_Geoff said:

The 4% "rule" is predominantly an American thing, it's also out of date but the selling point that it was a safe withdrawal rate that left the pot intact for beneficiaries.

Have a play around with this modeller - https://www.2020financial.co.uk/pension-drawdown-calculator/#calculator

I had a look at the modeller but there isn't guidance about what to fill in on the "Social security/Pension" box? Any ideas what this is for and what the "Pension Start Year" needs to be? 

State Pension and year it starts

Audaxer

jim8888 said:

It occurs to me that if I needed a net pension income of say, 30k a year and both the DB and state pension chip in £10k each then my 4% on the DC needs to cover a further £10K of that. If my 4% SWR generates more than £10k, then that is potential "bounce" that I can happily spend each year without worrying that my DC pot will run out. Does that make sense? 

In that example if you needed £10k (4%) from a DC starting pot of £250k for possibly a 30 year retirement, I would be reluctant to take a higher percentage. If on the other hand someone only needed to take £10k from their DC pot until their SP kicked-in, they could draw out a much bigger percentage up until they get their SP.

Grumpy_chap

bakedbeans2045 said:

Thank you - and would you consider a point in your retirement where you might take a higher % because the pot didn't need to last as long. I wondered if you might take 3-4% in the first x number of years but it could increase as time went on, albeit at the expense of the pot

Some people might do the exact opposite - draw more initially and then drop when they reach state pension age (so private pension + state pension gives the same outcome as only private pension before SP age).  

Some draw more earlier while they are healthy and mobile to enjoy the years and then spend less and draw less if they are forced to do less as they age.

KnotTiedUp

Really useful question and discussion, thanks.

Kim1965

I plan for a pot of 200k and take the dividends (which is about 4%),the dividends may go up or down a bit but my baseline needs should be sorted by a modest db (at 6o) and sp when it kicks in.
 This seems a simple solution to help mitigate sor and selling units for income. Most will disagree.