What Drawdown Strategy Would You Do?

gm0

@biilly2shots.  None taken.  My prose style is what it is.

A surviving partner can switch to pay the IFA *later* if running drawdown is of no interest.  You could ID IFA candidates and put contact info in the Pension file against sudden departure. If eyes repeatedly glaze over at at talk of income setting/rebalancing and suitable family support unavailable. Get advice in place or buy suitable annuity if decline less sudden.

Anyone inclined to DIY in the first place needs to do the level of detail *they* need to step confidently in.
And to hold that confidence through inevitable bumps and turbulence. 
Could be a little.  Could be a lot.

Superdude0499

A little of the current discussion but in line with thread title….

What is the best strategy for drawdown withdrawals? eg requirement is £3000/month. Would it be best to take it monthly or as £36k at tax year end? To avoid silly auto tax code issues.

AlanP_2

Superdude0499 said:

A little of the current discussion but in line with thread title….

What is the best strategy for drawdown withdrawals? eg requirement is £3000/month. Would it be best to take it monthly or as £36k at tax year end? To avoid silly auto tax code issues.

Personal choice I would say, coupled with what your provider offers / supports.

Initial questions are:

• Is that £3k per month pre tax or after?
• Have you taken your TFLS already or is 25% of that £3k (before tax) actually tax free?

As for "silly auto tax code issues", I think this tends to get blown up out of all proportion. During the last 2 tax years I have taken a substantial withdrawal as the "only 1 for the year", paid too much tax and had it back in my bank account after about 6 weeks after 5 mins filling in an online HMRC form.

In my case the majority of the withdrawals were for re-investing as opposed to monthly living expenses. If I was after a regular income I would go for monthly withdrawal, with 25% of each being tax free.

Superdude0499

AlanP_2 said:

Superdude0499 said:

A little of the current discussion but in line with thread title….

What is the best strategy for drawdown withdrawals? eg requirement is £3000/month. Would it be best to take it monthly or as £36k at tax year end? To avoid silly auto tax code issues.

Personal choice I would say, coupled with what your provider offers / supports.

Initial questions are:

• Is that £3k per month pre tax or after?
• Have you taken your TFLS already or is 25% of that £3k (before tax) actually tax free?

As for "silly auto tax code issues", I think this tends to get blown up out of all proportion. During the last 2 tax years I have taken a substantial withdrawal as the "only 1 for the year", paid too much tax and had it back in my bank account after about 6 weeks after 5 mins filling in an online HMRC form.

In my case the majority of the withdrawals were for re-investing as opposed to monthly living expenses. If I was after a regular income I would go for monthly withdrawal, with 25% of each being tax free.

Thanks AlanP

TFLS would be already taken, spent on life upgrades (Kids, Car, Holidays, Kitchen, 5Kg Toblerone etc...)

In this scenario 3K would be Net income required for monthly expenses. I had heard nightmare stories about reclaiming overpaid tax, but if it's as simple as you suggest then I shall cease worrying. In reality 3K will come from a variety of sources (My DC pot, ISA and Wife's DB) with a large enough buffer to not worry about tax refund timings.

gm0

As with all such in modern life if the train truly falls off the tracks gettting it fixed via call centres can become - difficult. 

But for the normal behaviour - fairly trivial.
People regularly appear here having tripped over the accrual of tax allowance and the way single payments from pensions get profiled out as though repeating monthly.  And it is an unwelcome surprise rather than a major problem. But if margins are fine - a cashflow squeeze.

You decide how to free up cash for income - the frequency of sales - just at rebalancing with a cash fund sat there. Or more often selling to generate the income payments at the last moment.  Both approaches have their advantages/disadvantages.

And then - separately you set the payments up - payroll BACS (from FAD after TFLS) or UFPLS - monthly, quarterly, annually - as suits you. Most providers will do most versions - and ad hoc. 

Wash up tax paperwork or wait for SA to rebalance. 

Monthly once stable and running should be fine and settle down anyway

Linton

Superdude0499 said:

A little of the current discussion but in line with thread title….

What is the best strategy for drawdown withdrawals? eg requirement is £3000/month. Would it be best to take it monthly or as £36k at tax year end? To avoid silly auto tax code issues.

Taking drawdown cash from a SIPP is a bit of a hassle since, certainly on BestInvest and AJBell and possibly all others, you need to have the cash ready sitting in the pension about 2 weeks in advance.  The platform won't automatically sell investments for you. Unless you have a constant drawdown, you need to request one every month some time in advance.  Another factor to consider is whether you should do anything to avoid higher rate tax if you have other income..

I maintain a large cash buffer anyway and so take cash from there to pay some of the expenses beyond my guaranteed income.  At the end of the tax year when I rebalance my portfolio I may drawdown a lump sum up to the top of the basic rate taxband.   In addition, partly to avoid higher rate tax, I have an S&S ISA holding INC funds from which the tax free natural income is paid directly into my current account by the platform with zero effort or hassle on my part.   Possibly a sensible use of the tax free lump sum if you dont have sufficient money outside the pension.

tigerspill

OldMusicGuy said:

I've just taken out an RPI linked annuity with part of my DC pot as rates were so good it was a great opportunity to get some secure income as a base in addition to SP (I have no DB pensions). I have left the rest invested slightly more aggressively than I previously had it so that this will provide funds we can use as needed later in life. I don't plan to touch this for 10 to 15 years at least.

Annuities are definitely worth considering at present IMO as part of your retirement strategy but it depends on your circumstances and risk appetite. 

Sounds interesting.  What annuity did you go for?  

GSP

JohnWinder said:

….it was also suggested that the fund could be split into 3 pots. One where we had 5 years cash, next to another which had more stable investments (whatever they are lately!) and a third pot for high risk equities. I think the idea was if/as/when the equities had reached a certain performance level, money ‘made’ would then be passed into the middle pot with more ‘stable’ investments, and when numbers reached a certain point funds would then top up the cash pot.

Yes, the ‘bucket’ strategy, or ‘a’ bucket strategy. You might have seen the earlyretirementnow blog do a big post on this yesterday. To enrich you understanding on this, there’s a discussion started yesterday on ‘buckets’ at https://www.bogleheads.org/forum/viewtopic.php?t=395958

Thanks John,
Definitely some sceptics in here about the bucket strategy.
Seems there’s concern that the cash buffer may run empty, or having 5 years cash means less chance of growth.
I suppose that’s where Fixed Term Annuity’s (especially the no income taken but 15% after 3 years) might have a place, but still to figure this out yet.

gm0

Even I find the bogleheads bucket debate too long and I am as interested in Roth Conversion as US friends are in LTA and MPAA i.e. not at all.  The ERN/Fritz blog thing seems to suggest buckets are "mostly harmless" relative to simple asset allocation + rebalance or at worst mildly deficient some of the time and ahead others. A mild momentum investing strategy effect around pot mechanics.

I support the idea that provided your plan isn't demonstrably arithmetically a truly bad one. So it is there or therabouts. 
The plan you have *confidence* in and will follow in the bumps is better for you than no plan or something esoteric that you won't.  Or declaring year 0 again and again.  Most of us are not Fritz/Karsten/Michael McClung thinkers and modellers on this and don't especially want to be.

I haven't attempted to figure out Fixed Term Annuities - they didn't look attractive enough a couple of years ago to make it up my to look at list.  Screened them out a bit.  But time passes and the world changes. 

Feedback threads and discussion on the viability of them in bridging to DB/SP etc. - use cases in earlier retirement with fixed term versions rather than the classic extreme longevity risk hedge chunk of residual funds to full annuity later on when prices are more attractive.

dunstonh

Seems there’s concern that the cash buffer may run empty, or having 5 years cash means less chance of growth.

The cash buffer would be replenished from income (inc units) and periodic rebalancing/refloating of the cash account.  

I suppose that’s where Fixed Term Annuity’s (especially the no income taken but 15% after 3 years) might have a place, but still to figure this out yet.

Probably not when you look at the commercial rates.  

The problem is that you cannot have both the maximum upside potential and maximum downside protection.  Bucketing gives you more downside protection.   Annuities give you even more downside protection.