Drawdown : Safe Withdrawal Rate and SP/DB factored In

DT2001

Pat38493 said:

DT2001 said:

Thank you for the VPW suggestion, I will research.

DB is in payment and SP in 3.5 years. Gap covered by £35k in cash. OH still working so that £35k will be drip fed into the market as long as she carries on.


OH’s income is sporadic and she now only takes on work she enjoys. Covid changed everything, we were drifting into semi retirement and then faced a point with minimal income and a portfolio 20% down. Then OH found a new contract that she really enjoyed - full time, which has opened up new opportunities so forecasting/planning is difficult. My best, current, guess is that 
I will reach SP at or about the time OH retires. I will then try and balance drawing as much as possible (which we will include passing excess to our children) with keeping enough to cope with longevity. If I increase my equity holding it will increase returns IF I accept higher income volatility.

Sorry I was getting confused because you mentioned things evening out over 10 years so I assumed you were trying to bridge 10 years till retirement.

So to recap, you are early 60s in age, your DB is already in payment and you just need to bridge 3.5 years till SP.

You have £520K in SIPPS and ISA plus 35K cash (or is the 35K included in the 520)?

You still didn't mention if your OH has full State Pension and/or any other retirement provision.  If you engaged an IFA I think they would stress the importance of planning your retirement as a couple rather than individually (unless you think the relationship is in trouble or suchlike), and also planning what if scenarios for whichever one of you would die first.

All that said, if your OP was proposing a 5% withdrawal just for a few years and then going down to less than 3%, you will probably be fine and you will more than likely end up with more money than you started.

As regards investment mix - this depends partly on your risk appetite, and your tolerance for volatility.  If I've understood your situation correctly, personally I would look to invest it long term in 80/20 equities bonds.  Maybe de-risk it for a few years in the early part and then step up again.  This is statistically likely to give you the best long term performance over several decades, based on historical analyses of the last 100+ years (always noting that past performance is no guarantee of future succes etc).  

However if you are high in equities you need to accept that there will be times when your balance takes a steep dive and it will then recover again.  If that type of situation will cause you to lose sleep at night, or even worse cause you to change your investment mix at market low and crystallise losses, you need to be more heavily in safer investments.  This will partly depend on your psychological attitude to risk and volatility.

£520k + £35k
OH has full SP + small DB + own investments.
We have an IFA but our own take on risk (OH is more conservative with equities) which is why I posed the question on my own figures. Whoever survives will have 75% of total income on basis of low drawdown rate.

I like your 80/20 split as I will always have the SP/DB as a good foundation and am happy to accept volatility of capital and income. If applying guardrails a 10% drop on income from investments equates to 5% overall

Triumph13

I'm in a similar position, although with a rather longer bridging gap as we retired at 52 and 54.  DB and SP will eventually cover 'basic spending' and we had a good amount in pensions too.  We too are very accepting of a variable income.

As others have suggested, it all becomes much simpler and easier to model if you adopt a 'pots' approach.  The funds to replace the DB and SP are ringfenced and a liability matching approach is used  - we're now down to 6 years from the first DB kicking in so this is now all cash.

Knowing that such a large portion of our income is fixed, gives us huge tolerance for variability in our drawdown income.  Our 'perpetuity pot' is almost 100% equities and we modelled a 3.5% SWR for this - although what we will actually do is draw between 3 and 3.5% of actual fund value to eliminate SORR.  As it happens, I've ended up doing a little part time work so hardly any actual drawing has happened yet  - putting us on what I jokingly call a 'rising income glidepath.'

And the answer to Linton's world cruise question is that we will always keep a year of drawdown income in cash, so we'd have 12 months notice of any need to make adjustments to spending.

Pat38493

DT2001 said:

£520k + £35k
OH has full SP + small DB + own investments.
We have an IFA but our own take on risk (OH is more conservative with equities) which is why I posed the question on my own figures. Whoever survives will have 75% of total income on basis of low drawdown rate.

I like your 80/20 split as I will always have the SP/DB as a good foundation and am happy to accept volatility of capital and income. If applying guardrails a 10% drop on income from investments equates to 5% overall

The IFA should be there to understand your risk attitude and what you want and then help you with that - if your IFA is doing something different to what you want to do you can always find another IFA who you get on better with (unless of course your expectations is completely unrealistic).

Also - from what I've read you need to apply a bit of common sense if trying to use guardrails or Guyton Klinger type approaches - there are situations when if you follow those rules to the letter you would make adjustments which probably don't make a lot of sense if you already have a significant % of guaranteed income in play.

DT2001

Linton said:

MK62 said:

You can get very bogged down researching into this, and there are quite a few viable looking drawdown strategies......but they all have the same thing in common......they are just educated guesses, based on a certain set of assumptions arrived at using historical data. In the end, this problem is unsolvable in any definitive way - simply too many unknown (and unknowable) variables (timeframe, returns and sequence of, inflation and sequence of etc) 

So you have to plan on an estimated probability basis, based on certain assumptions, which essentially means, be prepared to change those assumptions....

Yes, to plan and manage retirement you have to make a number of assumptions about the future.   These will of necessity  prove to be inaccurate, a problem which is not resolved by spending a long time researching the past. So it is prudent to be somewhat pessimistic.

 Given the assumptions it is straightforward to develop a spreadsheet model showing assets, investment returns, income, and expenditure. But then it is essential to monitor your model against reality annually and change the numbers appropriately. It may be necessary to change assumptions but I am still using the same ones I started with 20 years ago.

In my experience you dont need anything more complex than that.

I agree that forecasts will inevitably be inaccurate. It is, as you say, about monitoring and adjusting. My plan will inevitably involve the potential for bigger variations in income than some others would be happy with. I intend to have a years money in cash so that any travel  plans will not be affected by ongoing market turbulence.

If retirement dates tie in with a favourable run in the markets I’ll be able to follow an England Cricket tour in person and if not will watch at home.

In all honesty I think changing our mindset from accumulation to potential decumulation will be the hardest.

DT2001

Triumph13 said:

I'm in a similar position, although with a rather longer bridging gap as we retired at 52 and 54.  DB and SP will eventually cover 'basic spending' and we had a good amount in pensions too.  We too are very accepting of a variable income.

As others have suggested, it all becomes much simpler and easier to model if you adopt a 'pots' approach.  The funds to replace the DB and SP are ringfenced and a liability matching approach is used  - we're now down to 6 years from the first DB kicking in so this is now all cash.

Knowing that such a large portion of our income is fixed, gives us huge tolerance for variability in our drawdown income.  Our 'perpetuity pot' is almost 100% equities and we modelled a 3.5% SWR for this - although what we will actually do is draw between 3 and 3.5% of actual fund value to eliminate SORR.  As it happens, I've ended up doing a little part time work so hardly any actual drawing has happened yet  - putting us on what I jokingly call a 'rising income glidepath.'

And the answer to Linton's world cruise question is that we will always keep a year of drawdown income in cash, so we'd have 12 months notice of any need to make adjustments to spending.

Thank you for sharing this as you are now beyond the theoretical stage. I am unsure of how many years you are in to retirement however can you advise how much your drawings would have varied had you taken 3.5% each year?

I like your idea of pots and the high equity ratio. I will look into expected expenditure more closely and maybe have 3 categories (minimum, good and v good) and see if DB/SP + a pot of natural income IT’s can cover the first two and then be aggressive with the balance.

Pat38493

DT2001 said:

Triumph13 said:

I'm in a similar position, although with a rather longer bridging gap as we retired at 52 and 54.  DB and SP will eventually cover 'basic spending' and we had a good amount in pensions too.  We too are very accepting of a variable income.

As others have suggested, it all becomes much simpler and easier to model if you adopt a 'pots' approach.  The funds to replace the DB and SP are ringfenced and a liability matching approach is used  - we're now down to 6 years from the first DB kicking in so this is now all cash.

Knowing that such a large portion of our income is fixed, gives us huge tolerance for variability in our drawdown income.  Our 'perpetuity pot' is almost 100% equities and we modelled a 3.5% SWR for this - although what we will actually do is draw between 3 and 3.5% of actual fund value to eliminate SORR.  As it happens, I've ended up doing a little part time work so hardly any actual drawing has happened yet  - putting us on what I jokingly call a 'rising income glidepath.'

And the answer to Linton's world cruise question is that we will always keep a year of drawdown income in cash, so we'd have 12 months notice of any need to make adjustments to spending.

Thank you for sharing this as you are now beyond the theoretical stage. I am unsure of how many years you are in to retirement however can you advise how much your drawings would have varied had you taken 3.5% each year?

I like your idea of pots and the high equity ratio. I will look into expected expenditure more closely and maybe have 3 categories (minimum, good and v good) and see if DB/SP + a pot of natural income IT’s can cover the first two and then be aggressive with the balance.

One other thing that should be mentioned here is that the original study that came to the conclusion on 4% also assumed that you would start by drawing out 4% and then increase it by the rate of inflation each year, so it wasn't a flat % of the fund each year.  It you draw out exactly 3.5% of the remaining fund each year your withdrawals are going to be pretty variable and subject to a fair bit of volatility.

DT2001

Thanks to everyone who contributed.
I am happy having rechecked our expected expenditure that we can rely on our DB/SP income plus a pot of IT’s taking natural income to provide enough to do what we would like. The left over pot will be 100% equities and my only question to resolve is my withdrawal strategy for this. I am leaning towards a highly variable approach on the basis that I will flex my spend with returns and it will balance out over the first years of our retirement, with luck!