Dynamic spending rules for retirement drawdown pros/cons and alternatives?

DT2001

Mick70 said:

HNoMore said:

Mick70 said:

I'm still hoping to retire in 3-4 year time at age 56-57, And I still plan on using the 4% withdrawl rule.
However half of my pension (or slight more) will be DB (rising rpi but capped 5%pa).
At this present time I have a DB of £29.8kpa,  and with my wife have combined mixture of DC/savings of £480k - 4% of that would give us £19.2kpa and increase say 2% pa .   Then come State pension ages we could then half that withdrawl rate.
That is my plan anyway , feel free to say if sounds rubbish as I'm not as clued up as many posters on here mind.

Mick

In a previous thread of yours, you were asked at least 3 times, what do you actually need/desire for income in retirement. You never answered. This is the number one thing to determine, you may find your already at a point where you could retire with a very comfortable living standard. 

Im still struggling to work it out, I did a rough spreadsheet and it came out at £49k pa (todays values/costs) , but that was Net not Gross .   Struggling to work out how i would calculate mine to give Net amounts

Pat38493 has given you a good link. I’d just do a ‘back of a fag packet’ calculation. £25k joint personal allowances The everything thereafter at 20%. It gives you a worst case scenario as money from SIPPs could be at 15% assuming 25% tax free in each payment or amounts could be tax free from savings or the 25% tax free lump sum.

I’d look at the situation at SPA - I have had to make some assumptions however hopefully the process might help - so at 68 you would have 2 x SP but DB  circa £50k. Tax due of £5k, £45k net. Shortfall £4K net. To allow a margin (for more spending pre 75/80 and reduced real terms DB) let us suggest needing £10k gross. At 4% SWR (remember you are 68 so looking at 20/30 year span) you need £250k. If you take that £250k from the £480k it leaves you £230k to fund the  gap to SPA. This assumes no growth above inflation on the £250k and flat line spending so has extra margin for error.

So going in 3 years assuming no more money saved or any growth above inflation seems very reasonable IMO.

GazzaBloom

I've decided, I am going to retire at the end of 2024. Going to work will now feel easier as the days count down. If markets go exceptionally well rest of this year into next I may go earlier, I have to give 12 weeks notice.

I might even do a squirrel nuts thread of my own once I cross over to become a pensioner!

Vespaboy

Well done GazaBloom. I am also setting my target end of 24

Bostonerimus1

Well done Gazza. I'd advise you to go into retirement with a good amount of cash in the bank, at least a year's spending, as it gives you flexibility.

For those still in the planning stage, if you want to reduce your retirement dependence on withdrawals from volatile investments like stocks and bonds you need to do two things: reduce your need for retirement income and increase your sources of index linked income not directly dependent on the markets. Those sources might include annuities, state pension, DB pensions, rental income, or ladders of saving accounts or individual bonds held to maturity.

Back in the 1990s, when I first started saving, I took the opportunity to make voluntary Class II NI contributions in addition to paying into the US Social Security system to diversify my retirement income sources. I also bought a two family home for the rental income. After running various withdrawal models in the early 2000s I decided to change jobs to one with a good DB pension that I could take before age 67 so that I could retire early. 

I reduced my need for income by making extra mortgage payments so that I had the loan paid off a few years before I retired at age 52. I funded my retirement from savings and the rental income until age 55 when I took my DB pension and now that and the rental income more than cover my needs.

I’ve been lucky in some ways as I’ve always had well paid jobs, I don’t have any children (maybe that’s bad luck, but it does save on expenses) and I’ve had some rare opportunities, but I have planned well and been frugal and now I have the luxury of not having to worry about money or the stock markets.

sofm

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

GazzaBloom

sofm said:

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

There is and will always be something on the horizon, some storm clouds causing concern, I worry about what I can control, I lose no sleep over speculative unknowns, Timeline and FiCalc back test my plan against history which is littered with all sorts of issues, I'm sure each time one happened or was about to happen it had people questioning themselves. The markets will crash many times over my retirement I'm sure, it may even crash next year or next month but if you are the worrying sort then you would never retire on a invested DC pension heavy in the equities you need for long term growth.

market swings up and down must be viewed with equanimity.

Bostonerimus1

sofm said:

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

You should run the scenarios for a range of inflations and generally stress test your plan. You will never be able to forecast downturns or the effects of political events so I would stop worrying about them. One thing in your control is your spending, so have a detailed budget and a plan to reduce spending if necessary...heck maybe reduce it now if you haven't already with inflation as high as it is. Debt is also expensive now so get rid of that.
Another thing you can do is look at how your SP and annuities fit into your plan.

Linton

sofm said:

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

You will always have potential issues, new ones will turn up as soon as the old ones do or don’t happen.  If you keep worrying about them you will never retire.

My answer is to have a 5 plus year buffer in cash and lower risk investments. So whatever happens in the short term has no immediate affect on your ability to pay the bills.

bownyboy

sofm said:

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

Well I 'retired' last April just as the war in Ukraine was kicking off and promptly watched our combined investments loose value over the year.

It was hard but what I learnt was our asset allocation was about right at 80% equities, 10% bonds and 10% cash.  

Come the end of October the long hot summer was over and I got offered a contract for 4 months which I decided to take as a) it was cold and wet and b) the income from this would provide another years worth of expenses.

So fast forward to March this year and I'm 'retired' again and the investments are now the highest they've been and we hopefully don't need to touch them until April next year. 

So I guess my point is don't sweat it too much. If you've run the numbers just go for it. James Shack has a great video on this topic here: https://www.youtube.com/watch?v=OuDCDp9Z9Y4

GazzaBloom

bownyboy said:

sofm said:

Q for those planning to retire next year...  have you factored in/have any concerns about known issues between now and then?  I'm thinking of a) war in Ukraine, b) UK election, c) inflation.  Are you trusting the maths and modelling takes into account perceived risks, or just that the end of the CY2024 is long enough off for a, b and c to have completed/stabilised.

Yes these are things you cannot control - maybe I shouldn't worry unduly!

Well I 'retired' last April just as the war in Ukraine was kicking off and promptly watched our combined investments loose value over the year.

It was hard but what I learnt was our asset allocation was about right at 80% equities, 10% bonds and 10% cash.  

Come the end of October the long hot summer was over and I got offered a contract for 4 months which I decided to take as a) it was cold and wet and b) the income from this would provide another years worth of expenses.

So fast forward to March this year and I'm 'retired' again and the investments are now the highest they've been and we hopefully don't need to touch them until April next year. 

So I guess my point is don't sweat it too much. If you've run the numbers just go for it. James Shack has a great video on this topic here: https://www.youtube.com/watch?v=OuDCDp9Z9Y4

Sounds good, I love an 80/20 asset allocation, it feels right to me as well. I'm going to be 85/15 at the point of planned retirement but can see me moving to 80/20 or 75/25 over time.