My rough plan and take on the 4% withdrawl rule

Mick70

Simon11 said:

Based on the numbers above, I am struggling to understand why you are not retiring now!  My bags would have been packed at 50   

£55k is definitely a luxury retirement budget but money doesn't buy you good health, so take advantage now to avoid more stress for yourself and your wife continuing to do a manual based role.

cant access DC pot until 55 anyway 

thanks for all replies by way folks, i was just curious if i was on right track regarding drawdown and why I would use 4% to start off with then reduce somewhat when get SP

michaels

I would model it as working out how much you need it replace the state pension until it becomes payable and then deducting this from your non DB savings pot total and then adding on 3% of the remaining pot as additional annual income.

EG For state pension replacement, suppose you need to make up 11 years from 56 to 67 and your wife 12; that is a total of 23 years at £10,600pa = £243,800 (this could be invested in an index linked bond ladder to ensure that the amount keeps up with inflation)

Subtract £244k from the £500k pot give £256k.  £256k times 3% = £7.7k per annum

So if you were to retire at 56 and 55 with a 30k db and a 500k pot you could take £30k DB+ £21.2k (drawdown then state pension) + £7.7k (3% SWR) = £58.9k for the rest of your life.

(this assumes you will both get a full state pension)

Gary1984

Mick70 said:

Simon11 said:

Based on the numbers above, I am struggling to understand why you are not retiring now!  My bags would have been packed at 50   

£55k is definitely a luxury retirement budget but money doesn't buy you good health, so take advantage now to avoid more stress for yourself and your wife continuing to do a manual based role.

cant access DC pot until 55 anyway 

thanks for all replies by way folks, i was just curious if i was on right track regarding drawdown and why I would use 4% to start off with then reduce somewhat when get SP

But you're not that far off 55. How much of the £500k is outside the DC pension? Use those resources first.

Linton

michaels said:

I would model it as working out how much you need it replace the state pension until it becomes payable and then deducting this from your non DB savings pot total and then adding on 3% of the remaining pot as additional annual income.

EG For state pension replacement, suppose you need to make up 11 years from 56 to 67 and your wife 12; that is a total of 23 years at £10,600pa = £243,800 (this could be invested in an index linked bond ladder to ensure that the amount keeps up with inflation)

Subtract £244k from the £500k pot give £256k.  £256k times 3% = £7.7k per annum

So if you were to retire at 56 and 55 with a 30k db and a 500k pot you could take £30k DB+ £21.2k (drawdown then state pension) + £7.7k (3% SWR) = £58.9k for the rest of your life.

(this assumes you will both get a full state pension)

Yes.

The whole point of a x% rtule is to ensure that the income lasts your lifetime.  If you are only going to need it for a fixed period better to model it exactly, drawing down what you need rather than a somewhat arbitrary %.  The income does not need to be sustainable in the long term.

af1963

Also depends how cautious you are, and whether you want to have anything as a possible inheritance.

Maybe plan for a "realistic worst case scenario", something like a 2008 style crash which halves your DC/SIPP funds right at the start. 

Even in that scenario, looks like you'd still have just about enough to spend 25k per year for 10 years, but with not much left over.  (Or if you preferred, if that happened, lower your spending a bit ?)

Gary1984

There's also the option of a fixed term annuity until state pension age.

ader42

Can you not put more into a SIPP each year until you are 55 to avoid paying the 40% income tax? 

Bostonerimus1

OP, have you thought about the spending side of the equation? You have good DB pension and SP to come and if you can reduce spending you will take a lot of pressure off your drawdown. I'm retired and living off DB pension and rental income and so I don't need to do drawdown and can leave things invested rather aggressively without worry. Can you get yourself to a situation where drawdown is irrelevant by budgeting and if necessary using interest and dividends rather than capital or capital gains?

JSL_2

Is 4% the recommended starting point for withdrawal at age 65/66 or can it be slightly higher ?

Linton

JSL_2 said:

Is 4% the recommended starting point for withdrawal at age 65/66 or can it be slightly higher ?

Don’t see 4% as “recommended”.  It is a rule of thumb generated some time ago from analysing US data. I think the data used assumed a 60/40 portfolio with a constant inflation linked drawdown over 30 years corresponding to a prudent assumption of a lifetime from age 65. The UK is different and possibly now is different to the time when the 4% figure was proposed.

An equivalent figure for the UK now has been said to be 3%-3.5%. But it is still a rule of thumb and in my view best used as a sanity check when you have determined your drawdown approach by other means. It is certainly not a guarantee of safety and should not be cast in stone and applied blindly ( to mix metaphors).