Are dividends not a good approach when deciding on investing?

Linton

[Deleted User] said:

Linton said:

Some people solve this conundrum through a highly structured strategy like Guyton Klinger.  Personally after many yars experience of retirement I see fundamental flaws in the whole basis of the calculation of SWR.  Furthermore I do not understand exactly how with GK one decreases expenditure fast enough in the bad times to have a useful effect or increases expenditure beyond the point at which one's lifestyle warrants it.

So the approach I follow is to have a large buffer large enbough to outlast almost any period of falling markets whilst maintaining a steady standard of living matching that prior to retirement. 

You are lucky but some people don't have a big enough buffer.  I personally think you need some guidelines to work out whether you have a buffer.  But very much agree that they are flawed.  For example, if some retired last year with a £100,000 pot, drew a "safe" 4% (so £4,000 per year) and inflation is 5% then this year they can draw £4,200 even if their pot has now fallen to £70,000.  So why can't someone retiring today draw £4,200 from their £70,000 pension pot and also be "safe"?

Yes, lack of money may force you to accept risks you would rather not unless you reduce your planned expenditure.  It is best that you understand this beforehand rather  than be shocked at some point in the future when it is too late to do anything about it.

masonic

SWR only seeks to be optimal in its envisioned worst case scenario, but that's the best scenario to be optimal as it is the one with the smallest margin for error (running out of money). In all more likely scenarios the difference is relative amounts of underspending, which as has been pointed out above, can be corrected for en route. People will also have different views on whether having differing amounts of money in one's estate at the point of death is a good or bad thing.

Linton

masonic said:

SWR only seeks to be optimal in its envisioned worst case scenario, but that's the best scenario to be optimal as it is the one with the smallest margin for error (running out of money). In all more likely scenarios the difference is relative amounts of underspending, which as has been pointed out above, can be corrected for en route. People will also have different views on whether having differing amounts of money in one's estate at the point of death is a good or bad thing.

There are two separate discussion points.  One is whether SWR is sufficiently accurate to provide a useful envisaged worst case on which to base one's retirement. The other is the strategy to be adopted given one accepts  SWRs, Guyton-Klinger, regular recalculating of SWRs or something different.

Personally I would question the first but wont say more at this point. Even if it was 100% vaccurate, and one's pver-riding objective was not to run out of money then surely an annuity would now be a better option with both less risk and a higher income, at least for a significant period during which many people expect to need a higher income.

However objectives may well be more nuanced than that.  There is unlikely to be a single over-riding objective.  Hence determining the optimal retirement strategy becomes a more complex exercise based on personal circumstances.

masonic

Linton said:

masonic said:

SWR only seeks to be optimal in its envisioned worst case scenario, but that's the best scenario to be optimal as it is the one with the smallest margin for error (running out of money). In all more likely scenarios the difference is relative amounts of underspending, which as has been pointed out above, can be corrected for en route. People will also have different views on whether having differing amounts of money in one's estate at the point of death is a good or bad thing.

There are two separate discussion points.  One is whether SWR is sufficiently accurate to provide a useful envisaged worst case on which to base one's retirement. The other is the strategy to be adopted given one accepts  SWRs, Guyton-Klinger, regular recalculating of SWRs or something different.
Personally I would question the first but wont say more at this point. Even if it was 100% vaccurate, and one's pver-riding objective was not to run out of money then surely an annuity would now be a better option with both less risk and a higher income, at least for a significant period during which many people expect to need a higher income.
However objectives may well be more nuanced than that.  There is unlikely to be a single over-riding objective.  Hence determining the optimal retirement strategy becomes a more complex exercise based on personal circumstances.

The annuity point is interesting, as rates are much improved vs the past, but for a 55 year old, the currently available inflation-linked 3.1% of starting capital per year provides for a lower spend rate than SWR, GK, etc, whereas retiring at 65 or 70, an equivalent guaranteed income could be bought for a similar amount of capital. I have no idea what one would be able get on the fixed-term annuity market to bridge the gap between 'early' retirement and a state pension age in one's 70s, which could span an appreciable length of time.

MK62

Linton said:

masonic said:

SWR only seeks to be optimal in its envisioned worst case scenario, but that's the best scenario to be optimal as it is the one with the smallest margin for error (running out of money). In all more likely scenarios the difference is relative amounts of underspending, which as has been pointed out above, can be corrected for en route. People will also have different views on whether having differing amounts of money in one's estate at the point of death is a good or bad thing.

There are two separate discussion points.  One is whether SWR is sufficiently accurate to provide a useful envisaged worst case on which to base one's retirement. The other is the strategy to be adopted given one accepts  SWRs, Guyton-Klinger, regular recalculating of SWRs or something different.

Personally I would question the first but wont say more at this point. Even if it was 100% vaccurate, and one's pver-riding objective was not to run out of money then surely an annuity would now be a better option with both less risk and a higher income, at least for a significant period during which many people expect to need a higher income.

However objectives may well be more nuanced than that.  There is unlikely to be a single over-riding objective.  Hence determining the optimal retirement strategy becomes a more complex exercise based on personal circumstances.

My view is that SWR should be viewed as a starting withdrawal rate, and so, given a 95% historical success rate, I don't believe it's a bad method of putting you in the ballpark of a reasonable starting amount.......but don't view it as set in stone, as regular re-evaluation of your position will always be necessary with drawdown, no matter which drawdown strategy you choose to follow. Methods of variation, such as GK etc, just build that re-evaluation into the plan at the start, but you can put your own method in at any time.

Linton

MK62 said:

Linton said:

masonic said:

SWR only seeks to be optimal in its envisioned worst case scenario, but that's the best scenario to be optimal as it is the one with the smallest margin for error (running out of money). In all more likely scenarios the difference is relative amounts of underspending, which as has been pointed out above, can be corrected for en route. People will also have different views on whether having differing amounts of money in one's estate at the point of death is a good or bad thing.

There are two separate discussion points.  One is whether SWR is sufficiently accurate to provide a useful envisaged worst case on which to base one's retirement. The other is the strategy to be adopted given one accepts  SWRs, Guyton-Klinger, regular recalculating of SWRs or something different.

Personally I would question the first but wont say more at this point. Even if it was 100% vaccurate, and one's pver-riding objective was not to run out of money then surely an annuity would now be a better option with both less risk and a higher income, at least for a significant period during which many people expect to need a higher income.

However objectives may well be more nuanced than that.  There is unlikely to be a single over-riding objective.  Hence determining the optimal retirement strategy becomes a more complex exercise based on personal circumstances.

My view is that SWR should be viewed as a starting withdrawal rate, and so, given a 95% historical success rate, I don't believe it's a bad method of putting you in the ballpark of a reasonable starting amount.......but don't view it as set in stone, as regular re-evaluation of your position will always be necessary with drawdown, no matter which drawdown strategy you choose to follow. Methods of variation, such as GK etc, just build that re-evaluation into the plan at the start, but you can put your own method in at any time.

Yes agreed, but dont take the 95% success rate too seriously.  SWR is a useful sanity check amngst others but no matter what the % is there are no guarantees and it cannot be relied on.

MK62

There are no guarantees with drawdown full stop.......but you have to start drawdown with a withdrawal amount of some level or other - starting with one which has had a 95% historical success rate isn't unreasonable in my view.......but as I said above, don't view it as set in stone for subsequent years......even picking a level which has had 100% historical success is no guarantee it'll continue to have the same success going forward.......

Kaizen917

I wish that accumulating funds have a clear way of showing the amounts of earned dividents, even when being reinvested. There is just something encouraging to seeing them generate.

Other than that, not a whole lot of sense aiming purely for divident focused funds.

wmb194

Kaizen917 said:

I wish that accumulating funds have a clear way of showing the amounts of earned dividents, even when being reinvested. There is just something encouraging to seeing them generate.

Other than that, not a whole lot of sense aiming purely for divident focused funds.

*dividend. There is if you want an income.

ColdIron

Kaizen917 said:

I wish that accumulating funds have a clear way of showing the amounts of earned dividents, even when being reinvested. There is just something encouraging to seeing them generate.

If in a GIA they are reported in your annual Consolidated Tax Certificate as they are need for tax reporting, no need in and ISA or SIPP though