4% Drawdown If Preservation Of The Capital Is Not A Concern ?

NoMore

Bostonerimus1 yeah you've won the game. The more guaranteed income you have that covers essentials and more, the less drawdown strategies are a worry.

It's a pity Annuities have been so bad lately (accepting their recent rally) or I would think more people should be looking to them rather than 100% drawdown.

Bostonerimus1

NoMore said:

Bostonerimus1 yeah you've won the game. The more guaranteed income you have that covers essentials and more, the less drawdown strategies are a worry.

It's a pity Annuities have been so bad lately (accepting their recent rally) or I would think more people should be looking to them rather than 100% drawdown.

I think there is too much emphasis placed on pot sizes and withdrawal strategies at the expense of the other side of the equation which is spending. The less you spend the more you can save to grow your pot and because you are frugal you won't need to generate a lot of income. Long term spending control and investing attacks the problem of retirement income generation from both directions. Of course if everyone did this you'd probably see the economy shrink as consumer spending crashed and there is a sizable section of the population who don't have the luxury of choosing to be frugal, their low incomes forces it on them.

I expect annuities to see a bit of a revival just because higher interest rates make them more attractive.

jamesd

Bostonerimus1 said:

I think there is too much emphasis placed on pot sizes and withdrawal strategies at the expense of the other side of the equation which is spending. The less you spend the more you can save to grow your pot and because you are frugal you won't need to generate a lot of income. Long term spending control and investing attacks the problem of retirement income generation from both directions. Of course if everyone did this you'd probably see the economy shrink as consumer spending crashed and there is a sizable section of the population who don't have the luxury of choosing to be frugal, their low incomes forces it on them..

Just for a bit of balance on that, then, I was used to modest living, didn't greatly increase spending as my pay went up and did my accumulating over about ten years at or above 60% of income being invested.

Most accumulation was during the post 2008 largely bull market conditions. Lucky happenstance, just as the blip of quite high inflation near the start of drawdown was unlucky happenstance.

Retired for approaching six years and the same until state pension age my spending remains modest, though with more entertainment and travel spend.

jamesd

NoMore said:

It's a pity Annuities have been so bad lately (accepting their recent rally) or I would think more people should be looking to them rather than 100% drawdown.

I think it might be particularly interesting for those who transferred out of DB during the years when that was a wonderful opportunity.

For some, they might now be able to spend 10% of their pot to buy an RPI annuity paying 20% of their DB but with uncapped inflation increases instead of the mode 5% cap in the private sector.

GazzaBloom

Stubod said:

NoMore said:

I know you've done this for simplicity but neither growth or inflation are linear and as such this plan will in no way match real life after 25 years. I think everybody starts with a simple model like this, but in reality it is pretty worthless as a plan. As mentioned previously SORR could very quickly kill such a simple model.

This is why its such a hard problem to 'solve' (in reality its not solvable), nobody can predict the future (inflation, growth, death)

Exactly this, and that is why I use this simple model, because it is impossible to predict real inflation and returns over any length of time. BUT, you have to start somewhere with something, otherwise how else do you do it?? 

And as I said, you review it every year, if your "pot" has gone down more than expected, then 4% the following year may mean you reduce your annual "take", equally if it goes up, you can increase it....

I use Timeline, my own spreadsheet and FiCalc to test my plans. Software modelling such as Timeline uses historical data on asset class returns and inflation to back test a plan against. You can use several of the drawdown methods such as fixed percentage, inflation adjusted and guardrails etc. While still no predictor of the future it does stress test against the worst we've seen in the past 100 years or so. Starting retirement in the late 1960s was a challenging period for a retiree drawing down from an invested portfolio. It offers a success percentage based on how many of the historical periods your plan would survive, so, at least you get some degree of confidence that your plan is in the ballpark for success.

Qyburn

kuratowski said:

I've lost track of the number of different withdrawal strategies discussed on this thought-provoking thread.  

In hindsight may e we should have created a separate thread for the Age Method (c) that Itsme01x and I were suggesting/considering/discussing.

RogerPensionGuy

NoMore saidNoMore said:

Bostonerimus1 yeah you've won the game. The more guaranteed income you have that covers essentials and more, the less drawdown strategies are a worry.

It's a pity Annuities have been so bad lately (accepting their recent rally) or I would think more people should be looking to them rather than 100% drawdown.

:

Bostonerimus1 yeah you've won the game. The more guaranteed income you have that covers essentials and more, the less drawdown strategies are a worry.

It's a pity Annuities have been so bad lately (accepting their recent rally) or I would think more people should be looking to them rather than 100% drawdown.

I think this post is just perfect. 

Rather than all the worrying over hopefully many many years and worrying personal decision making maybe getting a bit fluffy as years & life events slide by.

If the numbers allow and not preoccupied with SIPP value preservation being maintained to help others after passing.

Just use all the gold-plated stuff, like DB, SP, ISAs, Annuities and others to provide the numbers required with a sensible safety margin over money needs.

Then any funds in a SIPP can be just used at will whenever a person feels appropriate, if markets roar, maybe vent lots of coins, if markets tank and sit there for long periods, just leave the SIPP alone. 

In the above method, even if a person vented SIPP empty, no real issues as the gold-plated stuff will cover everything with a safety margin that was set previously, I would pick 20% margin and again, if that margin not used, just plonk in ISAs, similar or maybe give away.

NoMore

I'm not sure why you have ISA's in the gold plated category, they're essentially the same as a dc pension except different tax advantages, they still suffer from the same problems as dc pensions wrt drawdown strategies