Drawdown percentage - not needed to have funds left

dunstonh

. I hear 4 ish percent is a safe ish limit - however I think thats so you have funds left? 

No. For Uk its 3% if in your 50s and 3.5% in your 60s.   And it assumes potentially running out of money

I do get that thank you - however if I wanted it to last 20 years (i know we don't know how it will perform) what % would you suggest for it to be nil in 20 yrs?

on that basis, you would put it in cash and set it to value divided by 20 to give you a flat annual withdrawal.   It would be daft to do as 20 years is unlikely to be enough and you haven't factored inflation into it but it fits what you have asked.

Marcon

Why do you need to spread it evenly? You could have a rare old time in your 20th year if you've got loads left - or spent it in dire and miserable poverty if the pot suddenly drops in value.

WYSPECIAL

Gaz012012 said:

I do get that thank you - however if I wanted it to last 20 years (i know we don't know how it will perform) what % would you suggest for it to be nil in 20 yrs?

If you want to be guaranteed that it will be nil after 20 years take it as cash amounts rather than percentages. First year take £25k to leave £475k. Second year take £25k +or - any growth to leave £450k.
Or buy an annuity that pays you for 20 years.

OldScientist

Gaz012012 said:

Hello.

I hope to have £500k pension pot at retirement and current plan is drawdown. I hear 4 ish percent is a safe ish limit - however I think thats so you have funds left? 
I have earnt my pot and I am comfortable using it all - say I lived 20 years after taking me pension - what amount per year would you suggest?
Appreciate its crystal ball time and no one knows how the investment will perform.
Even if no growth (or loss) that woulf be £25k a year.

Here are a few options (more detailed explanations below):

1) Constant nominal income by building a nominal gilt ladder
2) Constant real income by building an inflation linked gilt ladder
3) Drawdown over 20 years from a portfolio go equities and bonds (inflation linked income).
4) Annuities

A bit more information:

1) The current 10 year gilt yield is roughly 4.2%, so a 20 year gilt ladder could be built that pays out about £7.2k per year per £100k you use to construct the ladder (in libreoffice I've used the function =PMT(4.2%,20,-100,0,1) ). This is nominal income and may decrease in real value over the next 20 years depending on inflation.

2) The current real yield on a 10 year inflation linked gilt is about 0.6%, so a 20 year ladder could be built that pays out about £5.3k per year per £100k you use to construct the ladder. This is inflation adjusted so will retain real value, and will (probably) increase in nominal terms over the next 20 years.

3) According to the calculator at https://www.2020financial.co.uk/pension-drawdown-calculator/ (this calculator is based on being in the UK), a 20 year drawdown period with a portfolio consisting of 60% equities and 40% bonds would, historically, have supported an inflation linked rate of £3.7k per £100k invested. This is for UK stocks and bonds, so a more diverse international portfolio would have, historically, done a bit better (so 4.0% might not be a bad estimate for the shorter period - this is largely because UK inflation has been worse than US inflation). The drawdown here is inflation adjusted so will retain real value.

4) Lifetime annuity rates at 65 years old (see https://www.hl.co.uk/retirement/annuities/best-buy-rates ) for single life annuities are about £7.5k and £4.9k per £100k premium for level and inflation linked, respectively. The former is a bit better than you can get for the nominal 20 year ladder, while the inflation linked amount is a bit lower - but in each case the income will last a lifetime (rather than just 20 years). For an annuity with death benefits (for a couple) or a guarantee period (for legacy/spouse), the payout will be less (you can get quotes from https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities , but an IFA may be able to get better rates).

As others have said, depending on your age, you may live a lot longer than 20 years - in options 1 and 2 the pot will have been spent down, in option 3 the pot might have been spent down (or possibly before 20 years had elapsed), in case 4 you have lifetime income. If you have other sources of inflation adjusted income (state pension/DB pension/rental property), then this may (or may not) matter to you.

Albermarle

german_keeper said:

Doesn't really affect me but I do find these type of threads quite interesting. Reading different opinions about how to drawdown a large DC pot, SWR and all that. But this is another one where after several replies nobody has mentioned State Pension; that seems to happen a lot. Surely that is crucial in making these sort of decisions, take a larger % pre SP and a smaller % post SP. Or am I missing something? 

No you are not missing anything. In real life clearly the start of the SP paying out makes a significant difference to most people,  and is mentioned in several threads about personal plans, rather than SWR theory.

One point you have to watch is that by taking a bigger % earlier, and a smaller one later, the effect on the pot longevity will be a lot more than if it was the other way around. Especially if investment performance was also poor in the early years.

In this case the OP asked a specific direct question, not a general view of their overall retirement plans.