Flexible Retirement Planner Tool - Do my inputs look OK?

GenX0212

I'm doing some modelling using the Flexible Retirement Planner Tool The Flexible Retirement Planner | A financial planning tool powered by Monte Carlo Simulation

I have a starting pot of £620k and want to take early retirement from 56 with a drawdown £36k (after tax) each year until age 67 and then £16k a year from 67 onwards. The aim is not to run out of drawdown income before age 75. In addition to the £36k drawdown we also have DB pots and which when combined with State Pensions will provide a more or less guaranteed Moderate retirement from 67 onwards even if no drawdown pot left.

I'm only just learning how the tool works. I have set the Inflation Rate at 4% and used the inbuilt 'Moderate Risk' approach. Investment Tax Rate is set at 15% to account for 25% of the actual drawdown being tax-free income.
Do the inputs I have used look reasonable, are there any advanced tweaks I should use?

First projection drawing down £36k a year leaves a median projected pot of £318k at age 67 (with an upper 10% projection of £547k and a bottom 10% projection of £152k) :



Then using the £318k as the starting pot for age 67 and a drawdown rate of £16k per year:


and the lower projection using £152k as the starting pot for age 67 and a drawdown rate of £16k per year:


The worse-case scenario seems to support the pot lasting until the desired age 75 by when life will have slowed down somewhat.

Thoughts welcome, especially with regards to the input settings. Thanks.

michaels

Is an average real return of 4% reasonable?

You mention the 25% TFLS but have you also included the personal allowance into your calcs?

GenX0212

michaels said:

Is an average real return of 4% reasonable?

Monevator states:

• The UK equity average annualised return is 5.4% from 1900-2021.
• Global equity annualised returns are around 5.3% over the same period.

You mention the 25% TFLS but have you also included the personal allowance into your calcs?
Yes, the personal allowance will be fully used up by separate DB scheme income

But this is why I'm seeking input   

gm0

I would recommend zero for taxes and working with gross income.  Unless it has been radically updated. This was a US tool.  Different tax code.   All the setting standard deviation for returns, inflation and running random returns to test income variablitly - doesn't need the taxes to work.  As a test of available gross income. 

cobson

Rather than running different scenarios for different periods, you can just have one scenario and click on Additional Inputs and in the bottom part of the screen add entries for income streams such as state pension coming in at different times.

FIREmenow

Hi, thanks for this as I am now having a play with it!

I'm just learning, so might be reading this wrong, but the 'Investment tax rate', which you have entered as 15% seems to be the tax on the investments annually (capital gains), rather than in drawdown, so not relevant for anything pension wrapped?  Although I guess you could total the annual platform/transaction/fund fees and put them here if you wanted to factor them in? This from the help:

The Investment Tax Rate determines the rate at which each year’s portfolio gains (from taxable investments) will be taxed.  The simulation assumes that taxes on all gains in the taxable portfolio are paid in full each year and no taxes are deferred.  This assumption will be incorrect in the case of a low turnover portfolio or when a plan starts out with a significant amount of deferred gains in taxable accounts.  To compensate for these cases, it may be necessary to reclassify some percent of taxable investments as tax deferred investments or to run some experiments with different investment tax rates to see how sensitive the plan is to this input.  Also, taxes are “credited” to the portfolio (instead of debited) in years where the portfolio return is negative.  This is to prevent double taxing gains as the portfolio value fluctuates.

I think to get the income tax at drawdown correct, you would put the 25% tax free portion of your DC in the tax free portfolio value box, the other 75% in the tax deferred portfolio value box (tax is deferred until you take it out), and then set the income tax to 20% (as you are using personal allowance on DB pensions).  

It might come to the same thing with the way you've set it up, but if you have years in between your current age and retirement age in different scenarios you run, I think it will deduct that 15% investment tax annually whether you are retired or not? Happy to be corrected as I'm just tinkering with it and just looking at what should be put in which box at the surface level.

westv

FRP seems a little archaic in that you have to download it rather than being web based.

cobson

westv said:

FRP seems a little archaic in that you have to download it rather than being web based.

You can run it either locally or as a web app.

cobson

FIREmenow said:

Hi, thanks for this as I am now having a play with it!

I'm just learning, so might be reading this wrong, but the 'Investment tax rate', which you have entered as 15% seems to be the tax on the investments annually (capital gains), rather than in drawdown, so not relevant for anything pension wrapped?  Although I guess you could total the annual platform/transaction/fund fees and put them here if you wanted to factor them in? This from the help:

The Investment Tax Rate determines the rate at which each year’s portfolio gains (from taxable investments) will be taxed.  The simulation assumes that taxes on all gains in the taxable portfolio are paid in full each year and no taxes are deferred.  This assumption will be incorrect in the case of a low turnover portfolio or when a plan starts out with a significant amount of deferred gains in taxable accounts.  To compensate for these cases, it may be necessary to reclassify some percent of taxable investments as tax deferred investments or to run some experiments with different investment tax rates to see how sensitive the plan is to this input.  Also, taxes are “credited” to the portfolio (instead of debited) in years where the portfolio return is negative.  This is to prevent double taxing gains as the portfolio value fluctuates.

I think to get the income tax at drawdown correct, you would put the 25% tax free portion of your DC in the tax free portfolio value box, the other 75% in the tax deferred portfolio value box (tax is deferred until you take it out), and then set the income tax to 20% (as you are using personal allowance on DB pensions).  

It might come to the same thing with the way you've set it up, but if you have years in between your current age and retirement age in different scenarios you run, I think it will deduct that 15% investment tax annually whether you are retired or not? Happy to be corrected as I'm just tinkering with it and just looking at what should be put in which box at the surface level.

All of the tax calculations are based on US tax code, so best zeroed out and ignored for UK users.

westv

cobson said:

westv said:

FRP seems a little archaic in that you have to download it rather than being web based.

You can run it either locally or as a web app.

You still need to download a file to do that.

FIREmenow

cobson said:

All of the tax calculations are based on US tax code, so best zeroed out and ignored for UK users.

Thanks cobson, do you know how specifically it uses US tax code assumptions?  I've changed the minimum pension access age in the settings from 60 to 57 (in my case), and turned off the required minimum distributions RMDs).  It recommends this for calculations outside of the US.  

Does it build in a US version of the personal allowance? 

Many thanks