Retirement calculations

tacpot12

The "4% rule" that is the basis for suggestions that 3.5% is a safe withdrawal rate for the UK came from the USA where investment returns have typically been higher. However, the USA has a very different state pension structure to the UK, and IMHO anyone who has a full state pension has a safe withdrawal rate that is better than 4%. 

Having modelled my pension with the same techniques that were used to discover the "4%" rule, my SWR for my DC pension is well over 5.5% because I have a full state pension and other pension provisions (2 small DB pensions, and a rental property). I retired 5 years ago, and my pension is worth more than when I retired and I have had five years of income from it.

OldScientist

tacpot12 said:

The "4% rule" that is the basis for suggestions that 3.5% is a safe withdrawal rate for the UK came from the USA where investment returns have typically been higher. However, the USA has a very different state pension structure to the UK, and IMHO anyone who has a full state pension has a safe withdrawal rate that is better than 4%. 

Having modelled my pension with the same techniques that were used to discover the "4%" rule, my SWR for my DC pension is well over 5.5% because I have a full state pension and other pension provisions (2 small DB pensions, and a rental property). I retired 5 years ago, and my pension is worth more than when I retired and I have had five years of income from it.

It could just be me, but it is not clear from your post whether you saying that if you retire before SP age, then you can take more than 3.5% (or whatever) because you will then take less after SP age.

For example, take the (rather extreme) case where a couple retire at 60 and have a required expenditure of 2*SP (i.e., about £24k). In the first 7 years before SP they need to find £24k per year from their portfolio (which can then be a far greater percentage than 3.5%), while subsequently they need to find zero.

One other question - is your pension worth more in real or nominal terms (bearing in mind we have had a total of about 24% inflation over the last 5 years)?

Somebody

I'm just a simple observer but simple arithmetic suggests £1.2m with £30k p.a. withdrawal will last 40 years, even assuming no investment growth?  You will have 2 x SP on top at 67.

flopsy1973

Thanks for your comments so there is no reason to panic then? I thought annuities were a thing of the past so would I be better off that way with a guaranteed income ?

westv

westv said:

If its the one you get with RetireReady then it is very limited.
Just a total expected fund and an income figure.

The option you get when logged in is very limited however the option available without logging in is superior.

Moonwolf

flopsy1973 said:

Thanks for your comments so there is no reason to panic then? I thought annuities were a thing of the past so would I be better off that way with a guaranteed income ?

Annuities lost popularity as they looked poor value.  For many people, they felt that they could draw down at a similar rate to an annuity and have pot left forever, including handing over to children.

Annuities became a bit more popular in the recent financial crisis as the rates went up.  However as things stabilise the rates are falling again.

In most scenarios, drawing down gives better results when annuity rates are low.  There is though a small risk that bad market conditions could reduce your pot to painfully low levels as shares can go up and down, although with a pot of £1.2 million and a requirement of £30k a year, that is probably near zero.  With an annuity income is pretty much guaranteed bar major economic collapse.   

However, as I said earlier, you don't have to buy an annuity with all your pot. As someone without surviving children I'm personally inclined to setting a lower required income level and trying to ensure it. In my case it is pretty much covered by DB pensions, but even so, if I have enough pot left when I reach 70 I'll probably split it in two and buy an annuity with half.  In your case I would probably draw down to between 67 and 70 then get an annuity with a bit of my pot and drawdown flexibly the rest, as required, this is a very personal decision though and I think I am probably an outlier on here.

Linton

flopsy1973 said:

Thanks for your comments so there is no reason to panic then? I thought annuities were a thing of the past so would I be better off that way with a guaranteed income ?

One sensible compromise is to ensure that all the expenditure you regard as absolutely essential in the long term is covered by inflation linked SP, DB pensions and annuities (annuities are guaranteed income).  Anything beyond that can reasonably be covered by drawdown.

flopsy1973

Are the figures everyone has quoted above just for my pot or do they include the state pensions when they will be paid 

michaels

What income would you want the longer lived partner to have following the first death?

Given State pension makes up over two thirds of the 30k joint income, on the first death the survivor would only have 18.5k.

Having said that I plan to retire at 55 taking a DB that will pay 13k taken early and then expect a 900k pot plus state pension plus the dB (with100% spousal) to provide a 60k pa gross income only reduced by 1 state pension on the first death.

flopsy1973

Not thought about that I was hoping there would be enough in the pot for the remaining one. It's 1.2  now so hopefully more in 10 yes.