Early Reduction Factors vs using DC pot - maths question

leosayer

Safe withdrawal rates are pretty meaningless when your DC drawdowns will vary significantly once your DB and State pensions kick in.

I find it much more useful to create a cashflow model such as the one linked below.

https://www.youtube.com/watch?v=7Wkr5QtY-G8

You can then model different approaches to see which you feel more comfortable with. 

Whenever I do this for myself, taking DB early almost always ends up giving me the best financial outcome and it gives me better returns because I won't be drawing so much from my DC pot and therefore don't need to de-risk so much.

In the end, it's less about the maths and more about maximising your ability to comfortable enjoy what you have saved.

I got some god feedback when I posed a similar question last year:

https://forums.moneysavingexpert.com/discussion/6475643/how-to-decide-whether-to-start-db-early/p1

michaels

leosayer said:

Safe withdrawal rates are pretty meaningless when your DC drawdowns will vary significantly once your DB and State pensions kick in.

I find it much more useful to create a cashflow model such as the one linked below.

https://www.youtube.com/watch?v=7Wkr5QtY-G8

You can then model different approaches to see which you feel more comfortable with. 

Whenever I do this for myself, taking DB early almost always ends up giving me the best financial outcome and it gives me better returns because I won't be drawing so much from my DC pot and therefore don't need to de-risk so much.

In the end, it's less about the maths and more about maximising your ability to comfortable enjoy what you have saved.

I got some god feedback when I posed a similar question last year:

https://forums.moneysavingexpert.com/discussion/6475643/how-to-decide-whether-to-start-db-early/p1

Thanks, I am bridging State Pension (for self and partner) via a set aside of DC funds into an index lined gilts ladder so don't need to worry about modelling that component of my retirement income which is a fixed baseline.  Yes in theory a slightly higher return could be achieved by leaving these funds invested but then you are into the question of what short to medium term investment strategy should look like whereas by using a linkers ladder the remaining DC pot can be modelled using 'pure' SWR analysis.

(Having said that, some argue that with a guaranteed income floor in place you can use an SWR that is not 100% historically covered)