SWR vs percentage of total pot?

k6chris

Thanks for all the info on a UK "SWR" which for my planning purposes I am going with 3.5% as I have a small DB pension and will have full SP in 6 years time.  Someone suggested a flat percentage withdrawal each year of the total SIPP at a given time, so for example 5% of whatever the balance is on April 6th each year.  Does anyone do this in anger and what are the pros and cons please?

Thanks (again!)

QrizB

k6chris said:

Thanks for all the info on a UK "SWR" which for my planning purposes I am going with 3.5% as I have a small DB pension and will have full SP in 6 years time.  Someone suggested a flat percentage withdrawal each year of the total SIPP at a given time, so for example 5% of whatever the balance is on April 6th each year.  Does anyone do this in anger and what are the pros and cons please?

@OldScientist had a post earlier this year where they looked at how a fixed % withdrawal would work out under various scenarios. A careful search of their posts should find it?

Albermarle

This Vanguard article is exactly on that subject and in relatively simple terms.
However it is US based so SWR is called 'Dollar plus inflation strategy' .
It is compared to a 'percentage of portfolio' strategy and a 'fixed dollar withdrawal strategy'
Finally they suggest a hybrid 'Dynamic Withdrawal strategy'
Something similar to the Guyton - Klinger strategy that used to be discussed on this forum, but less so since Jamesd disappeared. 

A guide to retirement withdrawal strategies | Vanguard

k6chris

QrizB said:

k6chris said:

Thanks for all the info on a UK "SWR" which for my planning purposes I am going with 3.5% as I have a small DB pension and will have full SP in 6 years time.  Someone suggested a flat percentage withdrawal each year of the total SIPP at a given time, so for example 5% of whatever the balance is on April 6th each year.  Does anyone do this in anger and what are the pros and cons please?

@OldScientist had a post earlier this year where they looked at how a fixed % withdrawal would work out under various scenarios. A careful search of their posts should find it?

Thanks, I saw the 2021 thread but just curious if anyone was using the fixed rate method in anger, vs SWR?

MK62

k6chris said:

Thanks for all the info on a UK "SWR" which for my planning purposes I am going with 3.5% as I have a small DB pension and will have full SP in 6 years time.  Someone suggested a flat percentage withdrawal each year of the total SIPP at a given time, so for example 5% of whatever the balance is on April 6th each year.  Does anyone do this in anger and what are the pros and cons please?

Thanks (again!)

That might give you a reducing income over the years.....which isn't usually the desired goal.

The usual SWR numbers (ie, around 3.5% for 30 years) will put you in the ballpark, but there's no magic strategy to push that higher.......you can of course, and you might be OK, but the higher you push it the greater the risk of plan failure - only you can decide the level of that risk you are comfortable with........either that or accept income variability, but again only you can decide the level of variability you are comfortable with.....

Triumph13

I certainly intended to use it in anger when I retired in 2018, but I could afford to as we have a couple of little DB schemes, plus SPs kicking in between 2029 and 2033 and cash set aside to bridge the gap, plus a little extra cash to smooth income fluctuations.  We also had slack in our budget to cope with income fluctuations.

90% stocks, 3.5% fixed withdrawal.  Dip into cash buffer to smooth half of any income drop. Build up cash buffer if income is more than expected.  The advantages for me were the elimination of SORR and the fact that I want to pass on my portfolio to my kids eventually, so the fact that my stash was likely to grow over time was a feature not a bug.

What has actually happened is rather different.  I'm still consulting one day a week, which I hadn't planned for.  Add in a big underspend in the covid years and I have never come anywhere near drawing 3.5%, so my portfolio hass grown significantly.  My cash buffer is also much fatter than expected.  

Assuming the world economy survives the current lunatics in charge of the US, my long term plan is probably still going to be based on 3.5% fixed, but with a larger focus on IHT avoidance - eg we will probably gift the 30% of our portfolio that's in ISAs to the kids once my SP starts.

OldScientist

I use a gently rising percentage of portfolio approach similar to amortisation based withdrawals, ABW, see https://www.bogleheads.org/wiki/Amortization_based_withdrawal and variable percentage withdrawals, VPW - see https://www.bogleheads.org/wiki/Variable_percentage_withdrawal with slightly different percentages (e.g., I started at 3.76%, 3.79% in year 2, 3.83% in year 3, etc.). If I was to plan again, I would probably have just started at 3.5% and added 0.1% or 0.2% to it each year (i.e., 3.5%, 3.6%, 3.7% etc.). The rising percentage ensures more of the portfolio is spent down over the retirement period than with a fixed percentage of portfolio.

The amount withdrawn from the portfolio varies from year to year, but since it forms a relatively small amount of our overall income (about 15%) with the remaining part provided by a DB pension this variability is not critical to us.

k6chris

OldScientist said:

I use a gently rising percentage of portfolio approach similar to amortisation based withdrawals, ABW, see https://www.bogleheads.org/wiki/Amortization_based_withdrawal and variable percentage withdrawals, VPW - see https://www.bogleheads.org/wiki/Variable_percentage_withdrawal with slightly different percentages (e.g., I started at 3.76%, 3.79% in year 2, 3.83% in year 3, etc.). If I was to plan again, I would probably have just started at 3.5% and added 0.1% or 0.2% to it each year (i.e., 3.5%, 3.6%, 3.7% etc.). The rising percentage ensures more of the portfolio is spent down over the retirement period than with a fixed percentage of portfolio.

The amount withdrawn from the portfolio varies from year to year, but since it forms a relatively small amount of our overall income (about 15%) with the remaining part provided by a DB pension this variability is not critical to us.

Oh I like this idea.  3.5% of pot rising at 0.1% each year.  Time to start modelling!  Thanks