Is the 4% rule still applicable today?

Scarum

There's also the 25x guide where you need 25 times total savings (all DC pensions and other savings) of annual expenses as a rough guide.

I've decided to use this '25x' guide along with the SIPP safe withdrawal rate, as you would expect they are well correlated.  I am well above 25x (28x) and a bit under 3.5% SWR.

Bostonerimus1

Scarum said:

There's also the 25x guide where you need 25 times total savings (all DC pensions and other savings) of annual expenses as a rough guide.

I've decided to use this '25x' guide along with the SIPP safe withdrawal rate, as you would expect they are well correlated.  I am well above 25x (28x) and a bit under 3.5% SWR.

Hmmm....25x spending in investable assets vs 4% drawdown? I say potato etc.

Smudgeismydog

MallyGirl said:

Hence the shift in my mindset to drawdown all I can up to the 20% threshold, putting excess into an ISA. At least then our daughter will only have to pay the 40% IHT and not also get hit paying income tax on any that is left.

That’s what I’ve decided to do as well, although I intend to spend/gift more than I’d originally thought. I honestly don’t see why I’d try to preserve my SIPP value. 

kempiejon

I think I can see a link between 4 and 25 and 100 too.
I set my first year of spending at £20k so needed a pot of £500k.
The following year my £20k was increased by 2% for cost of living = £20,400 but whoa my pot is worth £535,000 and the sum don't work anymore. Drat I'll just take what I need and keep an eye on the pot.

ukdw

I say greater than 5% pretty feasible, especially if some of the funds are used to buy a 5%+ RPI annuity on top of State Pension for essential spending, then probably 5-6% drawdown on remaining funds (which can be switched to higher growth due to Annuity) for discretionary spending - which could be dialled down in bad markets / will likely to dial down by themselves anyway for most people as they get older.

ali_bear

I thought the idea of a SWR was you can keep withdrawing that amount every year without regard to the ups and downs of markets, no? 

artyboy

GDB2222 said:

artyboy said:

GDB2222 said:

What is the effective tax rate on any money left in the drawdown fund after the pension owner and spouse have died - assuming the IHT nil rate band has been used up?

40% IHT to start with, PLUS the marginal tax rate of whoever it is left to, so potentially as much as a further 45% on top, which comes out at a worst case scenario of 67%

Except that it could be even worse than that, in that once your estate exceeds £2m, your RNRB is reduced by £1 for every £2 of extra estate value (in the same way as personal allowance if you have income above £100k).

Just brings another dimension to the need for effective estate planning!

One solution is to buy an annuity, I suppose.  That’s not very attractive at younger ages, but it would make sense later on. 

I really don't buy that. Invested the right way, you could draw down at a similar rate to what an annuity would pay, but still have the capital at the end of it - yes it would be heavily taxed, but something is still better than nothing.

Annuities are for people that want income
security, I really don't see it as being an effective IHT planning tool.

Stubod

ali_bear said:

I thought the idea of a SWR was you can keep withdrawing that amount every year without regard to the ups and downs of markets, no? 

..yes, that's my understanding...

Linton

ali_bear said:

I thought the idea of a SWR was you can keep withdrawing that amount every year without regard to the ups and downs of markets, no? 

Yes but...
1) Of necessity the range of economic circumstances under which SWR has been tested is very limited and many of those tests were in times when the global economy was very different to now.
2) The results will be very dependent on the timing and severity of crashes.  This is unknown.  We dont even know that the last 100-150 years are in some sense average or typical rather an outlier of all possible outcomes. 
3) It assumes very simple asset allocation and withdrawal strategies.

Hence SWR may be useful as a sanity check that you are not being grossly over or under ambitious in your plans. But it is not, I think, something to be followed blindly in the bellief that it is "Safe". In my view there are better ways of managing your money in drawdown that take greater account of the fact that the future is unknown.

Johnnyboy11

Bostonerimus1 said:

MallyGirl said:

Hence the shift in my mindset to drawdown all I can up to the 20% threshold, putting excess into an ISA. At least then our daughter will only have to pay the 40% IHT and not also get hit paying income tax on any that is left.

This is also my strategy. I face a couple of issues being in the USA and thinking about a return to the UK. The UK has a higher top rate of tax and the US mandates a certain level of withdrawals from DC accounts at age 75. So I'm paying US tax on DC withdrawals at a marginal rate of 22% now so I can get it into a "ROTH" DC retirement account which is tax free in the USA and the UK. However, right now the US IHT on my estate would be 0% and if I move back to the UK it would be 40% on most of it. To avoid some of that 40% tax hit I'm giving to family members before I move to the UK to make use of the generous gift rules in the US.

If you haven't already done so, do have a look at the new IHT rules that replaced UK Domicile in April this year. Assets held overseas are free from UK IHT until you become UK Long-term Resident (UK Resident for 10 or more of the last 20 UK tax years).