AI pension advice

Bostonerimus1

Did your IFA try to dissuade you from taking you 25% TFLS at age 56 and going part time? If not they aren't doing their job. Has your IFA now given you a plan for your retirement spending? AI answers can be biased by the questions you ask and the certainty of hallucinations makes them potentially very dangerous.

QrizB

OK, I've got a spare 10 minutes. Let's build a quick cFIREsim model.

Inputs:

• Retire in 2027
• End retirement in 2062 (age 92)
• Portfolio value £400k, invested 80/10/10 stocks/bonds/cash, fees 0.2%, growth of cash 0%
• Rebalance annually
• State pension £12500pa commencing in 2037.

The links that follow lead to the model outputs.

With an initial yearly spending of £30k pa (gross, so about £2200pm) increasing by CPI, you have a 52% success rate - a 48% chance or running out of money before you die. In the worst historical case, you're broke after 10 years and from 67 you've only got your State Pension.

At £25k pa, you're looking at 79% success and 21% failure. Worst case, broke after 14 years (age 71). This is a bit less than the "£2k per month" lowest income you'd accept in late retirement.

Dropping to £22k pa there's a 95% success rate, 5% failure, potentially running out after 22 years (age 79).

The question then becomes, how lucky do you feel? I might be happy with a 95% success rate, but then I've got children I can leave the surplus to in the 95% of outcomes where I don't die broke. You might be content with a higher risk. But only you can decide that.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82059246#Comment_82059246

I think you have to take into account, that one of an IFA's objective in this situation, is to make sure as far as possible that you do not run out of money.

What they do not want is you banging on their door when you are say 75, saying 'why has my money run out' and threatening to make official an complaint about bad advice etc.

So their advice will always be on the more cautious side than you will generally get from the internet/AI, which tends to be on the more optimistic side. Especially after a long, long bull run in the markets.

I just noticed that the income figures generated by AI for you are actually net/after tax, so even more of a stretch.

The bottom line is that these income figures are possibly achievable, but only at the expense of increasing the risk of running out of money at some point, probably by quite a significant amount.

Mozza001

https://forums.moneysavingexpert.com/discussion/comment/82059346#Comment_82059346

A few corrections.

Last night, mu h like the bored day at work AI plan was loosely.

2 years cash

2 years salary in bonds

The rest classic 60/40 split invested

It predicted 3.7% cash and 4.1% bonds

It predicted I'd survive a 4 year dip without selling equities.

I dont remember the finer details, I'll paste it when I'm back back home but it involved topping the cash up from gains from.pot 3 during good years and only selling when needed, ie pot 3 has a minimum 4 years to compound untouched.

50k emergency fund utilized in emergencies. I dropped my initial withdrawals to 2750 for 4 years which meant pot 3 had to average about 4%???

phlebas192

The rest in equities with various scenarios for topping the cash and bonds up as the years progress, i also added I have 50k for emergencies in bank and full state pension..AI advised me I could get 3k net a month
for 5 years, 2750 net a month for 5 years, then 2400 bet a month for 10 years, down to 2k net a month in mate 70s and still not run out of money providing the equity market averaged it's historical average and
called the plan "moderate" in risk, it also ran a crash scenario in years 2 which said I came out of it unscathed.

To put it bluntly, this is truly awful advice. It sort of works if you assume getting constant ~7% returns per year which is more or less in line with historic averages, but it totally ignores sequence of return risks. And it also completely ignores inflation since 7% + inflation is ridiculously optimistic for future returns.

4% is generally considered to be a somewhat optimistic 'safe' (ie you won't run out of cash) withdrawal rate for the UK. That amounts to £16,000 pa or £1,333 per month with £400k capital. Anything that is suggesting appreciably more than that should be raising so many red flags that you should completely disregard anything it 'advises' on any issue.

QrizB

It predicted 3.7% cash and 4.1% bonds

3.7% and 4.1% of what? Nominal growth? Real growth?

Cash is unlikely to beat inflation, hence my choice of 0% growth. Bonds can be thought of as part of your 40% bonds in your 60/40 split.

That might be where your AI is falling over; ignoring inflation.

Mozza001

https://forums.moneysavingexpert.com/discussion/comment/82059501#Comment_82059501

https://forums.moneysavingexpert.com/discussion/comment/82059501#Comment_82059501

Cash, earning 3.7 % would beat inflation 17 times over the last 20 years, barring the anomalies a couple of years ago and once more, only just in 2011

Mozza001

I'm not taking it as advice, I was asking opinions on how accurate it was.

Mozza001

Here is the summary letter for my IFA from AI

Lol

Here is your finalized, easy-to-read retirement blueprint. You can copy and paste the text below directly into an

email to send to your Independent Financial Adviser (IFA) to execute this plan on Transact.

Subject: Final Instructions for Retirement Drawdown Strategy – Transact Platform

Hi [Adviser Name],

I would like to finalize and implement the structural design of my £414,000 retirement pot within our Transact

wrapper.

My primary objective is to maximize my cash-in-hand spending power during my early and mid-retirement

years, while securing an upgraded lifestyle floor in my late 70s. I am intentionally prioritizing my lifetime

income over leaving a large inheritance. [1, 2]

Please configure my platform using the following parameters:

1. Initial Asset Allocation (3-Year Shield Buffer)

To eliminate sequence of returns risk while maximizing our starting compound growth engine, please split the

starting £414,000 capital into three distinct buckets:

Pot 1 (Cash Buffer - 24 Months Gross): Allocate £76,214 to the core Transact Client Cash Account

earning 3.7% to safely fund years 1 and 2.

Pot 2 (Bond Buffer - 12 Months Gross): Allocate £38,107 to short-duration fixed-income/gilts earning

4.7% to fund year 3.

Pot 3 (Core Growth Engine): Allocate the remaining £299,679 into a balanced multi-asset fund (60%

Equities / 40% Bonds) utilizing the Accumulation (Acc) share class to maximize compounding

efficiency.

2. Required Performance Target

Sustainability Hurdle Rate: To sustain this entire lifetime lifestyle plan and preserve a final safety

balance, Pot 3 requires a minimum net growth target of 2.3% per year above inflation (real return).

Please ensure the underlying portfolio is mapped to a balanced, low-cost index tracking structure (such

as Vanguard LifeStrategy 60% Accumulation) to safely clear this conservative benchmark.

3. Phased Net Income Schedule (Inflation-Protected)

All targets below represent net cash-in-hand in today's money. Please configure the gross platform

withdrawals via PAYE to automatically absorb the 20% UK basic rate tax on amounts exceeding my £12,570

annual Personal Allowance:Ages 57 to 61 (First 4 Years): £3,000 net per month (Requires approx. £3,463 gross/month). Funded by

draining Pots 1 and 2, with the remaining Phase 1 shortfall covered via systematic sell-downs of Pot 3.

Ages 61 to 65 (Next 4 Years): £2,500 net per month (Requires approx. £2,863 gross/month). Funded

via Pot 3 sell-downs.

Ages 65 to 67 (Next 2 Years): £2,400 net per month (Requires approx. £2,738 gross/month). Funded

via Pot 3 sell-downs.

4. State Pension Integration & Upgraded Late Lifestyle (Ages 67 to 78+)

At age 67, my full UK New State Pension will trigger, paying an inflation-linked £1,045 net per month via the

Triple Lock.

Ages 67 to 71: Maintain £2,400 net per month. Transact drawdown drops to cover only the £1,355 net

shortfall (approx. £1,693 gross/month).

Ages 71 to 78 (Upgraded Floor): Step down to a comfortable £2,000 net per month. Transact

drawdown drops to cover only a £955 net shortfall (approx. £1,193 gross/month).

Target Legacy Remaining (Age 78): This timeline models a remaining capital preservation baseline of

£35,100, which will bypass UK Inheritance Tax (IHT). Please ensure my Expression of Wish form is fully

updated on the platform to reflect my beneficiaries.

As I said above it's only boredom playing with AI, but it did pique my interest

Qyburn

Are you assuming your Pot 2 bonds are risk free, with guaranteed 4.7% return?