Taking UFPLS from which fund?

AltaNate

Maybe over thinking this but can’t get my head around it…

About to start taking pension by UFPLS. I have a several years of potential withdrawals in MMF purchased last year, remainder in multi asset fund.

Should I take the withdrawal:

• By selling units from MMF, then sell units of the multi asset fund to top up the MMF for future withdrawals as market is higher than last year
• Sell from multi asset fund while market is higher than last year, and retain the existing MMF allocation for future withdrawals
• It doesn’t make any difference
• Other approach

Thanks for any suggestions.

Albermarle

As you have 'several years' of assets in STMMF, it would probably be better not to deplete the multi asset fund, as this is where the growth will come from in future.

dunstonh

Which best meets your drawdown plan?

It does make a difference which you draw on but it neesd to be against your chosen drawdown plan strategy.

For example, are you using income units or acc units? If income, are you only selling down the difference? How many years of income does your short term bucket cover you for? what are you plans in negative periods?

NoMore

You say the MMF is for future withdrawals, does that not include the current withdrawal ?

Cobbler_tone

Totally depends how reliant you are on your pension fund, the longevity, your risk appetite and overall objectives. Too much in cash/low risk investments and it gets eroded. Too much in higher risk equities you 'win/lose' more. I've recently opened a drawdown bucket whilst working in my workplace scheme, just to access some tax free cash whilst continuing to contribute whilst working. I just mirrored my overall funds in both pots. It is excess to my core requirements and arguably could have higher risk funds with around 50% equities. I have a bit in the cash fund to protect that over the next couple of years but still targetting growth.

As an aside, I was really impressed with how fast and slick the L&G process was. 4 days from start to finish for the cash to arrive and both parts sit side by side on the portal.

gm0

You have many. Many. Options.

Preserve asset allocation as you draw (income smeared across and single fund options do this naturally

Bonds first strategies (MMF in the short bond category for these)

Fancy conditional bonds first strategies - "prime harvesting" etc.

Draw and top up non-growth - whether with guardrails on returns or not - most buffering strategies do this to apply selling bonds in equity slumps and avoid fire sales.

Gradually decline the non-growth buffer over the years - glide path strategies (with a rising equity %) for a decade or two and possibly a review mid 70s for addressing risk of extreme longevity. This as sequence risk in the early years passes by and SP arrives and GI increases and all that. But if healthy the risk of running off the end of the plan may be rising

There is no best. There is only what suits you and which is readily implemented on your platform. Simple is generally a better approach for many people. As taking actions is a cognitive load - taking a "risky" decision A simpler DIY plan that you believe is OK when you set it up. Is in general better than an over complex one.

If you want an education on access methods and back testing and stress testing comparisons.
Source and read Michael H McClung Living off your money. It's a beast of a book. Amazon. £40
TL;DR - you don't have to agree with all of it or his conclusions.

It provides confidence that while there are worse and better extraction methods (and a few internet provided ones are demonstrably worse - across a wide range of conditions). The differences are mostly manageable for the more popular approaches i.e. it matters less than you may worry it does. Most choices are therefore broad brush - equally safe (and unsafe) to use. There is a small amount of "extra income" which with care can be harvested without introducing significant extra risk. Or a small amount of risk reduction for the same income. As measured across various scenarios and stress tests.

All strategies carry a baseload of speculative risk (growth assets e.g. equity investment) and sequence of return risk.

And I am talking about <0.5% annual draw rate income differences attributable to mucking about with methods

The other key takeaway is that "making it up as you go along" is not a testable method nor in our noisy news and social environment a particularly sound plan. Intuitively appealing though it is.

Yes we should react - within a strategy to what happens. Many variable income approaches do exactly this. % withdrawl and GuytonKlinger etc.

A lot of this stuff operates close to the limit of significance and if you change the simulation or test conditions or assumptions even slightly the results change or differences largely disappear. One issue with more complex plans is whether you are actually doing what you think you are. (The tested version).

My takeaway is to relax and then choose something I can operate. And believe in. That is "good enough".

For me that's not demonstrably broken in past conditions - backtested or market simulation (montecarlo) on "realistic" (grounded in the past) statistical distributions. Which doesn't mean it won't fail in the future in novel conditions. It just means it hasn't already failed in conditions already encountered on an A vs B relative basis. B failed more so I chose A and hope that it continues to succeed. No guarantees.

And keep fund access worries in proportion.

Biggest risk is regulation. Next market returns and cycle (corrections/slumps etc - your cohort and its impact on the value of returns alongside capital. Then early sequence.

Access is way down the list.

Above platform and fund management company risks but relatively down in the weeds

Good luck figuring it out.

AltaNate

As always pertinent questions for information missing from original post.

For want of a different word … retired.

Withdrawal from personal pension starting this year and future years is to make best use of remaining of personal allowance, with other part coming from DB pension for me to bridge to State Pension (full). Plus dividends coming from Inc multi asset fund in ISA. Cash buffer for negative periods is in hand. Other half will be in similar position next year.

Within personal pension I have three years of drawdown funds in STMMF (including first withdrawal for this year) and remainder in multi asset fund Acc units. 

What I’m trying to get head around is whether to leave those STMMF in place for a future negative period, and take units from the other fund - a simple approach preferred. The primary goal to utilise personal allowance. 

mrklaw

you could take a total market approach. Treat the cash as bond-like so look at your total allocation as %

equities/bonds/cash or equities/‘bonds’ (with cash being a part of bonds).

lets say you’re 60/40 (doesn’t sound like it but just for illustration)

assuming at the end of the year you rebalance to that ratio, it doesn’t matter where you draw from. Draw from MMF even if stocks are up, you’ll then be maybe 65/35 so you sell some stocks to top up MMF. or sell stocks and then reblaance - if stocks were already up maybe you don’t need to move anything around.

ultimately if you’ve selected a certain asset allocation which is ‘right’ for you, and rebalance to it then the system will work it through in the end.

(I’d probably though use one year of MMF as ‘cashflow’ to keep a simple salary coming in and only consider the other two as drawable assets but thats just a personal thing)

dunstonh

What I’m trying to get head around is whether to leave those STMMF in place for a future negative period, and take units from the other fund - a simple approach preferred. The primary goal to utilise personal allowance. 

Alternatively, draw from the STMM and replenish it only when equity values are not in a period of decline. Three years of STMM covers 90 % of negative periods. Consider extending it by a few years or adopting a three‑bucket approach. Short, medium and long. Short being STMM, medium being something below your risk profile and not very volatile but offering a bit more potential than STMM and then have the long term just above your risk profile so the whole lot averages out it meet your tolerance. You can then cascade the money down from the medium or long term based on market conditions.

Two buckets are fine, but you need to think about your capacity for loss during generational negative periods that do not recover in 2-3 years but could still be down in 5-10 years. If you have external capacity to draw from then you have that covered. If you don't then you need to other extend the short term bucket or introduce a medium term bucket (but as said, if you do that, then your long term bucket can have a higher equity content than you would otherwise have chosen).

Personally, I like income units from all the buckets, as income naturally replenishes the short-term bucket and makes it last longer. However, it can work as well with acc units but just needs a bit of adjustment on the annual rebalance.

There are many correct ways to do this. Each with pros and cons.

mrklaw

I struggled with buckets as there weren’t clear, widely avaialble rules to use them. So you have these buckets and they sit on the windowsill looking pretty in the sun - then what?

without a clear rulebook it just feels like a crutch. which is fine but not necessarily helpful. When do you top them back up? how much ‘up’ in your stocks is enough? If you can find a set of rules and write them down - and be confident you’ll follow them then great.

a lot of the time a bucket strategy is just a different way to visualise a total return asset allocation. 60/40 stocks/bonds can also be 3 years cash, 7 years bonds, rest in stock (depending how the maths works out). So in that case why not follow that approach which has clear rules?

AltaNate

Thanks dunstonh and others - much appreciated. As mentioned in first post I was probably over thinking/complicating matters unnecessarily when goal is to keep it simple.

I’ll top up a little more into short term element to allow maximum use of personal allowance in the event of downturn of three years. Then use other resources to cover off any further years beyond initial three without the need to access pension. Downside here is failure to maximise personal allowance in those years but may have got within touching distance of SPA by then.