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    • KathyJM
    • By KathyJM 28th Oct 19, 7:06 PM
    • 3Posts
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    KathyJM
    Calculate retirement income?
    • #1
    • 28th Oct 19, 7:06 PM
    Calculate retirement income? 28th Oct 19 at 7:06 PM
    For the purpose of (roughly) calculating whether I can retire soon, what percentage yield should I use to calculate likely income from my pension pot?
Page 1
    • Brilley
    • By Brilley 28th Oct 19, 7:12 PM
    • 165 Posts
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    Brilley
    • #2
    • 28th Oct 19, 7:12 PM
    • #2
    • 28th Oct 19, 7:12 PM
    ....not a clue, but don't forget to factor in inflation....and I don't know what that is likely to be either. For my planning I assume a worst case of 1.5% "interest" and 4% inflation...but that's just me....
    • SonOf
    • By SonOf 28th Oct 19, 7:16 PM
    • 1,923 Posts
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    SonOf
    • #3
    • 28th Oct 19, 7:16 PM
    • #3
    • 28th Oct 19, 7:16 PM
    Around 3% if you are in your 50s and 3.5% in your 60s.
    • KathyJM
    • By KathyJM 28th Oct 19, 7:32 PM
    • 3 Posts
    • 0 Thanks
    KathyJM
    • #4
    • 28th Oct 19, 7:32 PM
    • #4
    • 28th Oct 19, 7:32 PM
    Around 3% if you are in your 50s and 3.5% in your 60s.
    Originally posted by SonOf
    Really? Is that all? Most of the figures I've seen are at least 4%, most are 6-8%
    • tacpot12
    • By tacpot12 28th Oct 19, 9:01 PM
    • 3,000 Posts
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    tacpot12
    • #5
    • 28th Oct 19, 9:01 PM
    • #5
    • 28th Oct 19, 9:01 PM
    It makes a big difference whether you have a good state pension entitlement and any other income streams in place. I'm 55 and withdrawing about 5.5% pa from my SIPP, but I have a good state pension entitlement, two small defined benefit pensions and two rental properties.
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always check official information sources before relying on my posts.
    • Mordko
    • By Mordko 28th Oct 19, 9:08 PM
    • 727 Posts
    • 543 Thanks
    Mordko
    • #6
    • 28th Oct 19, 9:08 PM
    • #6
    • 28th Oct 19, 9:08 PM
    Are you asking about yield (dividends) or safe withdrawal rate (how much you can withdraw without running out of money before death)?

    If it’s the latter, there are a few methods. 4% has been used and it’s not a bad guesstimate for a 65 year old with a balanced portfolio, assuming future resembles the past. Here is a good method: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal
    Last edited by Mordko; 28-10-2019 at 9:12 PM.
    • SonOf
    • By SonOf 28th Oct 19, 9:17 PM
    • 1,923 Posts
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    SonOf
    • #7
    • 28th Oct 19, 9:17 PM
    • #7
    • 28th Oct 19, 9:17 PM
    Really? Is that all? Most of the figures I've seen are at least 4%, most are 6-8%
    Originally posted by KathyJM
    Are you referring to annuities or enhanced annuities(6-8% possible in poor health and in your 70s) but not in your mid 60s for the last 15 years.

    3% to 3.5% is the actuarial recommended figure for the UK to allow for inflation.

    .
    • Albermarle
    • By Albermarle 29th Oct 19, 1:24 PM
    • 1,879 Posts
    • 1,200 Thanks
    Albermarle
    • #8
    • 29th Oct 19, 1:24 PM
    • #8
    • 29th Oct 19, 1:24 PM
    Really? Is that all? Most of the figures I've seen are at least 4%, most are 6-8%
    The 3%/3.5% figures mentioned are a Safe Withdrawal Rate . What that means is that there is a very good chance you will not run out of money even if your live well into your Nineties, and most likely you will have a good % left of the original pot to leave as an inheritance.
    If you take 4% then you will most likely be OK but not quite as safe as at 3% .
    If you take 5% or more then it becomes significantly less safe.
    Having a separate pot of cash you can use instead of your pension during major market dips , also helps with 'sequence of returns risk'
    • mordac
    • By mordac 19th Nov 19, 2:24 PM
    • 5 Posts
    • 1 Thanks
    mordac
    • #9
    • 19th Nov 19, 2:24 PM
    • #9
    • 19th Nov 19, 2:24 PM
    Really? Is that all? Most of the figures I've seen are at least 4%, most are 6-8%
    Originally posted by KathyJM

    The customary figure for constant drawdown has been 4% of the initial pot, assuming 30 year retirement. But that was in the US in the 1990s. The more appropriate figure for the UK now is 3%.


    BUT that is for a regular, constant drawdown sums. If you are prepared to take less during periods when the markets are not doing so well, You can start drawing down at a higher level and continue for longer. There are various formulas around for how much to adjust the drawdown amount in each year depending on the performance of your pot.
    • gm0
    • By gm0 19th Nov 19, 3:37 PM
    • 55 Posts
    • 50 Thanks
    gm0
    There is some academic research on this and a fairly active blog scene looking at SWR. US biased - and a community looking at Financial Independence Retire Early (FIRE) mechanics i.e very long retirements.

    If you are a normal early retiree looking at 40 years (55-95) and want near certainty that you won't run out then (disappointingly) an index linked 3% - 3.5% seems to be the range based on back testing. Forum FAQ links, EarlyRetirmentNow and Monevator are all reasonable places to start reading to understand SWR (and the many "intuitive" things that don't actually work).

    There are tools to model this out (backtesting) for different portfolios - firesim, firecalc. There are ways to try and "squeeze bit more" by managing the portfolio and the extraction in the ways that the known market data and MonteCarlo (random walk analysis) suggests are best for the "known" risk envelope. Nobody can help you with the unknown one.

    Sequence of Return is the killer in the early years. If you insist on dealing with the edge cases in the historic record - a U shape correction and a slow recovery scenario (early on in retirement) then you have to set SWR to draw less to survive selling through the (long) dip. Cash and bond buffers and drawing less temporarily can help a bit but are not a panacea). A lot of popular media and advice blog coverage "sets the scenario and assumes you don't change your behaviour in the light of circumstances" which is a valid (and simplifying assumption) but you may be able to improve on it.

    The decision on "what is acceptable" i.e. this would have worked 100% of the time - or 99% or 98% etc. is a very personal one based on your other circumstances. For some people a 2% chance of portfolio failure is intolerable (either emotionally or in terms of financial capacity (assets)).

    Getting to grips with this quickly educates you on the need to optimise fees consistent with the kind of investment strategy you want to pursue. IFA managed active or DIY passive.
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