£780k pot how much would you drawdown each year
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The 0.3% lower rate for the UK is based on UK investments, not US. These are the sources: 1, 2 I link to though of course there are others.Thrugelmir wrote: »The basis of the 4% rule is. Which many people use as the basis of their investment thinking.
But please don't use the 4% rule today as an actual safe rate. It's not horrible for general planning but there are more modern, better alternatives.0 -
That's a significant risk and the worst case for that risk isn't a normal big drop and recovery, it's low returns sustained for a decade or more.Thrugelmir wrote: »The risk posed is that depletion of capital in the early years is never recovered.
Guyton found that varying the investment mixture greatly reduced the sequence of returns risk, with that and dynamic withdrawal rules increasing the safe withdrawal rate by at least 1%. That'd be 25% higher income compared to the 4% rule, or greatly increased safety.
So which are you suggesting? That I'm being too optimistic because of my time in a bull market or that I'm using long term historic rather than bull market results? Not sure how I can be simultaneously doing both.Thrugelmir wrote: »Long term returns as you often quote. Only average 5% above inflation with income reinvested. You do appear to be falling into "This time is different syndrome". Born out of experiencing a benign bull market.
Of course neither is actually the case. Safe withdrawal rate calculations are based on the worst historic sequences. That's why the SWR is below the long term historic average performance if using level, inflation-adjusted income, with 1936 the worst UK starting year. As explained by Kitces in What Returns Are Safe Withdrawal Rates REALLY Based Upon?
I don't think that this time is different. That's why I've been writing about the implications of today's cyclically adjusted price/earnings ratio (lower expected returns for 10-15 years) and in the first post suggest that people use Guyton's approach to reduce that effect. And that's what I've been doing myself, cutting equity percentage and increasing fixed interest percentage. As Okusanya observes for UK retirees "the client is able to increase the withdrawal rate to 5.5% of their initial portfolio (based on 65% equity allocation), without running out of money over a 40-year retirement period" if they do no more than switching to the Guyton-Klinger decision rules.0 -
Just one more if okay and thanks for all the replies. Certainly helped others as well it seems.
My fund has grown to £792k and as already said we must be in a very decent period of growth. Of the 792, 71 is post retirement (crystallised) and 721 pre retirement (uncrystallised).
I have already taken £26.5k tax free and £11.5k taxable leaving the rest in post retirement crystallised.
Is it best to crystallise the whole lot which I assume is 25% of the pre retirement (even though that figure has grown and different to the one when I withdrew the above.
Means I have just under £200k tax free, but what do I do with it?
Or, If I just take the amount I need out of the pre retirement each year, I assume as long as it grows will mean extra tax free money as I go on.
Thanks0 -
I'm no expert but I would take out as much as I could taxable without breaching the 40% limit. Then on top of that as much tax free as I could find a good home for. 20k in an isa max possible in OH pension + their isa etc.
S&S outside a wrapper are always possible but will potentially complicate your tax return - the CGT limit is quite generous though so unless you have other unbundled funds or ganes you probably won't breach it - use OH's allowance as well.
You could look at second hand VCT's for your unbundled funds. These don't come with the income tax benefits (on the input side) but do remove issues with the income coming out being taxable and CGT. Some of the old established funds are relatively safe big dividend payers. My understanding is that newer + non second hand ones are generally rather high risk (the rules have changed) and I don't think you need to go there personally.
This might be the money saving forum but you should also remember to use some to go on some nice holidays and enjoy your retirement
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I'm no expert but I would take out as much as I could taxable without breaching the 40% limit. Then on top of that as much tax free as I could find a good home for. 20k in an isa max possible in OH pension + their isa etc.
S&S outside a wrapper are always possible but will potentially complicate your tax return - the CGT limit is quite generous though so unless you have other unbundled funds or ganes you probably won't breach it - use OH's allowance as well.
You could look at second hand VCT's for your unbundled funds. These don't come with the income tax benefits (on the input side) but do remove issues with the income coming out being taxable and CGT. Some of the old established funds are relatively safe big dividend payers. My understanding is that newer + non second hand ones are generally rather high risk (the rules have changed) and I don't think you need to go there personally.
This might be the money saving forum but you should also remember to use some to go on some nice holidays and enjoy your retirement
I agree! I'm no economist either, just someone trying to plan how to eek out a moderately good retirement out of a better than average, though not as large as on this forum, pension pot. I see reference to what appears (to me) to be (no doubt sound and proven) economics theory however the layman in me still can't see how just drawing the growth (and no more than*) out of a fund each year can be detrimental. E.g. year 7 growth is 12% (take it all within 20% tax, add to slush fund), year 8 is 8% (take it all within 20% tax, add to slush fund), year 9 is 0% (draw from slush fund at reduced though comfortable rate), year 10 is -5% (draw from slush fund at reduced though comfortable rate) etc until fund recovers to the value you predicted n years down stream. My largest pot is a fund I started in 1989 and paid into until 1996 when I moved into an occupational DC scheme. No capital added for 21.5 years and yet it is now into six figures with an average growth, through the rise of the late 90's and the double falls of the naughties, by 10%. I know that past performance is no indicator of future performance and provision MUST be made for downturns however 10% must be a safe benchmark for future planning?
* I may take out more than the growth rate on occasions as a) I don't want to retire post 60 (tomorrow is never promised) and b) having more cash in the early years of retirement, when you will have more energy and hopefully better health, is preferable to having a huge pot going into your 80's when health and energy are on an increasingly on the decline.
Out of interest, do these economic models assume preservation of pot size or can capital erosion be factored in too?0 -
pensionpawn wrote: »I see reference to what appears (to me) to be (no doubt sound and proven) economics theory however the layman in me still can't see how just drawing the growth (and no more than*) out of a fund each year can be detrimental. E.g. year 7 growth is 12% (take it all within 20% tax, add to slush fund), year 8 is 8% (take it all within 20% tax, add to slush fund), year 9 is 0% (draw from slush fund at reduced though comfortable rate), year 10 is -5% (draw from slush fund at reduced though comfortable rate) etc until fund recovers to the value you predicted n years down stream.
What if the your funds fall by 25% or 50% for a few years? and inflation is factored into the "safe withdrawal" rates too. Everyone who retires needs a detailed budget so they understand their spending. If you are going to front load that spending it's even more necessary so you know how to reduce spending in down years or when you've had to sell after a few down years to top up your cash /short term bond cushion.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Some problemspensionpawn wrote: »....... the layman in me still can't see how just drawing the growth (and no more than*) out of a fund each year can be detrimental. E.g. year 7 growth is 12% (take it all within 20% tax, add to slush fund), year 8 is 8% (take it all within 20% tax, add to slush fund), year 9 is 0% (draw from slush fund at reduced though comfortable rate), year 10 is -5% (draw from slush fund at reduced though comfortable rate) etc until fund recovers to the value you predicted n years down stream.
1) You need to reinvest sufficient in your pot each year to cover inflation. Over the past 21years inflation has averaged about 2%.
2) How much money do you put in your slush fund? The greater the % drawdown the more cash you need in your slush fund. The more cash in your slush fund the less you have in investments to generate the return.
3) You need to replenish your slush fund fairly quickly - the next major fall could happen pretty soon after the previous one.
4) In your example the worst case is -5%. -40% might be a a better number to use if you want 10% average returns.
What makes you think that the past 21.5 years were particularly problematic? They seem to have been unusually benign to me apart from two rather short difficult periods. Assuming 10% is the average annual return over 21.5 years is rather risky since you only have 1 period of 21.5 years to look at. Even if it were a reasonable guess it would imply that 50% of the periods of 21.5 years would be worse. Is a 50% chance good enough?
My largest pot is a fund I started in 1989 and paid into until 1996 when I moved into an occupational DC scheme. No capital added for 21.5 years and yet it is now into six figures with an average growth, through the rise of the late 90's and the double falls of the naughties, by 10%. I know that past performance is no indicator of future performance and provision MUST be made for downturns however 10% must be a safe benchmark for future planning?
The actual annual return would vary considerably - presumably taking 10% income, half the time you would be using your slush fund to some extent.
You can assume whatever your like. The question is what happens if your assumptions are wrong? How wrong do they have to be before you are in the doo-doo? In my retirement planning 12 years ago I assumed 1% return above inflation. Despite the great crash that turned out to be very pessimistic for which I am now very grateful.
The problem with relying on capital erosion is that you need to know when you are going to die and then start eroding capital some years previously. Drawing down is like paying a mortgage in reverse - it mainly operates in a steady state mode until relatively close to the end of the term. Once you start seriously eroding your capital your returns fall rapidly..........
Out of interest, do these economic models assume preservation of pot size or can capital erosion be factored in too?
I suggest you have a play with http:\\www.cfiresim.com. It bases its results on data over the past 100 years and more and gives a far more realistic view of how drawdown can work out.0 -
The front of the baby boomer wave is 72 this year. As the wave swells there will magically become available a Dignitas-like option, letting the old and ill, the old and fed up, the old and weary, the old and lonely, the old and demented, shuffle off this mortal coil before they are sans everything. Maybe.Free the dunston one next time too.0
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and half of the value of my home will become available to foot the bill
How does half of the value of your home become available? (apologies if I missed something in the thread).
You cannot usually sell half a house and you don't have any knowledge of what state your other half will be in for example they may have installed a stair lift, hoist and walk-in bath and not want or be in a great posistion to move away from family and friends.0 -
The front of the baby boomer wave is 72 this year. As the wave swells there will magically become available a Dignitas-like option, letting the old and ill, the old and fed up, the old and weary, the old and lonely, the old and demented, shuffle off this mortal coil before they are sans everything. Maybe.
The ultimate drawdown?0
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