Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • GSP
    • By GSP 29th Dec 17, 10:26 AM
    • 189Posts
    • 45Thanks
    GSP
    780k pot how much would you drawdown each year
    • #1
    • 29th Dec 17, 10:26 AM
    780k pot how much would you drawdown each year 29th Dec 17 at 10:26 AM
    Hi,
    I am four months into drawdown fund of 780k. The wife will be eligible for a fund of 150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA.

    She has given up work and we intend to have some good holidays though keeping an eye on the fund.
    I have been reading posts regarding safe withdrawal rates etc. Some posters are cautious, but some say enjoy what you can.

    I will be having reviews with my IFA but with differing opinions out there be interesting to know how much people would withdraw each year. Excluding shopping, all regular household bills are less than 500 a month, no loans or mortgage.

    Thanks
Page 6
    • GSP
    • By GSP 7th Jan 18, 11:26 AM
    • 189 Posts
    • 45 Thanks
    GSP
    Thanks jamesd and thank you also Gerbert.

    Although I haven't made any contributions since April 2916, does it make any difference that I transferred out of my db pension last Summer and started to drawdown.
    Thanks.
    • westv
    • By westv 7th Jan 18, 12:17 PM
    • 4,546 Posts
    • 2,138 Thanks
    westv
    You do. The problem with predictions is that they are about the future. I know that at current US equity valuations there's at least a 25% chance a year of a big drop. The problem is that doesn't say when, it's just a probability. There also has to be some sort of triggering event.
    Originally posted by jamesd
    If we were to have a 40%+ drop before 2020 would 3 big crashes within 20 years have been unusual?
  • jamesd
    Although I haven't made any contributions since April 2916, does it make any difference that I transferred out of my db pension last Summer and started to drawdown.
    Originally posted by GSP
    No, that's a permitted transfer and something that can also be done with the protection in place. And since the protection is backdated to start from 6 April 2016 that's actually how it would be viewed anyway.
  • jamesd
    If we were to have a 40%+ drop before 2020 would 3 big crashes within 20 years have been unusual?
    Originally posted by westv
    Not particularly. When writing about volatility I'll sometimes write about one or two 40%+ drops a decade and two or three 20% drops a decade being normal.

    What was unusual was just how high markets went before the dotcom crash. Way higher cyclically adjusted price/earnings ratio than usual. But since it's all probabilities that's not shocking either. just markets being their usual short term unpredictable selves with the timing. It did have a pretty good "this time it's different" excuse, though. It's always different this time if it gets really high and the difference also always turns out to be illusory. But knowing that still doesn't help with knowing exactly when it will end. Just with knowing that it will, sometime.

    Almost all of my own investing has happened since early 2009. At least by value. So I've had a really good growth time along with making decent choices. Now I also need to navigate the end of that well and set myself up for the next time around. Which is why my fixed interest holdings have been increasing even though I generally prefer equities long term.
    Last edited by jamesd; 07-01-2018 at 12:41 PM.
    • pensionpawn
    • By pensionpawn 7th Jan 18, 1:37 PM
    • 36 Posts
    • 3 Thanks
    pensionpawn
    Unfortunately I wouldn't be getting anywhere near a pot size of 780 until i'm around 63 however I don't see myself waiting that long to start accessing my fund. I remember my father on retirement at 65 in the 1980's saying that he's just come into the good money (from work) when he felt a little too old to enjoy it fully! Of course, we all have different needs and goals and to put these yearly withdrawal figures into perspective perhaps we should view them in the context of a proportion of current net income? I'm aiming for at least two thirds of net final salary and if things go according to plan more like 1.5 x net income before 60.

    I agree with the post to draw out fully through the 20% band and there is possibly an argument to just sneak into the 40% band (if that would qualify you for higher tax relief on ongoing 4k contributions?). If you haven't taken your TFLS then 25% is available on every withdrawal which means that when the pa is 12k5 you could draw down 66k6 for as little as 11.25% tax. That's just under 5k / month net! Given that a balance must be drawn between your fund getting so large >0.9M and exposing yourself to tax on the pot or significant 40% tax on the withdrawals I am inclined to 'retire' earlier and enjoy the money. Whatever you don't need can go into ISAs (to build up a 2 year plus cash slush fund to minimise exposure to market downturns) or to the kids to help them get on the property ladder, pay for HE etc. I am very much of the opinion that helping them (but not financing them) whilst I'm alive is much more preferable for them (otherwise they'll not want to see me head towards my 90's) and me!

    In my calculations I also intend to run down my pot completely by 85 (if I make it as far as my father...). I want to have most money available from 60 - 70, then slightly less from 70 - 80 and then if I have made it that far have just enough to keep me (and the wife hopefully) warm, dry and fed during the run in.... Again, if all goes to plan, there should be plenty in ISAs from the early withdrawals to draw on in emergencies especially with a full new state pension to take up quite a lot of the slack from 67 onward.

    One thing I don't quite understand though is natural yield in the region of 3% - 5%? My fund(s) on average are growing around 10% before contributions. So to me that means if I take out the 10% growth the fund really isn't reducing. Hence to me the natural yield figure of around 3%- 5% seems very conservative. Am I missing something? By my calculations once your fund has gone over 0.5M creaming off the 50k natural growth each year (and probably some capital too) allows (for me) quite a comfortable life style.
    • bostonerimus
    • By bostonerimus 7th Jan 18, 2:26 PM
    • 1,944 Posts
    • 1,282 Thanks
    bostonerimus

    One thing I don't quite understand though is natural yield in the region of 3% - 5%? My fund(s) on average are growing around 10% before contributions. So to me that means if I take out the 10% growth the fund really isn't reducing. Hence to me the natural yield figure of around 3%- 5% seems very conservative. Am I missing something? By my calculations once your fund has gone over 0.5M creaming off the 50k natural growth each year (and probably some capital too) allows (for me) quite a comfortable life style.
    Originally posted by pensionpawn
    Natural yield is interest and dividends......something that is pretty reliable every year. You 10% growth is a "total return". It is the way I look at income production in retirement, but vitally, you cannot take all the "total return" out each year as in good years some of it must be left to compensate for coming years with negative returns. Historically a 60/40 equity to bond portfolio has given a 95% chance of funding a 30 year retirement with an inflation adjusted withdrawal starting at 4%.....probably better to use 3.5% in the UK. In most cases there is a significant pot left when you die. You are also not planning for long enough in retirement, Given the UK's current life expectancy statistics you should plan to live at least to 95 and 100 would be better.
    Misanthrope in search of similar for mutual loathing
    • pensionpawn
    • By pensionpawn 7th Jan 18, 3:12 PM
    • 36 Posts
    • 3 Thanks
    pensionpawn
    Thanks for your reply. Unless the markets crash immediately after first accessing a pension surely squirrelling away a minimum of two years 'drawdown buffer' supports an annual withdrawal in excess of the 'natural yield'? Also, from my basic understanding of shares even dividends are not guaranteed and I would expect them to decrease in line with a reduction in share (pension fund) value? Regarding running out of pension fund, my current model does empty my pension fund by 85 however my reasons for doing this by then is because all I will be financing is the basics, food, council tax, heating (I have solar..), etc... I do start with a draw down in excess of my current net pay so I'm expecting to have cash savings too. The full state pension isn't such a meagre sum to live off from 85 especially if I haven't blown everything that I've drawn down since 59 and my daily thrills from 85 are finding the remote control and going to the bathroom by myself! Hence I've front loaded the pension withdrawals. Based on the this, do you still think I need to re-plan?
    Last edited by pensionpawn; 07-01-2018 at 3:15 PM.
    • pensionpawn
    • By pensionpawn 7th Jan 18, 4:51 PM
    • 36 Posts
    • 3 Thanks
    pensionpawn
    Out of interest I just calculated the annual rate of growth of my oldest pension fund (started in 1989) since 1997 (when I stopped contributing to it) to be 9.8%. Given that rate includes the dotcom bubble bursting and the 2008 depression I don't think that's such a bad indicator of future growth. Perhaps by the end of 2018 that average will be up to the 10% I'm using as the fund growth rate in my modelling supporting a retirement of 26 years. Of course there can be huge crashes over a long time base and that's where the cash slush fund comes in. However modelling some worse case scenarios would also be prudent.
    • Gerbert
    • By Gerbert 7th Jan 18, 7:23 PM
    • 11 Posts
    • 0 Thanks
    Gerbert
    Markets bounce back up again, typically within a year or three. So to get the lifetime allowance benefit you need to crystallise during the down time, not wait. Which means crystallising all that remains if a drop comes along at a convenient time.
    Originally posted by jamesd
    But (unless I misunderstood) you were suggesting planning a phased crystallisation over 4 years (25% each year). If a drop comes, why should one throw that plan out of the window and crystallise everything that's left immediately? If that's a good idea now, when the funds are much less than the LTA, wasn't it an even better idea when they were not so much less?
    Last edited by Gerbert; 07-01-2018 at 7:25 PM. Reason: tense for clarity
  • jamesd
    there is possibly an argument to just sneak into the 40% band (if that would qualify you for higher tax relief on ongoing 4k contributions?). If you haven't taken your TFLS then 25% is available on every withdrawal
    Originally posted by pensionpawn
    GSP appears to be eligible for fixed protection 2016, which would preserve a 1.25 million lifetime allowance. That protection is lost if any pension contributions in GSPs name are made. It's one of the situations where continuing to make pension contributions is harmful.
  • jamesd
    But (unless I misunderstood) you were suggesting planning a phased crystallisation over 4 years (25% each year). If a drop comes, why should one throw that plan out of the window and crystallise everything that's left immediately? If that's a good idea now, when the funds are much less than the LTA, wasn't it an even better idea when they were not so much less?
    Originally posted by Gerbert
    The main purpose of the 25% was to give time for a big drop to show up, while also not allowing too much waiting and growth if one doesn't come along fairly soon.
  • jamesd
    Unless the markets crash immediately after first accessing a pension surely squirrelling away a minimum of two years 'drawdown buffer' supports an annual withdrawal in excess of the 'natural yield'?
    Originally posted by pensionpawn
    The biggest threat isn't a big drop then recovery just after retiring, it's a decade or so of low returns just after retiring.

    Also, from my basic understanding of shares even dividends are not guaranteed and I would expect them to decrease in line with a reduction in share (pension fund) value?
    Originally posted by pensionpawn
    They drop but by less than the drop in capital value.

    Regarding running out of pension fund, my current model does empty my pension fund by 85 however my reasons for doing this by then is because all I will be financing is the basics, food, council tax, heating (I have solar..), etc... I do start with a draw down in excess of my current net pay so I'm expecting to have cash savings too. The full state pension isn't such a meagre sum to live off from 85 especially if I haven't blown everything that I've drawn down since 59 and my daily thrills from 85 are finding the remote control and going to the bathroom by myself! Hence I've front loaded the pension withdrawals. Based on the this, do you still think I need to re-plan?
    Originally posted by pensionpawn
    Nothing wrong with a deliberate front loading plan in principle and I often suggest significant front loading because spending does tend to decrease as people get older.

    Given your objectives the Guyton-Klinger rules with a success rate in the 25-50% sort of range seems reasonable. A 25% success rate means an initial income that's sustainable for life only if you live through the better 25% of historic investment returns. Alternatively or in addition you could build into a cfiresim plan your intended reduction in spending.

    If you haven't done it yet, a read of Drawdown: safe withdrawal rates is likely to be useful.
    • IanSt
    • By IanSt 7th Jan 18, 8:27 PM
    • 260 Posts
    • 194 Thanks
    IanSt
    Out of interest I just calculated the annual rate of growth of my oldest pension fund (started in 1989) since 1997 (when I stopped contributing to it) to be 9.8%. Given that rate includes the dotcom bubble bursting and the 2008 depression I don't think that's such a bad indicator of future growth. Perhaps by the end of 2018 that average will be up to the 10% I'm using as the fund growth rate in my modelling supporting a retirement of 26 years. Of course there can be huge crashes over a long time base and that's where the cash slush fund comes in. However modelling some worse case scenarios would also be prudent.
    Originally posted by pensionpawn
    Is that invested in globally diverse funds or more UK based?

    If UK then is there a fair amount of inflation in that figure, and if global then you may have the currency rates to consider?

    I've always been a lot more conservative on the future growth - I really hope they continue at their historic rate, but I sleep a bit easier by going for a more pessimistic rate!
    • Thrugelmir
    • By Thrugelmir 7th Jan 18, 9:03 PM
    • 58,947 Posts
    • 52,275 Thanks
    Thrugelmir
    If you haven't done it yet, a read of Drawdown: safe withdrawal rates is likely to be useful.
    Originally posted by jamesd
    All of which is based on US equity and bond data. Therefore applying this to an investor based in the UK is somewhat questionable. As the likelihood of holding such a portfolio is somewhat remote.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Thrugelmir
    • By Thrugelmir 7th Jan 18, 9:13 PM
    • 58,947 Posts
    • 52,275 Thanks
    Thrugelmir
    What was unusual was just how high markets went before the dotcom crash. Way higher cyclically adjusted price/earnings ratio than usual.
    Originally posted by jamesd
    Nothing unusual in investors chasing profit in a rising market. Technology was the game in town. Out of some 160 or so companies then (globally). Only 35 of them still exist today as independent trading entities. Great ideas don't always convert into commercial success.

    Amazon currently trades a p/e in excess of 200. How long before even their model gets overtaken. Alibaba for example combining an on line presence with investment in bricks and mortar. Amazon launched in 1995 by the way.
    Last edited by Thrugelmir; 07-01-2018 at 9:17 PM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Thrugelmir
    • By Thrugelmir 7th Jan 18, 9:22 PM
    • 58,947 Posts
    • 52,275 Thanks
    Thrugelmir
    My fund(s) on average are growing around 10% before contributions.
    Originally posted by pensionpawn
    Have you actually asked yourself why? Understanding what you are invested in is key.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
  • jamesd
    All of which is based on US equity and bond data. Therefore applying this to an investor based in the UK is somewhat questionable. As the likelihood of holding such a portfolio is somewhat remote.
    Originally posted by Thrugelmir
    It isn't all based on US data, with the first post mentioning the 0.3% lower UK safe withdrawal rate, if using comparable UK investments and level inflation-adjusted income, and much other information is purely UK-specific.

    The US is currently the area where much of the analysis of safe withdrawal rates goes on, though, so a lot of interesting material originates there.

    For drawdown in general it's very useful to use decision rules like Guyton-Klinger because they adjust based on actual results during retirement. They already have to deal with far larger swings than the UK-US difference.

    It's also worth knowing that much of the difference in safe withdrawal rates between countries is due to major wars directly touching things on their soil. The degree depending on how much touching and win/lose the war result. It'll be pretty obvious if we're in another world war and need to adjust for it.
  • jamesd
    Nothing unusual in investors chasing profit in a rising market. Technology was the game in town. Out of some 160 or so companies then (globally). Only 35 of them still exist today as independent trading entities. Great ideas don't always convert into commercial success.
    Originally posted by Thrugelmir
    Nothing unusual in the chasing but what was unusual that time was how long and high it went on.

    John Authers at the FT has done quite a bit of interesting reporting on such differences, most recently last Friday in his Long View column. While tech got the headlines the stretched valuations were throughout the market.
    • pensionpawn
    • By pensionpawn 8th Jan 18, 11:58 AM
    • 36 Posts
    • 3 Thanks
    pensionpawn
    I have absolutely no idea. They are 'managed' funds from a old pension firm called Friends Provident.
    • pensionpawn
    • By pensionpawn 8th Jan 18, 12:05 PM
    • 36 Posts
    • 3 Thanks
    pensionpawn
    Not really. I keep track of growth, more so over the last couple of years as I near 55. If growth looks rubbish I'll explore the options for change. I leave it to the pension companies to know the 'why'! I have a basic understanding of what causes share and dividend price change however I can leave the managing of it to the experts, like you guys on here!
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

1,247Posts Today

6,613Users online

Martin's Twitter