Retirement fund

[xeny]

mikef said:

xeny said:

Would you want to take any tax free lump sum per se

In the real world? To pay off that interest-only mortgage, to help kids get on the housing ladder, to buy a car now that the company car has gone back, to treat the missus to that round the world cruise (Covid notwithstanding)....

At least quote all I wrote

xeny said:

Would you want to take any tax free lump sum per se if you're considering it reserve cash?

That was in response to your writing

mikef said:

With 25% lump sum and other savings there should be sufficient reserves to ride out a stock market blip assuming it doesn’t last more than say 10 years

which suggests you're considering it reserve cash, and that indeed you've got other savings, which could presumably go towards those goals.

[mikef]

So with the £800K amount quoted in the article, the advice is to draw down the tax-free allowance over time and include that in the 4% drawdown ?

[xeny]

mikef said:

So with the £800K amount quoted in the article, the advice is to draw down the tax-free allowance over time and include that in the 4% drawdown ?

Probably worth reading the next article in the series - https://www.vanguardinvestor.co.uk/articles/latest... which looks at this topic.

[chip*]

Sharing a relevant recent article (see below) for this thread on the 4% drawdown rule.

Some may feel this article sound like a sales pitch, but there is one key takeaway for me on the drawdown rate:

Instead, he said, the client’s own personal withdrawal rate was important, and this changes throughout their life depending on various factors such as other sources of income, spending patterns, inflation, returns, and taxes.

https://www.ftadviser.com/pensions/2021/06/10/advi...

[xeny]

Thanks. I agree the 4% rule is a massive oversimplification. One thing did catch my eye in the article though.

Gabriela said:

Meanwhile, Gabriela Strug, financial planner at Satis Wealth Management, said in her experience no qualified planner has ever followed the 4 per cent rule and that the only sensible way to manage withdrawals was with ongoing advice.

Problem is that if advice is even .5% , then in an almost Heisenbergian fashion the cost of advice on the withdrawal rate materially affects it, which is I think what leads to people sticking a pin in 4% and saying "I'll go with that".

[BarryGibb]

xeny said:

Thanks. I agree the 4% rule is a massive oversimplification. One thing did catch my eye in the article though.

Gabriela said:

Meanwhile, Gabriela Strug, financial planner at Satis Wealth Management, said in her experience no qualified planner has ever followed the 4 per cent rule and that the only sensible way to manage withdrawals was with ongoing advice.

Problem is that if advice is even .5% , then in an almost Heisenbergian fashion the cost of advice on the withdrawal rate materially affects it, which is I think what leads to people sticking a pin in 4% and saying "I'll go with that".

" which is I think what leads to people sticking a pin in 4% and saying "I'll go with that".

I wonder if that tends to give a better or worse outcome, on average, than paying ~0.5% a year.

[xeny]

BarryGibb said:

I wonder if that tends to give a better or worse outcome, on average, than paying ~0.5% a year.

I don't know, but can imagine that psychologically, spending >10% of your expected annual income on advice on how much you can spend will hugely stick in someone's throat.

[BarryGibb]

xeny said:

BarryGibb said:

I wonder if that tends to give a better or worse outcome, on average, than paying ~0.5% a year.

I don't know, but can imagine that psychologically, spending >10% of your expected annual income on advice on how much you can spend will hugely stick in someone's throat.

You'd imagine that someone like Fundsmith, at ~1%, would have no takers.

[xeny]

BarryGibb said:

You'd imagine that someone like Fundsmith, at ~1%, would have no takers.

Surely that's a rhetorical question?

Very different psychology - spending 1% if you anticipate getting more than 1% extra in return feels like a good trade.

Spending .5% when you've only got ~ 4% to play with feels terrible.

[BarryGibb]

xeny said:

BarryGibb said:

You'd imagine that someone like Fundsmith, at ~1%, would have no takers.

Surely that's a rhetorical question?

Very different psychology - spending 1% if you anticipate getting more than 1% extra in return feels like a good trade.

Spending .5% when you've only got ~ 4% to play with feels terrible.

Paying someone 0.5% a year to help them realise that such a trade doesn't exist is surely a better trade?

[xeny]

Reading further:

"Strug said: “Some years may be much more expensive than others and frankly some people may not have enough saved for retirement in order to take 4 per cent comfortably without it inevitably running out."

How can the amount you've got saved impact the percentage of that amount you can take out safely each year.?

I'd be livid if I had spent money on someone giving financial advice who then went on to say that.

[red_slr]

Firstly I would never pay for ongoing advice once retired. Not with so much info on the internet and the costs being so high with most of it being liability insurance of some kind for the advisor. I also have 2 friends who are in similar financial positions to me and we all share info fairly openly and we are all doing similar things and coming to similar conclusions. Add into that forums like MSE and MMM there are literally so many free ways to get advice its - IMHO - a small gamble to take.

That said. The 4% rule is not actually 4%. Its worth reading on the trinity study and getting a full understanding but in very basic terms its actually a 7% rule. They take 1% for taxes and fees and 2% for inflation.

[xeny]

BarryGibb said:

Paying someone 0.5% a year to help them realise that such a trade doesn't exist is surely a better trade?

I can find people telling me that it does exist, and others who say it doesn't, both for 0%. I'm ill equipped to distinguish them. Why should I risk spending money on either?

[BarryGibb]

red_slr said:

Firstly I would never pay for ongoing advice once retired. Not with so much info on the internet and the costs being so high with most of it being liability insurance of some kind for the advisor. I also have 2 friends who are in similar financial positions to me and we all share info fairly openly and we are all doing similar things and coming to similar conclusions. Add into that forums like MSE and MMM there are literally so many free ways to get advice its - IMHO - a small gamble to take.

That said. The 4% rule is not actually 4%. Its worth reading on the trinity study and getting a full understanding but in very basic terms its actually a 7% rule. They take 1% for taxes and fees and 2% for inflation.

I'd argue it's not worth reading it as many might take the information to reflect their own circumstances which is unlikely to be the case. There is no such thing as a "rule".

[NickCQ]

xeny said:

"Strug said: “Some years may be much more expensive than others and frankly some people may not have enough saved for retirement in order to take 4 per cent comfortably without it inevitably running out."

How can the amount you've got saved impact the percentage of that amount you can take out safely each year.?

I'd be livid if I had spent money on someone giving financial advice who then went on to say that.

I had to read that sentence a few times but I think "running out" is referring to the annual drawing rather than the pot. In that context it makes more sense, i.e. some (most?) won't have enough saved to fund all their needs on 4% of the pot.

[BarryGibb]

xeny said:

BarryGibb said:

Paying someone 0.5% a year to help them realise that such a trade doesn't exist is surely a better trade?

I can find people telling me that it does exist, and others who say it doesn't, both for 0%. I'm ill equipped to distinguish them. Why should I risk spending money on either?

Surely if you are doing this on a DIY basis you'd need to have enough knowledge to be able to distinguish them?

[xeny]

BarryGibb said:

Surely if you are doing this on a DIY basis you'd need to have enough knowledge to be able to distinguish them?

I rather feel this is applicable https://www.youtube.com/watch?v=F48yWWtySBw . The only problem is that in this analogy a year from now is when you run out of life or money.

[xeny]

NickCQ said:

I had to read that sentence a few times but I think "running out" is referring to the annual drawing rather than the pot. In that context it makes more sense, i.e. some (most?) won't have enough saved to fund all their needs on 4% of the pot.

I think that makes more sense. I'm in no way convinced that is what they meant when they said it.

Given typical pension saving sizes, definitely most.

edit - thinking further, no it doesn't make more sense - running out implies less over time. If 4% isn't enough, it isn't enough from the start. The sentence is innumerate nonsense.

Edited by xeny on Wednesday 16th June 21:20

[B9]

Does anyone else struggle with pension calculators? Forgetting state pension for a minute..

Let's say you earn £30k. Your take home would typically be £2k per month. Most pension calculators are based on your salary rather than your income/expenses, so they say you need 2/3rds (£20k) income in retirement to maintain your lifestyle. I understand the logic of 'cost of living' being lower, on assumptions of no mortgage, commuting etc. It's very 'finger in the air' as some people could be spending £8k pa on commuting, whilst others simply walk to work, or work from home(!)

Now, let's say you earn £40k but contribute £10k to your pension. Your take home and the income you live from would still be £2k per month. But the pension calculators are now saying you need £25k income in retirement to maintain lifestyle. I don't think that's quite right, as I won't be contributing any more to the pension?

Are there better calculators out there?

[red_slr]

As each persons situation is different I would try and work something using excel if you can so its more personal to you.