Financial planning for and during retirement
Discussion
mikeiow said:
Having worked for US companies for over 30 years before stepping away, and investing in "The World", which is a majority in the US, I don't have any issues using US-centric tools. I believe you are a FA? What do you use instead of firecalc? Feel free to share some guidance (not advice 
)
We use Timeline. Not sure if you can still access it as a DIYer, but it often gives a noticeable difference vs U.S tools (e.g. an SWR of 3.4% vs 4% for U.S), partly explained by our periods of painful inflation. )Halitosis said:
Derek Chevalier said:
Fair challenge, though uk inflation and yields haven’t been a million miles apart from US equivalents over the last 100+ years so it serves as a reasonable proxy in my view. Perhaps anticipate slightly lower returns than it spits out, but the future will differ from the past regardless1. Have a look at U.K. vs U.S. inflation in the 70s.
2. A global equity portfolio (I used 88% dev market, 12% EM) gave around a 0.6% higher SWR than the U.S. total market.
Derek Chevalier said:
(e.g. an SWR of 3.4% vs 4% for U.S), partly explained by our periods of painful inflation.
With bonds and bond funds yielding above 3.4% (10 year approx 4.5%?) can that potentially increase the SWR for someone retiring today? I mean, you could almost switch half of your portfolio to bonds or gilts and massively reduce the volatility compared to a few years ago. At least with bonds you get to keep your capital as opposed to an annuity. I know a SWR of 3.4% is based on long-term data but it feels like it could be increased today with a bit of thinking and maybe a reallocation of asset classes?Phooey said:
Derek Chevalier said:
(e.g. an SWR of 3.4% vs 4% for U.S), partly explained by our periods of painful inflation.
With bonds and bond funds yielding above 3.4% (10 year approx 4.5%?) can that potentially increase the SWR for someone retiring today? I mean, you could almost switch half of your portfolio to bonds or gilts and massively reduce the volatility compared to a few years ago. At least with bonds you get to keep your capital as opposed to an annuity. I know a SWR of 3.4% is based on long-term data but it feels like it could be increased today with a bit of thinking and maybe a reallocation of asset classes?
Tye Green said:
safe withdrawal rate
SWR is a theoretical percentage of how much you can withdraw from a portfolio each year. It’s linked to a chance of success such that you don’t run out of money. Or leave to much or not enjoy your retirement to the full because of the fear of running out. This is one of the main reasons I bought an annuity, I know I will never run out of money and can therefore spend more early in my retirement when one is more able to do “things”. My learning to fly helicopters is a good example.There are lots of SWR % depending what you read. A lot of people now think some form of variable rate with guard rails in place depending on the current market returns.
Look at the Vanguard website for their thoughts.
Monty
Phooey said:
Derek Chevalier said:
(e.g. an SWR of 3.4% vs 4% for U.S), partly explained by our periods of painful inflation.
With bonds and bond funds yielding above 3.4% (10 year approx 4.5%?) can that potentially increase the SWR for someone retiring today? I mean, you could almost switch half of your portfolio to bonds or gilts and massively reduce the volatility compared to a few years ago. At least with bonds you get to keep your capital as opposed to an annuity. I know a SWR of 3.4% is based on long-term data but it feels like it could be increased today with a bit of thinking and maybe a reallocation of asset classes?First, it's worth pointing out that I wouldn't focus on a particular safe withdrawal rate (there's no such thing as the 4% "rule") as there are far too many variables that influence this.
But to answer your question, it's driven in part by the inflation we experience. If you look at painful periods from a UK POV (e.g., 1915, 1937, and 1969 retirees), the common factor is lumpy inflation in early retirement, as this nudges up the spending curve (assuming you are increasing withdrawals in line with inflation) throughout the rest of retirement (and also tends to make the (real) value of bonds suffer).
We obviously don't know how the future will pan out (we could be a fortunate 1981 retiree), and your approach will be driven in part by how much flexibility you are willing to accept if we do encounter unfavourable outcomes.
FWIW, genuine diversification (asset class, factors tilts, etc) makes a surprising difference to the sustainability of retirement income (at least from a historical POV).
Claret m said:
A lot of people now think some form of variable rate with guard rails in place depending on the current market returns.
Monty
I'd be very wary of (some) guardrail approaches unless you understand the many downsides (e.g. dramatic cuts in real income in poor scenarios) and are willing to accept that. A topic rarely discussed (most articles/videos solely focus on the positive). Monty
Derek Chevalier said:
...First, it's worth pointing out that I wouldn't focus on a particular safe withdrawal rate (there's no such thing as the 4% "rule") as there are far too many variables that influence this....
Indeed. Especially as some of us are expecting to have to run our pots down to Zero (and rely on the State Pension only) in order to have an agreeable retirement.On that note, for those already retired and drawing-down their DC pots etc. how often do you re-assess what 'wage' you withdraw (ie. take more out if returns have been good, or tighten your belt if the markets drop) ?
Truckosaurus said:
Indeed. Especially as some of us are expecting to have to run our pots down to Zero (and rely on the State Pension only) in order to have an agreeable retirement.
On that note, for those already retired and drawing-down their DC pots etc. how often do you re-assess what 'wage' you withdraw (ie. take more out if returns have been good, or tighten your belt if the markets drop) ?
From my pot I have been withdrawing for just under 3 years so have the conversation annually in February as to what income I need.On that note, for those already retired and drawing-down their DC pots etc. how often do you re-assess what 'wage' you withdraw (ie. take more out if returns have been good, or tighten your belt if the markets drop) ?
Withdrawals were a mixture of TFC plus the balance.
I have subsequently taken 100% of the TFC remaining as an early inheritance for my children's house funds so will need to rethink numbers for income come Feb 25.
Claret m said:
... For context, I’m retired, unfortunately because of ill health, but have dealt with IFAs, wealth managers you name it. Having had numerous bad outcomes, I now manage my own finances. After all, no one cares more about the outcome than me!
I would like to use this topic to get a wealth of information from other members to help everyone make educated decisions.
This will also include the psychology of investment etc. If someone has spent 50-60 years accumulating wealth, it is very difficult to change that mentality to decumulation.
All the best
Monty
I would like to use this topic to get a wealth of information from other members to help everyone make educated decisions.
This will also include the psychology of investment etc. If someone has spent 50-60 years accumulating wealth, it is very difficult to change that mentality to decumulation.
All the best
Monty
Interesting that you now use my basis of not needing IFAs.
I have used a strategy for 35 years, which has provided a strongly increasing income since early retirement.
Simple equity holdings in mostly very large UK international trading businesses.
The awkward part is, the holdings have all been established for a long time, some growing out of proportion to the majority.
Monitoring against the stock market indices shows the overall performance is good, therefore I don't change the portfolio.
If I was starting now though, I probably would not have the confidence to construct the same portfolio.
As for the psychology of investing, that is a very important part of being successful.
Monitoring against a benchmark is the first step, then you know how you are performing overall. If mostly ahead, then you can be confident about holding long-term. During market downturns, if your total YTD percentage falls less than the market, count that as a win and don't worry.
The performance of Individual holdings is less important, it is the overall total that is important. Individual holdings will have varying performance and the share price of good businesses can commence an unforseeable upward spurt from time to time.
Important also, not to become a lemming when occasional market crashes occur. If you hold good businesses, particularly non-cyclical, then buying more should be on you mind during a financial crash.
Obviously, only use money that you don't need and make full use of ISAs.
Hope that might help. Just a flavour, but 35 years experience is difficult to explain in a short post.
Equity investment is a combination of luck and skill, so wishing you good luck.
Edited by Jon39 on Thursday 14th November 11:49
Claret m said:
This will also include the psychology of investment etc. If someone has spent 50-60 years accumulating wealth, it is very difficult to change that mentality to decumulation.
All the best
Monty
All the best
Monty
I was "lucky" enough in that my 37 year career ended earning a high basic salary and more importantly for this discussion a high annual bonus so when the first years Pension drawdown conversation came it needed a quick adaption but as you say it was " difficult " or perhaps different would be a better word.
Previously we had lived on the basic and used the bonus's for cars ,holidays , house renovations and then paying off the mortgage and making other investments.
Subsequently have still made investments but these have tended to be in the tax relief type but taking the money out from other places other than relying on bonus schemes was certainly something to get used to.
I fully appreciate that this is a first world issue rather than a problem !
Derek Chevalier said:
supersport said:
3. Use something like fire calc to test the longevity / success of those plans against history to determine if it’s enough.
How do you select something that's relevant for a UK retiree? UK historical inflation etc. I think it was good enough for a rough proxy, past performance and all that.
I also think you used to be able to access timeline as a DIYer but for life of me I can't remember how. So I think this is good enough and it's free, as far as giving you an idea.
As I said a friend built a tool, it confirmed what I got from firecalc, although his historical data wasn't as good. He has just got a new dataset though.
Derek Chevalier said:
That's a big question, and I've written tens of thousands of words attempting to answer it!
First, it's worth pointing out that I wouldn't focus on a particular safe withdrawal rate (there's no such thing as the 4% "rule") as there are far too many variables that influence this.
But to answer your question, it's driven in part by the inflation we experience. If you look at painful periods from a UK POV (e.g., 1915, 1937, and 1969 retirees), the common factor is lumpy inflation in early retirement, as this nudges up the spending curve (assuming you are increasing withdrawals in line with inflation) throughout the rest of retirement (and also tends to make the (real) value of bonds suffer).
We obviously don't know how the future will pan out (we could be a fortunate 1981 retiree), and your approach will be driven in part by how much flexibility you are willing to accept if we do encounter unfavourable outcomes.
FWIW, genuine diversification (asset class, factors tilts, etc) makes a surprising difference to the sustainability of retirement income (at least from a historical POV).
Fair points - thanks.First, it's worth pointing out that I wouldn't focus on a particular safe withdrawal rate (there's no such thing as the 4% "rule") as there are far too many variables that influence this.
But to answer your question, it's driven in part by the inflation we experience. If you look at painful periods from a UK POV (e.g., 1915, 1937, and 1969 retirees), the common factor is lumpy inflation in early retirement, as this nudges up the spending curve (assuming you are increasing withdrawals in line with inflation) throughout the rest of retirement (and also tends to make the (real) value of bonds suffer).
We obviously don't know how the future will pan out (we could be a fortunate 1981 retiree), and your approach will be driven in part by how much flexibility you are willing to accept if we do encounter unfavourable outcomes.
FWIW, genuine diversification (asset class, factors tilts, etc) makes a surprising difference to the sustainability of retirement income (at least from a historical POV).
Maybe I'm being dim here but is something not right with that chart? Should the left hand column be in % terms not £? I can't see the SWR
craig1912 said:
Greenmantle said:
Just been told by IFA that after withdrawing the tax free 25% from a SIPP any further withdrawals ie within the SWR is taxed at source.
Is this correct?
Yes- it’s taxable incomeIs this correct?
I'm aware that its taxable income but I was told it was taxed at source rather than via a tax return / self assessment?
Greenmantle said:
craig1912 said:
Greenmantle said:
Just been told by IFA that after withdrawing the tax free 25% from a SIPP any further withdrawals ie within the SWR is taxed at source.
Is this correct?
Yes- it’s taxable incomeIs this correct?
I'm aware that its taxable income but I was told it was taxed at source rather than via a tax return / self assessment?
alscar said:
Greenmantle said:
craig1912 said:
Greenmantle said:
Just been told by IFA that after withdrawing the tax free 25% from a SIPP any further withdrawals ie within the SWR is taxed at source.
Is this correct?
Yes- it’s taxable incomeIs this correct?
I'm aware that its taxable income but I was told it was taxed at source rather than via a tax return / self assessment?
so the SIPP manager issues a sudo payslip with income tax deducted at source - never knew that.
sounds easier than paying tax via self assessment.
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