The answer to the question “How much should I put in my pension?” is surprisingly simple.
You need enough in your pot to sustainably generate a comfortable retirement income that will last you the rest of your life.
This post enables you to estimate how much pension pot you need to deliver that income.
Once you hit your target number, you can fire your job, and start a brand new life doing whatever you please.
Your pension pot target number depends on knowing how much income you can live on in retirement.
That might sound like an impossible ask. But you can arrive at an estimate using the method explained in our How much do I need retire? post.
With that retirement income target in hand, you need only complete one more step to calculate how much you should put in your pension.
The ‘How much should I put in my pension?’ calculation
Here’s a quick example that’ll show you how much you need in your pension pot.
Imagine that you want a retirement income of £15,000 on top of your State Pension.
The size of pension pot you need to retire is:
£15,000 divided by 0.03 = £500,000
Where:
- Your required annual income = £15,000 (not including other income sources such as the State Pension.)
- Your sustainable withdrawal rate = 3% (or 0.03)
In this example, you can retire once your pension pot hits £500,000.
That target amount should generate £15,000 in inflation-adjusted income for your entire retirement – assuming your pension is invested in global equities and government bonds. More on this below.
- Substitute the £15,000 above with the retirement income you need from your pot.
- Divide your income figure by 0.03 to discover how big your pension pot should be.
- Add your State Pension and any other reliable income sources to tally your total retirement income.
Run this calculation twice if you’re part of a couple.
Account for tax using the tips in last week’s post.
Is that all I need to know?
The calculation really is that simple.
What’s more complicated is explaining why this approach is the best way to estimate how much pension pot you need.
You also need to adjust your numbers for inflation and the tax-free status of your Stocks and Shares ISAs, but that’s mercifully straightforward.
Keeping up with inflation
The example above produces £15,000 income from a pension pot of £500,000 at today’s prices.
If you’re retiring years from now – rather than today – then your numbers must be updated for inflation. Otherwise, you’ll lose purchasing power as prices rise.
All you need do is adjust your number once a year by the UK’s CPIH annual rate of inflation.
For example: let’s say inflation is 2.5% one year from now.
Just multiply your pension pot target figure by 2.5%:
£500,000 x 1.025 = £512,500
You need £512,500 in your pension pot to generate enough retirement income after 2.5% inflation.
Let’s double-check that pot will produce enough inflation-adjusted income:
£512,500 x 0.03 = £15,375
Your 3% withdrawal rate now delivers £15,375 in retirement income.
If you multiply our original £15,000 income figure by the inflation rate of 2.5% you get £15,375.
Hallelujah! The calculation checks out.
Do this once a year and your target number and retirement income will keep pace with CPIH inflation.
Stocks and Shares ISAs
Many people retire with a mix of pensions plus Stocks and Shares ISAs.
Calculate the target figure for your ISAs in exactly the same way as for pension pots.
If you want £5,000 of annual retirement income from your ISAs then divide that figure by the 3% sustainable withdrawal rate to work out your ISA target number:
£5,000 / 0.03 = £166,667
To gauge how much retirement income your ISAs will generate…
Multiply your ISA’s value by the sustainable withdrawal rate:
£166,667 x 0.03 = £5,000
This calculation applies to invested Lifetime ISAs and Stocks and Shares ISAs, but not to cash ISAs.
While we’re here, usually pensions beat ISAs for retirement saving, but not absolutely always.
Our pensions vs ISAs piece illustrates why tax relief and employer contributions mean most people will be better off favouring pensions.
However a clear-cut case for using ISAs in retirement is to shelter your pension’s 25% tax-free lump sum.
By getting your tax-free lump sum reinvested within ISAs as quickly as you can – subject to the ISA annual allowance – you can generate a tax-free income for the rest of your days.
The 25% tax-free lump sum – Incidentally, our 3% withdrawal rate assumes you will reinvest any 25% tax-free lump sum you take from your pension. If you take that money and reinvest it (whether in ISAs or in taxable investment accounts) then it still counts towards your overall retirement income. Money isn’t withdrawn unless you intend to spend it. Apply the 3% sustainable withdrawal rate to all your investments to understand how much annual retirement income they can deliver.
The sustainable withdrawal rate
We’ve used a 3% withdrawal rate to calculate the income your retirement pot can sustain.
This is the percentage you can withdraw from your pension (and other investments) in the first year of retirement.
That amount is your baseline retirement income figure.
You then increase your income figure for annual inflation every year thereafter to pay yourself a consistent retirement salary.
(That means the 3% element is only used in year one.)
But why a 3% withdrawal rate?
Leading retirement researchers have concluded this is the amount you can withdraw while minimising the risk of running out of money during a retirement lasting 40 years or more.
You’ll often hear that higher withdrawal rates than 3% are achievable. Usually that’s because people gloss over the problems of unpredictable future investment returns on retirements.
Happily, the State Pension – and any defined benefit pensions you’re lucky enough to have – don’t suffer from unpredictability to the same degree.
They should both deliver a reliable stream of inflation-proof income throughout your retirement, so long as UK PLC doesn’t go bust.
But few of us can live comfortably on the State Pension. Fewer still are lucky enough to enjoy defined benefit pensions these days.
The problem with pension pots
Most people in the UK now have defined contribution pensions. These do not offer a guaranteed income.
Instead you own a pot of investments in assets such as equities and bonds.
You generate an income from the pot by selling off these assets and spending the proceeds, along with the dividends and interest they pay.
However the income level you can safely spend depends on the investment returns of your assets. Those returns are inherently unpredictable.
If you withdraw too much too soon from your pot, your money could run out before you die.
Yet if future investment returns are strong, you’ll be positioned to withdraw a higher income than the 3% sustainable withdrawal rate suggests.
The retirement dilemma is you could spend too little (bad) or too much (really bad).
Running out of money is worse than not knowing what to do with it all.
Therefore, it’s best to use a lower withdrawal rate which drastically reduces that possibility, without setting you an impossible retirement savings target.
The 3% rate is derived from the worst investment return sequences world markets have suffered in the past 120-odd years.
It further depends on you holding a pretty aggressive asset allocation of 70% global equities and 30% UK government bonds.
If you’ve previously come across ‘the 4% rule’ then it’s worth you understanding why a 4% withdrawal rate may be too optimistic.
To find out more about the sustainable withdrawal rate check out:
- Our quick explainer on a suitable sustainable withdrawal rate for UK investors.
- How to improve your sustainable withdrawal rate.
- Why we chose a 3% sustainable withdrawal rate.
Beware simplistic assumptions
Watch out for media sources or pension income calculators that base your retirement on assumptions like: “Your investments will grow by 5% a year.”
Such simplifications are too risky because they assume your pension pot will grow every year.
But everyone knows that investments can go down, as well as up.
The big mistake the standard calculations make is to use a simple average growth number that ignores losses.
Let’s detour through a quick illustration of the problem.
Constant growth scenario
This scenario assumes positive returns every year:
- Year 1 return: 25%
- Year 2 return: 25%
Simple average return: 25+25 = 50 / 2 years = 25%
A £10,000 investment would grow to £15,625 at 25% per year. Very healthy.
Volatile return scenario
This scenario includes losses, just like real investment returns:
- Year 1 return: 100% growth
- Year 2 return: -50% growth
Simple average return: 100-50 = 50 / 2 years = 25%
£10,000 grows to £20,000, but falls back again to £10,000 in year 2. We made no gain.
Both scenarios showed a 25% simple average return, but one is much worse than the other.
Unfortunately for us, our world looks more like scenario two.
What makes things even worse for retirees is that you’re drawing down your portfolio by spending it over time.
And in fancy terms, as a spender you’re subject to sequence of returns risk.
In simple English – the stock market could slump early in your retirement, meaning you need to withdraw a bigger chunk of an already-dwindling pot. You’d then have less money invested to benefit from any market rebound.
There’s no escaping the fact that sometimes investments inflict large losses.
Major downturns can permanently damage your retirement prospects, even if declines in the market prove temporary.
Don’t keep it simple
This all makes it dangerous to use simple average investment growth numbers when judging how much pension you need.
The next example reinforces this warning.
Assume you start retirement with a heady £1,000,000 in your pension pot.
You withdraw 5% or £50,000 in income every year:
A constant annual return of 5% means that your pension pot’s growth exactly covers your spending every year. Your wealth never drops below £1,000,000.
This portfolio’s simple average return is 5% over four years.
But as we’ve noted, in the real world investments are volatile. We take losses as well as gains.
The next table shows how losses can knock a big hole in a pension pot early in retirement.
We start with the same £1,000,000 pension pot. But a 50% loss in the first year cuts our pot to £500,000.
Then we withdraw our £50,000 retirement income. Our pot is down to £450,000 by the end of the year:
Our bad luck continues with another 50% loss in year two.
Thankfully the losses are temporary. The market bounces back strongly in the next two years.
Overall, we’ve experienced the same simple average return of 5%.
But our pot looks very different compared to the sunny constant growth scenario.
It’s shrunk to £318,000 instead of sitting pretty at £1,000,000.
The volatility of returns has left us in a far more precarious situation.
Recovering from losses
A major issue is that large losses require much greater gains to recover the lost money:
- A 10% loss is recovered by an 11% gain.
- But you need a 100% gain to recover from a 50% loss.
The 60% gains in the previous example were nowhere near enough to make us whole after that nightmare two years.
And a steep hill becomes a mountain to climb when you’re forced to sell your investments at low prices to pay your bills in retirement.
This inescapable truth is why the best retirement researchers advocate using a 3% sustainable withdrawal rate.
A 3% rate keeps withdrawals low enough – especially early on – to enable you to ride out historically bad investment returns, should you be unlucky enough to experience them.
Many happy returns
I’ve focused on the downside to show you why it’s important to use a cautious and sustainable withdrawal rate.
But investment volatility can work in your favour, too. A brilliant sequence of returns can boost your portfolio to giddy heights. Here’s hoping!
Ultimately, navigating the “How much should I put in my pension?” dilemma does involve an element of luck. As in poker, you can be dealt a terrible hand or a Royal Flush.
The important thing is to play your cards well and avoid being wiped out.
That’s what a 3% sustainable withdrawal rate helps you to do.
Take it steady,
The Accumulator
PS – If your State Pension and/or defined benefit pensions arrive later in your retirement, then you can increase your sustainable withdrawal rate a little.
This means you’ll work your pension pot harder at the outset, until your other pensions arrive to relieve the pressure later.
This is a complex area but if you want to follow one researcher’s solution then follow the walkthrough in this post. See the ‘Investment fees and the State Pension SWR bonus‘ section.
PPS – If you’re close to retirement, here’s the decumulation strategy I put in place to help me manage my volatile retirement funds.
Timely @ TA
Just wading through McClung ATM. Very interesting
JimJim
I can see how a 3% withdrawal rate might work as long as have low costs on your SIPP/ISAs/GSAs with trackers and fixed fee platforms but I think its too high if you are paying for active management/ percentage based platforms.
But none of that helps you if the market crashes in the first five years of your retirement.
Whilst I don’t disagree with anything written, building a stash big enough for a modest income with a 4% WR is hard enough!
Thanks for a great post . My dilemma is I would rather start by withdrawing 4% to start and sacrifice the inflation increases given my state pension will kick in after year 10, plus I have equivalent 5 years cash to cover my basic living expenses if the market dives in the first period . I know Its impossible to plan too much as it depends on inflation rate and market returns . But what I want to guard against is being too cautious at the start and not enjoying my pension and the spare time I have . I do have a feeling that returns going forward are not going to be anywhere near what they have been over the last 10 years and do expect another major correction soon with inflation , Covid supply issues and quite frankly the mad returns from US equities over the last five years (took them but recently significantly reduced exposure but not simple to diversify away ). Anyone got a view for how long you need to go without significant crash before your out woods ( appreciate that’s not an easy question ) or is selling a crystal ball?
Everyone has different circumstances so the numbers are unique to each individual. I have a SIPP that invest in monthly and a military pension of approx £14k a year from age 46 plus state pension from 68 (fingers crossed). I hope to stop working by 58 or earlier and drawdown sufficient income to supplement the mil pension until SPA at 68. I have run the numbers but who knows what will happen……
I think the original Trinity study the 4% rule came from assumed you would calculate the first year at 4% then adjust it up for inflation each year. This looks quite risky for a long retirement. Much better to calculate your withdrawal annually then cut your cloth accordingly.
@Lesley
The problem is uncertainty, no one knows and it is unknowable. The approach in the article and the linked decummulation strategy is fairly conservative and is very likely to work out.
I think your 5 years cash in hand is a good idea, you give up returns on that, but its insurance and buys peace of mind.
My experience ( and of course its no guide to the future whatsoever) was retiring 14 years ago in November 2007, relying on a 4% withdrawal approach. Of course as we know now I lived the sequence of returns problem ! I had a very high allocation to equities 90% +
By being flexible with the income taken, using the cash resources that I had, it worked out ( March 2009 saw me down circa 50%) but a little dealing through this period revealed that there are bargains as well as losers and it worked out just fine.
Very nicely written and full of great information. Let me ask a question about retirement age. I think it is 66 or 67 when you can get to your state pension money in the UK, and is rising to 68 at some point, much the same as the US. I don’t know many people who want to work into their sixties in the US, but many do because they don’t have enough money to sustain them through the years before our state pension (Social Security) is available. Do most UK citizens feel good about working into their late 60’s or do most plan to retire earlier, which of course means they’ll need a larger pension pot? I retired at 60 but had several million invested in my own taxable and tax deferred accounts so it was no problem for me covering the gap between working and getting government retirement checks.
3%!!!! “but but but look at what returns have been like the last couple of years” nothing like a good dose of reality to get expectations in order. I’m looking forward to saying “pah they didn’t know what they’re talking about” look at how big my stash is now, but I’ll sure be glad I heeded 3% if I have to say “thank fcuk I listened they know what they are doing”
Thankyou I’m in for 3%
I’m confused by this article. I would have thought the question is how much do I put in plus at what time could I stop? Sort of answering the question if I’ve got 100k in by age twenty and want to retire at 57 can I stop contributing? That sort of thing. Saving into a pension such that you hit a number, but you’re still only 43 and you can’t access pension till 57 seems a bit moot? Or have I misunderstood premise of the article? It seems like a restatement of SWR amount, not sure how pension bit fits in? The interesting bit with pensions isn’t just amounts but all the timing issues?
@Lesley
“Anyone got a view for how long you need to go without significant crash before your out woods”
I’m not sure you’re ever completely out of the woods; tomorrow is always the first day of the rest of your retirement, with whatever funds you have left to support you at that point, wherever the market takes you…
Having State Pensions/Other Income Streams would of course dampen the impact; but they simply allow you to ride out a poor SoR; the risk, it seems to me however, is ever-present.
@Lesley (#4):
Further to Harps reply, ERN provides a thorough explanation at: https://earlyretirementnow.com/2020/07/15/when-can-we-stop-worrying-about-sequence-risk-swr-series-part-38/
Or, if pressed for time, you could just note his pithy conclusion, that: Sequence. Risk. Will. Not. Go. Away!
Having said that, HariSelden’s experience should give everybody hope!
@HariSeldon – must have been a nightmare for you. But really, Sequence of Return risk is more likely from an extended decade period of low returns like 1966 (maybe what we’re about to experience now?), followed by three recessions in a decade. Or two big recessions in a row like 2000 retirees who are still significantly underwater in real terms. You lived through an almighty crash but but global governments threw everything at it and still are. And I was there, though working (which makes absolutely huge difference I’m sure), in the City, made redundant, it was scary as hell. I was lucky, picked up some contract work and in retrospect I did very well.
@The Rhino
My understanding is, if you’re on a higher tax band, you should prioritising filling your pension until you think you will pot will definitely hit the LTA, then move to prioritize filling your ISA allowance.
I’m 35 and have about £85K in my pension pot, and have often wondered the same. How do I know when I should stop?
On a similar line to some other comments, does anyone know of a sequence of returns modeller that lets you model a future SWR from a starting point that’s many years before retirement? I’m 9 years from minimum pension age and a big proportion of my retirement pot is already saved. My sequence of returns for the saved pot starts now, not when I retire, and for the next 9 years I’ll be contributing further and unable to withdraw.
So, let’s say I have £300k now and will contribute a further £100k over the next 9 years. This will give me a total pot of £400k in today’s money, assuming I increase contributions with inflation, and ignoring the ups and downs of the investments. The exam question is: What would be a safe income from those funds in today’s money, starting in 9 years’ time?
I haven’t seen this sort of question tackled anywhere, but I’m sure it would be relevant to many people.
@Dave S
The answer is in the article, quite near the beginning
3% SWR so £400K x 0.03 = £12000
‘You need enough in your pot to sustainably generate a comfortable retirement income that will last you the rest of your life.’ – I don’t. I wish to retire at 50. So all I need is a sustainable income for about 15 years. At 65 db pension takes over and at 68 state pension is a nice addition. Or am I missing something?
It Would be so great if there would be an article for people like me, who just plan to created a pot for fixed amount of time. I am not into SWR. I am into draining my portfolio to exactly £0 by the time pension takes over.
Off topic
Is anyone else finding that the site crashes on an iPad more often than not now? I don’t seem to be able to get any articles to work reliably on my iPad (has been happening for a little while) – a page loads and I start reading and then a couple of minutes later reloads and then again and finally the iPad gives up and tells me that the page keeps crashing. Moderately frustrating (although at least I have other devices I can switch to that seem to work ok).
@Erico1875
That figure is based on the scenario where the pot is already saved, and withdrawals are starting immediately. In that situation, the worst case is that the stock market falls heavily in the first few years, because then you’re withdrawing too big a proportion in those years, and you can’t recover it. But in my case, a fall in the next few years would be great, because then my contributions buy me more shares at cheaper prices, and I can’t take anything out anyway. And, if the years before I start withdrawing provide poor returns, then the outlook for the subsequent years is likely to be very good. So the two situations are very different. Maybe they cancel out, but I doubt it, and that’s what I’d like to know.
There’s a lot of talk of keeping x years’ living expenses in cash, as a very sensible strategy to avoid having to sell in the midst of a downturn. My question is how/where are people holding this – as cash within a SIPP/Cash ISA/Premium Bonds – or are there any cash/money market products available within a SIPP/ISA which can be used to hold cash and gain even a small return?
@David — That’s worrying. Does it definitely not happen with other websites? I’ve seen that behaviour on my iPad when I had too many tabs opened for weeks on end (not with Monevator, just generally).
@TI – just Monevator. Have gone so far as to shut down and re-start the iPad to see if it makes a difference but no luck. That said, if others aren’t seeing the same thing then probably not a site thing I guess.
I mean, the ftse 100 yields around 4% as do any number of ITs with multi decade track records in increased divis.
Let’s say one has over £1m invested. One will get £40k pa passive income and never have to sell a single unit, so there is no sequence of return risk. Say one has a full state pension at 67. Say one has a mortgage free house worth £600k. Say one has 5+ years expenses in cash.
Why would one take 3% pa by selling units and STILL be left scared of running out of cash? It makes zero sense.
@David. I use iPad Pro all the time, no problems. Try Chrome or go to Settings, Safari, Advanced, Website Data search for Monevator and clear the website data.
@Dave S
Whether you are in drawdown or not. A big crash is not good for your portfolio under any circumstances.
Once more, the article shows this
@David @TI. Yes. +1 for Monevator repeatedly crashing on an iPad using Safari. Appeared to start happening more frequently as the number of ads increased. I fixed it by installing AdGuard, an ad blocker. Sorry if this reduces ad revenue but only way I could read the posts. Thanks for all that you do.
@Peter S
A fixed period is at a basic level simple. If you have a pot of say £300k at retirement date, stay invested and drawdown as needed you in theory have 20k per annum over 15 years if we assume you at least match inflation in investment returns.
Your first issue if you plan to retire at 50 you likely won’t be able to access pension until 55 or later so need a stash held outside pension to bridge the early years.
Then more acutely is your sequence of returns risk is amplified as you are withdrawing at a rate of 6.67% so downturns at any point below the starting level plus inflation can see you fall years short of completing the bridge.
Then there are the inheritance tax benefits of retaining funds in a pension pot vs other wrappers.
The reality of all that is it is a dangerous game aiming to bridge exactly unless you are willing to hold a large cash position and bear the consequences of inflation.
Some actual results from a 75 year old retired at 57 which maybe of interest
Knew the 4% was safe in those far off days as a SWR
Conservative investor so lots of bonds +60% in the portfolio
Went for 3.8% withdrawal rate and continue to do so
Portfolio has grown well so fixed withdrawal rate generated more income
Will growth rates lessen going forward-everyone seems to think so
Bonds also seem to be out of favour
However as an older investor and been through a lot scepticism of forecasts is second nature to me
Failure of your retirement plan is not an option however so erring on the conservative side is wise
A 60/40 portfolio used to sustain a 4% withdrawal-investors now one should use 3% but bear in mind things could change and a higher rate of withdrawal could again become possible
xxd09
@ Lesley – a few researchers have calculated peak sequence of returns risk to occur in the first 10-15 years of a 30-year retirement. That red zone is longer if your retirement is longer.
There’s plenty of evidence that shows you can spend more up front but the trade-off is you may need to spend less later. Not as a matter of certainty but as an emergency brake measure should sequence of returns goes against you in the early years.
Still, there’s even more evidence that retirees naturally spend less later in life as they age and become less mobile.
You’re on the right lines with your thinking, especially if you’re prepared to sacrifice inflation increases and your State Pension will take the load off in year 10.
Check out this piece on dynamic withdrawal rates which help compensate against being too cautious when things go well:
https://monevator.com/dynamic-asset-allocation-and-withdrawal-in-retirement/
@ Steveark – I know many people who think they’ll be working into their 70s. Mostly Gen-Xers with moderate incomes who left retirement planning very late due to financial pressures earlier in life. It’s also interesting that Japanese retirees flooded back into the workforce. It seems to have been a positive trend in many ways.
@ Rhino – this article is written for people who will retire in their mid to late sixties and will need their State Pension about the same time in order to do it. I know lots of people like this. People who don’t work in tech or finance jobs for example. Moderate incomes, no ambitions to FIRE. May not even have heard of FIRE. Absolutely no chance of having £100K in by 20, or probably even 30. Simplicity is key here. The kind of 10th Dan stuff you do in your sleep is for other posts.
@ Dave S – Michael Kitces has done work on that question: https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/
@ Peter – if you want to keep your pot going for a limited length of time then you can use the SWR model for that too. This piece may help: https://monevator.com/how-to-choose-an-swr-for-your-isa-and-your-pension-to-hit-financial-independence-fast/
A 5%-6% SWR would keep your pot going for 15 years (constant inflation-adjusted spending) according to Monte Carlo sims and historic asset class returns. Obviously if you did very well for the first stretch you could start to spend more as your defined benefit pension approached.
Alternatively you can use a liability matching / cash bridge strategy:
https://monevator.com/should-you-use-cash-to-bridge-the-gap-between-your-isas-and-your-pension/
@ Matt – the FTSE 100 can’t be relied upon to always yield 4%. It yielded under 2% back in 2000, for example. A change in yield like that cuts your income in half to £20K.
An SWR strategy is designed to give you the best chance of maintaining a consistent level of spending that keeps pace with inflation.
If I could rely on your strategy then I definitely wouldn’t need to worry about running out of cash at a 3% drawdown rate. I’d just live on dividends like you.
If you don’t run out of cash withdrawing 4% then I won’t run out of cash withdrawing 3%. In fact my wealth will keep growing if what you say is correct.
Sadly there’s a large body of retirement research literature that says your scenario was unsustainable in the past. The future doesn’t look too rosy either.
The article takes the State Pension into account. If you’re prepared to sell your house then great. Typically people don’t want to do that. But we might all have to tap into that asset to fund long-term care eventually. 5 years expenses in cash? Sure that helps – it’s just another pot that needs to be accumulated somehow.
Good article, but I think the example used in discussing the sequence of returns risk is mixing up 2 different issues when it comes to taking an income from a volatile portfolio. The first is that the market returns being compared are not the same. In the first instance, the return (+5%, +5%, +5%, +5%) equals a total return of about 21.6%, but the return (-50%, -50%, +60%, +60%) is -36%. This is an extreme example of geometric returns always being less than or equal to arithmetic returns and the higher the volatility, the bigger the defecit.
The second issue is the true sequence of returns risk. Taking an income when the market goes (-50%, -50%, +60%, +60%) results in a smaller pot than taking an income when it goes (+60%, +60%, -50%, -50%), even though the total return of the market is the same in both cases. However, the outcome from this most favourable sequence of returns would still be far worse than the steady (+5%, +5%, +5%, +5%) would have been.
In summary, you can get a good sequence of returns or a bad one, but volatility is never good and always detracts from the market return measured using an arithmetic mean.
The Monevator article explains this all well https://monevator.com/sequence-of-returns-risk/
@Matt, as an example of the unreliability of dividends @TA refers to, from its peak in 1965, the RPI adjusted income from the UK stock market dropped by about 40% over the next 10 years. It then gradually climbed back up, finally exceeding the initial income in 1987. The nominal income rose just about every year throughout the first decade, it just did not keep up with inflation.
The dividend record from the US market was even worse in this period, despite starting at a lower yield.
Dividends are no magic bullet, unfortunately.
This approach seems very crude compared to proper financial planning which would assume a date of death, say at 100 years old. The idea of 3% SWR in the article and elsewhere is premised on never exhausting the capital if all goes well, which amounts to never dying. What am I missing?
@Badger101
I don’t think it is stated explicitly in the article, but is mentioned in the link about why 3% was chosen, that all SWRs are related to a timespan. I think in this case the timespan is probably 40 years. In comment #29 @TA explains that for a shorter period of 15 years the SWR might be more like 5-6%. So timespan is taken into account.
@Badger101 – Drawing down capital over the longer term doesn’t make as much difference to the annual amount as it does over the shorter term (which it inevitably is with conventional/late retirement) so there’s less incentive to do so.
There’s also an aspect of risk appetite. To use an analogy I’d far rather drive a little slower and have fuel left at the end than try and calculate/model precisely and end up in this situation – https://www.youtube.com/watch?v=UXuEvuyyy4k&t=90s (9 minutes of F1 cars running out of fuel before the end of the race).
@Matt, taking only the 4% dividend yield (even if that yield was assured which it isn’t) means accepting very uneven income. If you start with £1m a 4% yield is £40k income, but a bear market 50% drawdown giving you 4% on £0.5m gives you £20k dividend income. That’s why SWR and seqence of returns risk models work on a starting income increased annually by inflation – much more consistent.
@ Badger – there’s no guarantee that 3% SWR gives you a pot that lasts for ever. Check out this link to see countries where the worst historical scenario emptied the retirement pot in 30 years or less:
https://retirementresearcher.com/the-shocking-international-experience-of-the-4-rule/
Even a low SWR like 3% always comes with a failure rate attached. You can cheat failure by dying quickly. The longer you live, the more you risk some awful sequence of returns wiping you out.
On the bright side, your limited life expectancy will hopefully cancel out your chance of failure.
For more on this: https://monevator.com/life-expectancy-for-couples/
@ Naeclue – thank you for your insightful comments as ever. My example was just trying to show why the ‘simple average return’ approach that I see in retirement calculators and in the financial press is dangerous i.e. doesn’t take volatility into account at all. My examples are meant to show that simple averages are misleading.
@TA
That’s an interesting link, thanks, but I was driving at something different. I essentially want to run a simulation (Monte Carlo, or historical sequences, or whatever is used to come up with SWRs), but in which money is being added in the first x years and only withdrawn after that.
That would give me a percentage which I could apply to the total of my current pot plus expected future contributions, to produce a pound amount for what I’m on track to be able to withdraw in retirement. That would be the baseline amount that I could then increase by inflation each year to give me the pound amount I can withdraw from my portfolio – the difference being that I’d only start taking that amount when I reach my retirement age.
My intuition is that this will give me a more reliable SWR, because the critical early years of the sequence take place during a period when no withdrawals are being made.
I guess this is another way of saying “valuation matters” – if the market has been on a winning streak in the years leading up to retirement, then 3% is riskier than if it’s been on a losing streak, simply because 3% of a big pot is more money than 3% of a small pot. By fixing the SWR several years before retirement, I feel like it would help to take valuation into account at the point of retirement – but I’d like confirmation of this by running the numbers, as I’m aware my intuition could be wrong.
P.S. I’m just talking about rough figures to help with planning – just like the usual SWRs, but based on the situation when retirement is still a fair way away.
@TA, thank you for the kind words. To illustrate what I mean, consider one of my favourite drawdown sequences for the UK, starting at the end of 1968. The 30 year RPI adjusted arithmetic average rate of return of the UK stock market was about 9.6%. The geometric rate of return was about 6.4%, lower than the arithmetic average due to the volatility.
Still 6.4% was decent and at first sight may make it look as though an SWR of 6.4% should easily have been ok, leaving capital intact. However, the maximum SWR that could be achieved to run out of money after precisely 30 years was only 3.66%. That low SWR is a consequence of the terrible sequence of returns. Had the sequence of returns been reversed (1998 return, 1997 return, ..) then the geometric rate of return would have been the same 6.4%, but the maximum SWR would have been 10.4%!
IOW you can have a good rate of return but end up with a poor SWR due to unfortunate sequencing. Similarly a lucky sequence of returns can rescue a poor period of stock market returns. What you don’t want is a poor period AND a poor sequence of returns.
@MRN come on now, that’s not how yields work. If the dividend paid stays the same in cash terms, it doesn’t matter that there was a 50% drawdown. It matters one hell of a lot of you’re still taking 3%, increased by inflation. Historically, dividend payments are much more stable than capital values.
@naeclue I get what you’re saying, and of course I’m not claiming a magic bullet and I know everyone thinks I’m wrong. Even on your numbers the “real” dividend fell from 4% to 2.4%? (40% real terms fall) over the worst period of inflation in living memory, but still rose nominally. What happens to 3% trying to stay with inflation when it’s 25%? That’s an increase to 3.75% in just one year. Plus I’ve had 4% to kick off rather than 3%, and am potentially able to save 1%pa in additional cash. I’m just running numbers and can’t see how taking natural yield is worse than spending units and STILL getting a lower income while STILL thinking I may run out of cash before I pop me clogs.
Why not just buy an annuity? Remove risk of running out of money entirely. Use some of it to pay a reverse inheritance if you’re worried about kids not benefitting. All sounds a bit too complicated for a 90 year-old to deal with.
@ Matt – you’re talking about a reduction of income from £40K to £24K in real terms. That’s a 40% fall in income. If you’re thinking in nominal terms rather than real then you’re ignoring the fact that inflation is making you poorer.
An SWR approach is designed to increase your income in line with inflation. You withdraw 3% in the first year only. After that, your withdrawals may well increase as a portion of your pot.
Re: your reply to MRN. You’re not going experience a 50% drawdown and no impact on dividends. They won’t be the same in cash terms. Companies tend to cut dividends in recession. You’re suggesting that if the FTSE dropped 50% then your 4% yield would go to 8% to stay the same in cash terms.
One question to ponder is how can someone withdraw a greater income and run a lower risk of running out of money than someone who’s withdrawing less, living off dividends, *and* capital appreciation? From your comments, I think you’re squaring the circle by ignoring periodic dividend cuts and inflation. But both of those reduce your income.
Periodically not taking the inflation raise is a well known method for ensuring a decumulation portfolio doesn’t run out of money. It sounds like that’s what you plan to do.
BTW, I completely agree that you can live purely from dividends. But you have to be prepared to accept periodic income cuts or set aside some of your dividends every year to cover bad patches.
@ David S – It’s possible Timeline has the flexibility to do what you’re after: https://www.timelineapp.co/
They have a free trial.
Early Retirement Now’s toolbox may also let you model it using US asset returns.
But assuming you’re going to withdraw X% of your final figure then that’s when you’d apply your SWR. A low SWR is meant to deal with historically bad sequences of returns which correlate with high valuations. If valuations were lowered by a stock market crash then it’s highly probable you could use a higher SWR than 3%.
@ Naeclue – that’s a telling example. Are you tracking the year 2000 cohort? Do you think they’re in trouble?
@ Rich – I agree annuities are a good idea the older you get. I’ll definitely consider one in my mid to late 70s as they become better value for money.
For me, the main problem with level annuities is they don’t keep pace with inflation. Whereas escalating annuities are extremely expensive. You’d need to live well into your nineties to come out ahead. I still think they’re a great way to deal with longevity risk if you have good genes.
People shun annuities though. They don’t like the lack of flexibility and forking over most of their wealth for a trickle of income.
How would you plan for an annuity btw? Keep checking the market until you could buy an escalating annuity that gives you a retirement income you can live on?
@naeclue – with respect my response to MRN is saying the exact opposite of that. They were saying that a 50% drawdown would result in a 50% drop in real income (somehow £40k becomes £20k) – so it follows they are saying that a 50% increase in capital value would lead to a similar increase yield. I am pointing out that neither is the case. It is a concern to me that the issue of yields seems so poorly understood.
Re comment 44 on annuities, surely a better, and at the moment cheaper, idea is to defer the State Pension (assuming that will still be an option). It is effectively an index linked annuity (probably not triple locked in the future). This is “longevity insurance”.
Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks.
@ Matt – take a look at this excellent analysis of dividend strategies – pros and cons. I think you’ll find it helpful:
https://earlyretirementnow.com/2020/10/14/dividends-only-swr-series-part-40/
@Badger101:
FYI, it was 10.4% PA under the old state pension scheme – with 50% survivor benefit too – under the old state pension scheme!!
@Naeclue (#39):
Great example and it reminded me of this classic from ERN:
“SRR matters more than average returns: 31% of the fit is explained by the average return, an additional 64% is explained by the sequence of returns!”, see: https://earlyretirementnow.com/2017/05/24/the-ultimate-guide-to-safe-withdrawal-rates-part-15-sequence-of-return-risk-part2/
@43 – The Accumulator
https://retireearlyhomepage.com/reallife21.html
If you look at the very last table for 2020, the table is indicating for someone retiring in 1999 by 2020, a $100k portfolio invested in 75:25 S&P 500 / 25% FI was worth %59,667 with a withdrawal indexed to $6,114 so approximately now 10% w/r with 10 years to go to not fail the 4% SWR 30 year time frame. This example clearly shows to me the dangers of SoR risk in the first ten years, which despite a ripper of a bull market over the last decade, the portfolio is unable to recover properly having been too depleted in the early years. More importantly look at the sequence of results annually – by 2008 you were also withdrawing 10% of the fund. Is anyone seriously saying that they wouldn’t at the very least had quite a wobble – recall in Sept 2008, even the president of the USA (not the sharpest tool in the box mind) was suggesting ‘this sucker could go down’.
I am seriously doubting my ability to live through such future volatility. Not that I have much of an answer beyond working in some shape of form.
One of my parents took an annuity in his early 50’s fully indexed to inflation in the late 1990’s. By the time they had passed away twenty years later, relatively speaking they were relatively poorer not withstanding the indexation. I suspect this is a combination of RPI not matching annual expense increases and wage growth ahead of inflation. Plus annuities are rather expensive as you articulate.
Dividends are a great way to avoid SoR risk. You just have to accept that (a) your annual income is going to be extremely volatile – note 2008 /9, 2020/ 2021 (b) the strong likelihood is that you end up with a portfolio that much greater than 0 when you die (which might be what you want). And if you are just investing in investment trusts that have raised their dividend well that’s a lot of active allocation as they tend not to invest in high growth companies and borrowing to pay a dividend out of revenue reserves is the equivalent of a retiree doing the same. So dividends are no panacea.
Based on today’s mortality tables either I or my partner have a 10% risk of lasting another 60 years – If I look back 60 years and compare that to today’s environment it clearly demonstrates the futility in thinking we have much idea of what’s coming down the track.
So having thought I would be an early retiree, I am increasing of the view that I’ll be coast firing until my early 50’s to reduce the SoR risk by using up some human horsepower…i.e me. I appreciate this article is probably for someone retiring closer to the state pension age.
The same old issues keep rearing their head.
@SF (50):
I wondered how long it would be until “coast firing” came up?
Do you have a plan in mind including, possibly, some sort of ideal step down role, or is still early days in your thinking?
@ The Accumulator
I’ll try to illustrate my point with some numbers, but I think the key difference in our assumptions is that I don’t want or need to retain my capital (as things stand). So say we both have £1 million at retirement age, and an escalating (I wouldn’t consider level either for the same reasons) annuity gives me an annual income of 30k and your 3% withdrawal method also gives you an annual income of 30k, then we have the same retirement. The difference of course being that you get to leave money in your estate. A lot of money, no doubt. But what if you have no children? Surely better then to up the withdrawal rate, and not leave behind any money, or to buy an annuity and have zero risk? You won’t care about the loss if you’re dead. My current plan is to give my children a reverse inheritance. So annuitize my estate at retirement age and pay them an escalating monthly amount that of courses ceases to be paid when I die. And of course encouraging them to become financially literate in the interim by reading great blogs like this one 🙂
I would like to avoid any kind of monetary value to be placed on my death. It just doesn’t sit right with me. I’m even considering selling the house, annuitizing the proceeds and renting until I die. I’ve seen too many old people make many housing mistakes after they retire and I don’t want it to happen to me. I’d like to retain flexibility, and if the house needs a new roof. Not my problem 🙂 And if one of my kids moves elsewhere, I can move to help with their childcare, for example. All subject to change of course, but that’s the current plan (aged 40 at the mo, kids still v young).
@Matt, I have had a closer look at what would have happened had you just taken the dividends from UK allshare starting at the end of 1968 and it was not as bad as I first thought. I made a mistake in my previous post and the drop in real income was only about 30% rather than the 40% I stated. The forward yield started at about 4.33%, so £433 for each £10,000 in 1968 pounds. The real value of the income then dropped to around £307 in 1975 before starting to rise again. Just taking dividends acted much like a variable withdrawal strategy.
I would not take that as an endorsement that it would work every time though! eg the real income in 1919 was around 80% lower than it was 10 years earlier.
My drawdown strategy involves collecting all the dividends into a cash bucket, occasionally topped up with capital disposals when the market rises, similar to McClung’s Prime Harvesting approach. My cash bucket has to 6 years in cash to smooth things out.
Historically living off dividends would likely have been fine most of the time as dividend yields used to be much higher, even in the US. Now though the World market, eg FTSE World Index yields less than 2% which is not going to be enough for many people. You can of course get the yield higher, but doing that comes at the cost of reduced diversification and typically higher investment costs.
@Rich, the flaw in your plan is that at present you cannot get a 3% index linked annuity until you are well into your 70s. Otherwise annuities are a good thing 😉
The difficulty with annuities is that the underlying investment is predominantly in bonds. Investing in bonds is absolutley fine if your expected retirement span is about 15 years, but for most people these days the retirement period might be 30 years or more and to get a decent 3%+ return over that period some exposure to equities is required.
@Al Cam, yes a lot of this stuff is very unintuitive. Consider the 1968 example with a maximum SWR of 3.66% from a 100% UK equities portfolio, even though the 30 year market rate of return was 6.4%. Going for a 60/40 equities/cash split would have reduced the rate of return to 5.6%, but the maximum SWR would have been 4.28%. Lower portfolio return resulted in a higher maximum SWR!
0.6% of that 5.6% by the way came from a rebalancing bonus.
@ Seeking Fire – great comment. And what a resource Retire Early is. It’s amazing to see that the good ‘ol 60:40 portfolio isn’t in trouble like 75:25 is. Generally, it seems to me that the more diversified portfolios have shepherded the 1999 cohort through just fine so far. What shocks me most though is that cohort has just over 7 years to go. I must have suffered my own lost decade somewhere along the way.
I agree that volatility could be tough to live with. The evidence suggests that real retirees respond to that uncertainty by continuing to save throughout.
It makes sense to me that you’ll still earn. Hopefully doing something you enjoy. FIRE luminaries such as Jacob @ ERE and, of course, MMM, continue to earn one way or another. It’s a natural byproduct of a life well lived once you kick the soul-destroying job.
There are quite a few different ways to manage the volatility uncertainty. Here’s some previous posts on the topic in case useful for anyone:
https://monevator.com/dynamic-asset-allocation-and-withdrawal-in-retirement/
https://monevator.com/back-up-plans-for-living-off-a-portfolio/
@ Rich – great plan, Naeclue’s point about annuity expense notwithstanding. Negotiating that gap means I’ll go into drawdown for a couple of decades before assessing annuities in my 70s. If it’s a good deal then I’ll annuitise some of my portfolio and keep some in reserve to deal with unexpected expenses.
The methodology in this post assumes you’re sanguine about leaving an inheritance. As you point out, an inheritance is a likely outcome of an SWR strategy but you may also leave very little behind if sequence of returns are behind.
Selling the house and renting is another smart approach. Personally speaking I’ll find it difficult as Mrs TA and I are very emotionally attached to Accumulator Towers.
I did prompt my mum to buy an escalating annuity to see her through her retirement. It’s worked out very well.
@ Badger we also deferred her State Pension which has been worth its weight. Although @ Al Cam it was on the super-generous old terms.
Finally, we didn’t put everything into the annuity. Mum has an upside portfolio which isn’t required for essential spending but is there in case she needs it.
Al Cam – Don’t know yet….It will be what it will be…
Accumulator – Yup. Good point on 60:40. Albeit a lot of people seem to be understandable striving for genuine FIRE in which case your outlook is >30 years and so 40% in bonds for say up to 60 years seems tough. Particularly in the current climate – which is a bit of cognitive dissonance on my part as I’ve just said I haven’t much of a clue on the future – I hold bonds but not 40% worth. If you went 100% S&P 500 in 1999 it’s a worse outlook than 75:25.
I actually like Naeclue’s draw down strategy the best out of all the one’s I’ve read albeit even that would be impacted by a prolonged bear market of course.
You really need a high margin of safety even through your assets, expenditure or ongoing earning potential….Same old issues!
@TA
“But assuming you’re going to withdraw X% of your final figure…”
No, that’s not what I had in mind. My calculated SWR would be fixed now, and converted into a monetary amount now, which is then increased by inflation each year. At the point of retirement, that monetary amount could be a higher percentage of the final pot than my original SWR (if the market was at a low ebb) or a lower one (if the market had gone up). In that way, it’s no different to how a traditional SWR behaves in the years after it has been fixed.
But, crucially, it allows me to set my income expectations now, and take action if necessary, rather than waiting to see what my final pot ends up being. That’s the real point of the exercise.
Timeline looks very interesting – at least judging by the promotional material on the website – and I think it may well do what I need. I think it might also help people who want to factor in a state or DB pension that arrives many years after retirement. I’ll give the free trial a go when I can maximise the 30 days. (It’s a shame they don’t market it at individuals.) Thanks for the tip.
And thanks more generally to you, TI and all the contributors and commenters who make this site such a valuable and entertaining resource.
A good read.
It makes me grateful that I have both a healthy SIPP and a modest final salary pension.
LTA is a looming long term threat though.
@ Accumulator.
Yes, we are rather attached to our house too. Perhaps equity release, reverse mortgage or something similar might work for us. Or perhaps it would be better to pass it over to another family and just buy a bungalow. Who knows.
From the look of these rates, it does seem like I would be able to guarantee a 3% escalating annuity in my mid 60s. So 30k annually with a 1mil pot, unless I’m misunderstanding something.
https://www.hl.co.uk/retirement/annuities/best-buy-rates
Admittedly not index-linked, but I suspect a mix of approaches as you described with your mother might be the best approach. It’s all just a huge personal exercise in risk management isn’t it? Keep up the good work anyway.
Another interesting dataset I came across a few months back – which relates to pulling the plug in 2007 in the US – is available via the first comment by JC Webber III at: https://earlyretirementnow.com/2021/08/05/the-need-for-precision-in-an-uncertain-world-swr-series-part-46/
Al Cam. Yes interesting data set you link to. Doesn’t show what it is invested in but I assume the S&P 500 or a combination thereof. It demonstrates again what an incredible bull market we’ve had for the last decade that has supported his high w/r and that someone retiring 7 years later than 1999 can have very different experiences. Of course his next 13 years might demonstrate a very different sequence of returns but as ERN said it worked out well for him. If he had taken the same approach in 1999 by now presumably funds would have been drained unless he modified spending downwards. 2008 was not a terrible bear market as it wasn’t prolonged although living through it in de-accumulation would have been very difficult emotionally I more than acknowledge.
Interesting post, as usual. I have been following this website for a while, but this is my first post. I am not an expert, so please bear with me.
Although rule of thumbs are useful, I wanted a better way to simulate potential scenarios for my retirement. A Monte Carlo analysis seems the way to go. I could not find anything online tailored to the UK or with clear details on the assumptions used. It is based on a completely passive strategy. No active funds.
This (https://github.com/ruggieroguida/montecarlo-pension-uk) is my first attempt. You do not need to be a programmer to use it, but you do need to be able to run a python script.
It is very basic. Feel free to provide feedback. I have tried to add comments to the code to explain the logic. I hope it makes sense and, most importantly, the assumptions are correct.
If there is any interest (and it is correct) I could make it more accessible to non programmers.
The thing that’s been on my mind with regard to pensions recently is not so much longevity, but “shortevity”… The post on wills earlier this week reminded us that it’s quite easy to die before you reach pension age. Sadly I’ve also seen friends and relatives die shockingly young. This can happen at short notice (e.g. < 6 months), in which case your cash savings will perhaps see you out. But then there is the awkwardness of longer or more unpredictable scenarios (e.g. 15 years left, pre-pension age). It's very hard to prepare for long-term debilitating conditions. Especially given that the social care reforms have so many gaps, for example, not covering what are weirdly described as the "hotel costs" (…roof over head). Social care, both for "working age" adults and those who have reached pension age, is a bit of a minefield.
@SF(#62):
What I particularly like about the dataset is that it seems to have the idiosyncrasies of real life – albeit the spending between 2008 and 2011 has possibly been re-constructed and/or estimated. IMO, most of the published case studies including those by ERN, JPG, etc are all just too “clean”. Having said that, ERN’s SWR series part 47 does a great job in scoping the likely impact of some of the typical real life variations.
JCW III posted his data set more recently at Fritz’s Retirement Manifesto, see: https://www.theretirementmanifesto.com/rethinking-the-4-safe-withdrawal-rule/
but to date nobody has asked him about his investment choices.
Looking at the dataset again, I wonder what his spending (minus his savings/investments – ie his consumption) was like for a few years prior to 2008?
@ Al Cam #49 – That’s a very important insight I also paid attention to when I read
@ Al Cam #48 – Sorry, pressed submit by mistake before typing the whole comment 🙁
Here it goes again:
That’s a very important insight I also paid attention to when I read ages ago that big ERN post you referenced. Naeclue #39 also makes a similar point when he mentioned that the return can be reasonable over a given period of time and yet the SWR can end up being very low for that period due to SoR.
One way to mitigate SoR is to reduce the volatility of your portfolio. This is one of the measures I’ve been trying to adopt. Like most people, I’ve got more than one pot. The largest one, which I don’t contribute to anymore, has had an annualised volatility of 3% since 2016. Every year, the year-to-date volatility has been roughly 3%. The annualised return from 2016 is a modest 8% though and this year’s annual return to date is around 5% as of today. I am happy if I can just make a bit more than inflation. My main goal is to reduce the volatility to mitigate SoR.
There is a link in Weekend Reading today to an interesting article on annuities in the FT by Sir Steve Web. This, and the report published by the firm for which he works and on which the article is based, seeks to determine if there is an optimum age to annuitise for maximum happiness in retirement. Of course, it all depends on the assumptions made. The full report explores a range of assumptions. The article and report conclude that using their base assumptions, 67 is the ideal age to buy a level annuity. The report also covers inflation-linked annuities but concludes that these are not preferred (relative to drawdown) until age 75 or over.
@Tom-Baker Dr Who (#67):
Are you able to share some of the techniques you have been using to reduce portfolio volatility?
DavidV (#68):
Are you familiar with the annuity moneys worth (using the internal rate of return (IRR)) calculations in this 2014 paper:
https://www.royallondon.com/siteassets/site-docs/media-centre/cazalet-consulting-when-im-sixty-four.pdf
@Al Cam (70). Yes, I have read the Cazalet paper. I have also come across the money’s worth concept in other reports by UK official bodies – I can’t remember which, perhaps the FCA 0r Money Advice Service. They will be among the many reports on my hard drive – I’m sure only a fraction of the number you have!
@ Al Cam #69 – Nothing fancy, just good old diversification. That pot has got an asset allocation inspired on Harry Browne’s permanent portfolio. I say inspired because it is not quite Harry Browne’s.
I’ve got about 35% equities, roughly 40% bonds, and about 25% physical gold.
Within equities there are about 28% in America, 15% in Britain, 19% in Europe, around 18% in Japan and 20% in Asia Pacific. In each of these regions I have almost half in small and midcaps and slightly more than half in large caps.
The bonds are mostly good quality developed government bonds with a few investment grade corporate bonds. About half of those are inflation Linkers, most medium duration, with a few short duration. The conventional bonds are roughly half medium duration, half short duration. All foreign bonds are hedged to Sterling but, to get some exposure to the US dollar safe haven properties in a crisis, I have about 5% in unhedged medium duration TIPS.
Included in the 35% equities there’s about 11% in international property (REITs).
Almost everything is either a tracker fund or an ETF. I try to keep the total fees as low as possible.
The large allocation to Gold with its low correlation to both equities and conventional (but not inflation-linked) bonds seems to explain the unusually low volatility of this portfolio. My greatest worry is the possibility of bitcoin or another cryptocurrency eventually replacing some of the safe haven role Gold has played so far in history. The current evidence is murky but when this becomes clearer it might be too late to do anything…
@Tom-Baker Dr Who (#72):
Thanks for the explanation.
Do you have no cash, or do you hold/account for that separately as you mentioned at #67?
I am absolutely no expert, but from what I can tell your approach seems historically matched to your objective to “just make a bit more than inflation”. Whether the low volatility since 2016 is long term sustainable might be open to question.
OOI, the link that @SF provided at #50 above contains some longer term tracking (with 4% SWR applied) of [JPG’s version of] a Harry Brown style portfolio. This info may be of some interest to you.
@ Al Cam #73 – This is my largest pot. The next largest is a DC company pension with a limited choice of funds, where I hold basically just equity tracker funds, a very small amount of bond funds, and enough cash for 10 years of bare minimum expenses (in the style of ERE) or 5 years of somewhat comfortable expenses.
My total asset allocation across all pots has had an annualised volatility of about 6% since 2016, but also a higher annualised return. My total paper loss across all pots observed today compared to one week ago was of about 1.40%
I had seen that link to the real world portfolios before. It’s very useful indeed. Thanks.
@Tom-Baker Dr Who
Got it!
IIRC you are quite close to pulling the plug. In which case, I’d be intrigued to understand what, if anything, are your thoughts on “coast firing” as mentioned by @SF above?
Also, have you ever listened to this podcast featuring Jacob Lund Fisker of ERE: https://www.madfientist.com/early-retirement-extreme-interview/
from the start of this year that was updated in mid April to add IMO a much needed transcript?
@ Al Cam #75 – I think I will probably end up with something that is effectively ‘Coast Firing’ because I am considering going part time a year after leaving the grind. I just don’t want to depend on having to do any work, if I decide not to work. The part time work must be interesting to me and offer some opportunities to meet other people and socialise a little. According to my simulations and various analysis I have got enough to never have to work again. That is why I am happy with just making a bit more than inflation and my main concern is to reduce SoR by keeping the volatility of the total portfolio as low as possible.
I see what you mean about the much needed transcript. Jakob Lund Fisker still sounds very Dane to me despite him having been living in America all this time!
I listened to that Mad Fientist podcast. Very interesting. Specially his rose-tinted impressions of his short stint being a quant. Having been a quant for about 18 years now, I think Jakob would probably be sick and tired of the quant world if he had stayed a bit longer than he did 😉
@DavidV (#71):
I have had a look through the Webb & Boyle LCP paper.
The approach is not exactly new – a lot of similar work has been done by Milevsky and others and most of it can be traced back to the 1965 Yaari paper “Uncertain Lifetime, Life Insurance, and the Theory of the Consumer”.
Utility is an interesting idea – but like a lot of economics it seems a bit “woolly” to me. Annuities are – in theory at least – a good idea that IMO are often spoiled (esp in the UK) by the load imposed by the provider. That an index linked annuity is clearly much worse VFM than a level annuity tells you all you need to know. IIRC, this clue is no longer available in the US as you cannot even buy an inflation linked annuity there any more.
Just my thoughts.
@Tom-Baker Dr Who (#76):
Best of luck.
Having options is a really good place to be!
If your simulations and analysis are typical of the FIRE crowd (ie inherently conservative) it should probably all work out just fine.
@ Al Cam #78 – I hope so. Like most of us, I certainly have a preference for making my simulations and analyses conservative. Thanks for the well wishes!
I know this article is aiming for simplicity, but at the risk of a little more compexity, a better income may be achieved than the basic take 3% per year whilst adhering to a conservative approach.
To start with, if the value of the retirement fund was higher a year ago than it is today, then it is entirely reasonable to take 3% of the higher amount. So if you had £500,000 a year ago (or even a few days ago), but only have £400,000 now due to a sharp stock market correction, it is still ok to use an initial withdrawal rate of £15,000.
Secondly, after the first year if the retirement portfolio has grown faster than inflation, despite the withdrawals, reset the income to 3% of the current value of the portfolio. Taking the example in the article, if the inflation adjusted income is £15,375, but the retirement portfolio is now worth £600,000, reset the drawdown income to £18,000 instead.
There is no reason to reduce the income if the value of the retirement fund falls, as this fall is anticipated and included in the prudent 3% withdrawal rate. Just inflation adjust the income from the previous year.
3% SWR is likely to be too conservative and these simple steps will likely allow a higher income to be drawn, whilst sticking to the spirit of a prudent 3%. It is a way of “averaging in” to a slightly better drawdown path.
@ Dave S – cheers! Good luck with Timeline. I enjoyed using it and hopefully it’s flexible enough to do what you need.
@ Rich – that annuity best-buy-rate is interesting. So looks like we’d pass the 3% rate for escalating sometime between 65 and 70 for a couple, depending on how much we smoked! I’d be concerned about signing up for a 3% inflation uplift though rather than index-linked. Obvs, the longer you can leave annuitisation the less that’s a worry. When I signed my mum up you could get index-linked products and some that escalated at 5%.
@ Ruggiero – Cheers for the link. I don’t know anything about python but the UK really needs something like this so thank you!
@ Naeclue – Like it. I assume you wouldn’t keep resetting year in year out?
Re delaying drawing state pension to increase its value: has anyone crunched the numbers on this compared with investing it in a SIPP or ISA, which may later be used to purchase an annuity?
Both assume you have other income to live off, and presumably tax will come into equation, but latter option has the benefit of flexibility – eg it can be passed on if you pass away!
@TA, Logically I see know harm it continually ratcheting up as market returns permit. This is a logical thing to do because we are saying that 3% is a prudent minimum withdrawal rate. Someone just starting to drawdown would take 3% and so it makes no sense to take less than they would. If anything a little more than 3% should be possible as the investment horizon shortens with each passing year, but then we are into the complexity of adjusting according to life expectancy.
There is of course an issue in that if the market is booming share prices will likely be getting ahead of themselves and so future returns are likely to be lower as a result. A reasonable proposition backed up by Shiller’s research. However, 3% seems a prudent SWR for a very high CAPE10 anyway.
In backtests 3% is conservative, with most scenarios leaving a large surplus, so I do think it is worthwhile having some sort of plan in place to handle that and providing a higher income at the expense of a smaller final surplus is one way to do that. It is very easy to slip into a lot of complexity though, which many people are not going to want to follow. My suggestion follows the logic that at any point in time 3% is always ok as a minimum starting withdrawal rate and so it is ok to continually adjust to that minimum (Bellman’s principle of optimality) and is a strategy that is easy to implement. A fraction of the increase could be taken instead, but that would break the logic that someone starting now would take a minimum of 3%.
Another option would be to keep the inflation adjusted withdrawal amount the same. Then withdraw the excess capital and spend it on an expensive holiday, new boat, etc or give it away. That’s essentially what we have chosen to do (stick a minimum SWR and dispose of excess capital), except we adjust according to what income we think we want/need in the future rather than simply by RPI/CPIH.
Or do a bit of both – partial splurge, partial higher income. Or choose to be even more prudent and drop to a lower SWR than 3%.
Vanguard recently published this article on a simple variable withdrawal strategy which potentially offers a higher initial SWR, at the risk of having below inflation increases in income. It looks quite good to me, other than breaking with Bellman’s principle of optimality, but there are of course many other similar approaches.
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/four-steps-safeguard-retirement
@Martin T, delaying the state pension can still be a really good deal at current annuity rates, but this depends on personal circumstances. It is like buying a 5.8% index linked annuity, which at State Retirement Age + 1 is not a deal you will get anywhere else at present unless you have some serious condition that reduces your life expectancy. As time passes the deal becomes less attractive. Index linked annuity rates rise with age and you are losing the time value of the money not being drawn.
There may be personal reasons and preferences not to delay, but financially speaking, delaying a year or two is a good deal and we will probably go for it when the time comes, assuming the rules don’t change again, our circumstances don’t change, etc.
@Naeclue (#84):
Is it not the case that:
a) comparing the state pension deferral rate (5.8%PA, simple) with annuity rates gives an indication of relative value for money (VFM); and
b) to generate an indication of absolute VFM the key parameters should include a view on your longevity and the triple lock numbers (which incidentally compound) over the deferral period
That is, if the triple lock numbers exceeded 5.8% PA simple across the deferral period it would definitely not be absolute VFM to defer.
@Naeclue:
I have just re-read https://www.gov.uk/deferring-state-pension/what-you-get and noticed the line that starts: “This example assumes …” so please ignore my last sentence at #85 above.
@Naeclue:
It may be worth noting that if you delay by 1 year you only break even after another 16 years – so assuming SPA of 67, you break even at 84 – which is life expectancy for a male aged 67. That, does not look like such a good deal to me. What have I missed?
@Al Cam that was my thought too. Assuming you have other income to live on, are you not better saving the SP in a SIPP or ISA, where it can grow, and be used to draw down, buy an annuity at an older age, or passed on if you die?
Contribute as much as you can as early as you can to benefit from compounding. Early in our careers we do have competing demands which make pension saving challenging. At the least try and make the maximum contributions that your employer matches.
When you acquire additional funds try not to succumb to lifestyle inflation and consider making additional contributions using salary sacrifice if your employer offers this.
If you have the capacity to use any pension carryover allowance then actively consider it.
Also try and have additional income streams to pick up the slack if your pension investments hit a rough patch and you want to reduce the amount you draw from it.
@Al Cam, Think about this scenario: You draw your state pension as normal and pay it into an account that keeps pace with inflation. After 52 weeks you withdraw the money and hand it back to the government. In return they pay you a pension of £10.42 per week (in today’s money). Essentially that is buying an index linked pension from the government, starting in 52 weeks, at 5.8%. How does that deal compare with buying a pension annuity? At present it is a much better deal.
Whether this is a good deal in absolute terms is another issue. Yes, the pay back term is about the same as life expectancy, which I don’t think is a coincidence and as an investment does not look great. However, the additional pension income has an embedded insurance policy that says the income will continue until you die. That insurance policy has value.
From a base and upside pension planning point of view, this increases the base, potentially allowing higher risk to be taken elsewhere. As far as I know deferral provides the cheapest way to increase the base.
A downside with deferral is that the pension is not inheritable.
For someone already loaded up with index linked annuity style income I appreciate the deal may not appeal. I have about £400 per year index linked income, my wife £2,000, so we are very short base income and the deal looks like a good one.
For anyone considering buying an index linked annuity from their DC pension, then taking cash to cover the first year and deferring the state pension is likely to be more cost effective than spending that cash upfront on an annuity.
@Martin T, “Assuming you have other income to live on, are you not better saving the SP in a SIPP or ISA, where it can grow, and be used to draw down, buy an annuity at an older age, or passed on if you die?”
It might be. If you get historically average stock market growth then yes it is likely to be better. The point is though that you just don’t know in advance – it is a risk.
@Martin T, @Al Cam, another way of thinking about this is to consider whether you would be happy to draw from the £10,000 or so cash at a SWR of 5.8%.
Matt, if you are going down the natural yield approach make sure you are diversified globally and across multiple sectors and strategies. Do not just rely on UK equity income.
I’ve found there is a cost to this approach as the fees do tend to be higher in some of the actively managed investment trusts that I’ve decided/been forced to embrace (ignoring the booing and hissing from most of the readers of this site) in order to gain adequate diversification and yield. Especially in things like green energy infrastructure.
And vary your blend so you have a mix of jam today (high yielding) vs jam tomorrow (initally slightly lower yielding but with more scope for capital gains or growing dividends) funds.
And a cash buffer of 2-3 years income is probably going to be a key component to enable you to get through years when there are significant enough dividend cuts across the market to badly impact your portfolio yield.
But lets say in the unlikely event your overall portfolio yield is cut in half in £ terms, that 2-3 year cash buffer would actually last 4-6 years before being depleted if just being used to top up dividend income.
The biggest threat to this approach is not running out of cash, which is impossible short of a nuclear war or asteroid strike, but failing to keep up with inflation over a long time if your fund/trust choices go all out for yield over everything else. But I don’t have a problem with aiming for between 3-4% overall yield.
If you think that isn’t sustainable then I can’t see how the passive boys and girls having 40% in bonds yielding about 1% is any more sustainable.
@SemiPassive @Matt — Good tips @SemiPassive. This might also be interesting:
https://monevator.com/how-to-live-off-investment-income/
I’m hoping to finally start writing active articles here again behind some sort of membership wall in the new year, so hopefully we can pick up this theme there in 2022! 🙂
@SemiPassive, “If you think that isn’t sustainable then I can’t see how the passive boys and girls having 40% in bonds yielding about 1% is any more sustainable.”
I can understand why you say this as the answer is complicated and unintuitive. The fact is you do need all parts of your portfolio to be firing on all cylinders all of the time in order to have a good outcome.
Look at the 1968 retirement case I keep banging on about. Returns on bonds were terrible in the early years, far worse than inflation and they did not really start producing an above inflation return until the 1980s, by which time equities were thundering along. Despite these terrible returns holding 40% in bonds allowed for about 15% higher income compared with holding 100% in equities and the lower risk portfolio did not suffer as much from the sleep depriving drawdowns experienced in the 1970s.
Yes, returns on cash on bonds look as though they will trail inflation, but you need to look at the big picture, consider the journey instead of focusing on current bond returns and not dismiss sequence of return risk.
I would not want to put any of my money into a fund that potentially put a quarter or more of the real return into the pockets of fund managers instead of mine either, which is the risk with ITs and other actively managed funds. If you are absolutely wedded to higher yield, Vanguard’s VHYL is I think a better way to go. Relatively low charging and low churn as it is cap weighted.
Sorry meant to say “The fact is you do NOT need all parts of your portfolio to be firing on all cylinders all of the time in order to have a good outcome.”
@Naeclue:
No argument with relative VFM in early years vs current annuity rates.
However, actuarially neutral IMO could be best described as about fair (ie 50/50) and nothing more. Clearly, it is statistically a tad more than fair for your wife – as female LE at age 67 in the UK is around 20 years. However, it is worth noting that very recently (and IIRC prior to C-19) UK LE figures have started to reverse. Will this continue, is it a blip, etc, etc?
In both your cases there might be some form of longevity insurance – but not that much in absolute terms, see e.g. https://www.which.co.uk/money/pensions-and-retirement/state-pension/deferring-your-state-pension-ahr9w8p0f87w
Tricky one – do you feel lucky, are you from long lived stock, etc, etc.
As you may recall I am a big fan of Floor & Upside and am fortunate enough to belong to a DB scheme – which makes it far more affordable as an approach.
One advantage you have with your set up is you are probably better able to manage any income tax rate boundaries associated with delaying.
Regarding deferring the state pension, this paper published by the Royal Statistical Society around the time of the change of rules may be of interest.
https://rss.onlinelibrary.wiley.com/doi/10.1111/j.1740-9713.2015.00814.x
@DavidV (#98):
Thanks for that, I had not seen it before.
@DavidV, very helpful link thanks. This will save me a lot of time working through this properly when decision time comes!
One thing understandably missing from the analysis is the interaction with my portfolio and the face that I could take more risk with the remaining portfolio if I defer.
For example, if I defer for 1 year I gain another £10.42*52 = £541.84. I currently keep 6 years income as cash, so deferring would decrease the cash requirement by £3,251. That extra £3,251 could be invested in equities. Assuming the cash buffer remained at 6 years throughout the next 18 years (a big if) and the equities grew at 5% more than cash, I would make an additional £4,573 over the statistical break even period.
Naeclue, actually I do hold VHYL, plus the SPDR Global Dividend Aristocrats ETF (ticker GBDV) and a FTSE100 tracking ETF amongst all the actively managed filth.
And just about enough in cash and shorter dated bonds/gilts to sleep at night.
@Naeclue (100) I’m probably missing something from your strategy, but don’t you have to find over £9k from somewhere to replace your state pension while you defer? This is no longer available for investment in equities, or anything else.
Loving this discussion. @ Naeclue – thank you for coming back to me on your SWR strategy. Wise words as ever.
@DavidV, yes you are right! I forgot about the £9k. The £3,251 needs to be spent up front for the deferral, along with about another £6k, which would farther reduce my cash pot.
The break even point is stated at 18 years, but that is only true if the return on the cash spent deferring would have grown at the same rate as inflation. Could I draw an inflation adjusted £10.42 per week from the approx £9k cash for 18 years? It might fall short, or be in surplus according to the return on cash.
It makes sense for the money to fund the deferral to come from cash/bonds rather than equities as one “safe” asset is being traded for another. So if someone was running a 70/30 portfolio in retirement, this would become slightly more heavy on the equities side, but it would not mean more equities, just less cash. eg a £500k 70/30 fund would imply £150k in cash/bonds, reduced to £141k by deferral, so the portfolio would be 491k/141k, or about 71/29.
Deferral is not as good a deal as I initially thought – thanks for the discussion!
@SemiPassive, I hope your spawn of the devil investments serve you well 😉
@Naeclue (104) When I made my own decision to claim the state pension I was fully aware that under the old rules deferral of the state pension had been an incredibly good deal. Also in the US, delaying claiming social security until age 70 seems to be an essential part of intelligent retirement planning for many. Even under the new rules here, the 5.8% per annum uplift still seemed a good deal compared to an inflation-linked annuity, although the comparison is complicated by state pension deferral being equivalent to a deferred annuity. At the time the government openly stated that the uplift under the new rules was designed to be actuarially neutral. It was the Royal Statistical Society paper I referenced that convinced me to claim as soon as I was eligible. Luckily for me this was (by the skin of my teeth) at age 65.
@DavidV, @Naeclue:
Good chat guys.
One thing that nobody has mentioned is that in all likelihood your spending will decline as you age, so jam tomorrow should perhaps be weighted accordingly and not “evenly” as it is even on a time value of money basis.
I too am familiar with the US arguments and IIRC the equivalent bonus is c. 8%PA simple there. And, US Social Security is beneficially taxed too!
Agreed a good conversation.
Naeclue a couple of questions
@95 – I entirely agree with your comments based upon the assumption upon with a SWR is based upon. However I recall though you’ve decided not to hold any bonds? Interesting in your rationale based on your comments
@80 – What happens if you planned to retire at the end 2022. At the end of 2021 you had £1m. During 2022, markets fall 50% with your portfolio now being worth £500k. The 4% rule suggests that your SWR is £20k. Using your analogy you could still withdraw £40k as you could ‘pretend’ you’d retired a year ago. Your time period though would be 29 not 30 years. Interested to know if you agree or not.
It’s not what I’m planning on doing btw anyway…..
@DavidV (#68):
This post might be of some interest to you: http://rivershedge.blogspot.com/2021/11/contradictions-in-longevity.html
@Al Cam (109) Thanks for the link. It is good to see the premise of the Webb & Boyle paper set out with some more numbers on relative variability of life expectancy with age. It is interesting that the author’s guess of the optimum age to annuitise is very different from Webb & Boyle’s conclusion using their base assumptions.
@DavidV:
Will is a good guy who has been playing with ret fin for some time now. I have found him to always be happy to share his knowledge and discuss things.
What particularly caught me eye were his comments that:
a) “I believe it more than not” that there is “some age or stage where it starts to make quite a bit more sense than not” to annuitise
BUT
b) “I’ve never seen, though, any bright lines or crystal clear rules on this kind of stuff” and this from a guy who IIRC has spent some time chatting with Milevsky.
FWIW, I also stumbled upon a far more critical review of the W & B paper earlier this week too.
@ Seeking Fire – if the market fell 50% then theoretically you could withdraw more than 4% as a low SWR is associated with periods of peak valuation. Valuation falls should support a higher SWR. Clearly though you’re taking a risk chancing an 8% SWR in year 1. A safer path may lie somewhere in between.
@SeekingFire, “I recall though you’ve decided not to hold any bonds?”
Yes, this is true in theory, not in practice. we used to hold long dated gilts and US Treasuries, but sold them all about 18 months ago. We would hold short dated gilts, up to 5 years maturity, but these are currently poor value for money compared with FSCS protected cash deposits. NS&I Income Bonds were good for a while as well, but currently useless.
The reason I decided to go for short dated bonds/cash is that I found these worked out better in drawdown in most historical scenarios where stock market returns had a poor sequence of returns. There is a trade off here though as longer dated bonds have given higher average SWRs. So we are giving up on expected higher returns for slightly better returns in adverse circumstances.
Another way of looking at this is that we hold cash to cover short term requirements when stock markets fall, currently up to 6 years and so want to see minimal volatility in this part of the portfolio. Longer bonds can fall in price when you need them – they don’t always go up when shares go down. Long bonds were particularly badly hit in the 1970s. Cash and short dated bonds also suffered, but less than long bonds. This was because interest rates and bond yields rapidly increased.
In practice we do actually hold a Vanguard short dated corporate bond fund in our ISAs! The reason for this has to do with my juggling of assets trying to avoid CGT. Ideally we would hold cash outside tax shelters and equities inside and as cash becomes available for investment inside ISAs/SIPPs we would sell equities we hold outside and buy them inside. All fine, but if we sell any more equities this year we will have to pay CGT on the gains. I don’t like the idea of holding cash in ISAs and SIPPs. The returns are really poor to zero and there are FSCS protection issues. So I am taking a punt on a short dated corporate bond fund while we work all the equities into tax shelters. (The punt is not going well).
“What happens if you planned to retire at the end 2022. At the end of 2021 you had £1m. During 2022, markets fall 50% with your portfolio now being worth £500k. The 4% rule suggests that your SWR is £20k. Using your analogy you could still withdraw £40k as you could ‘pretend’ you’d retired a year ago. Your time period though would be 29 not 30 years. Interested to know if you agree or not.”
Yes, I agree with that. £40k is (approximately) the rational amount to take if you believe in SWRs. If you are targeting a 30 year SWR of 3%, then to do this properly you would look at an equivalent 31 year SWR one year ago and roll it forward, a 32 year SWR 2 years ago and roll it forward, etc. then take the highest of the lot as your starting point. Ideally everyone with the same risk requirements and SWR period should be on the same income at any point in time, regardless of when they started. In most drawdown strategies that does not happen.
@Naeclue you say you hold 6 years income in cash, which I imagine amounts to a significant sum. If you don’t mind me asking, is this all in bank/BS a/cs, Premium Bonds etc, or have you found any money market funds which are v low risk?
Is the fact that your savings are losing value in real terms simply the price you are willing to pay for preserving liquidity, and avoiding being forced to sell equities in a downturn?
@Martin T, handing the cash has become a pain, especially as we sold equities worth another 6 years worth of income at the end of July and have not yet disposed of it all.
The money is scattered around banks with sizeable amounts earning a pitiful 0.15% at NS&I. We also have significant amounts out “on loan” to our kids (Late 20s) so we can use their FSCS limits. These are interest free loans, repayable on demand, so they get to keep the interest.
I have looked at money market funds/ETFs in the past, such as iShares ERNS, but the returns are no better than NS&I, as you might expect and there are trading frictions with them. It would be the way to go though for less hassle. Or a short dated gilts ETF.
And yes, this is the price we have to pay for insurance against stock market falls. It is not all liquid though. We have a ladder of term deposits out to about 4 years.
@Naeclue thanks for being so open. We have a flexible, offset mortgage which we’ve just extended. It’s not particularly cheap, but could provide emergency cash to avoid selling equities, or extra funds to invest in the case of a major downturn. Agree it’s all a question of balancing risks.
@Naeclue:
Whilst 0.15% is very low, IIRC NS&I deposits are all fully protected – and to borrow a phrase you used above – “That insurance policy has value”. Believe it or nor, cash rates in the UK are pretty good vs € countries.
I take it your disposals in July were in line with your revised de-accumulation strategy?
@Al Cam, yes the disposals were in line with the de-accumulation strategy. I note that VWRL is up another 5% or so since the end of June. That’s another 3 years worth of sales in January if it stays about where it is until the end of the month, so more cash I may have to find a home for.
Our NS&I cash should hopefully be on its way to a new instant access Investec account tomorrow or Wednesday for a 0.56% increase in interest.
I have been thinking about transferring the cash in our ISAs out to cash ISAs. Tesco are offering one paying 0.60% for instant access. 0.60% tax free is quite good and it is a flexible ISA, so in theory we should be able to withdraw cash from it and pay into another non-ISA deposit account with a better rate of after tax interest, if necessary. Provided the money makes its way back before the end of each tax year we still get to keep the ISA allocation, although we would not be able to transfer in any interest. I think this will have to wait until next financial year though as we have no ISA allowances left, so probably cannot open accounts.
@Naeclue:
Re “That’s another 3 years worth of sales in January if …” was exactly what had occurred to me.
And I wondered if you had given some thought to averaging your disposals (not sales) over a number of years (a la Yale endowment, etc) to smooth things out a bit and manage any expectations – for want of a better way of putting things?
Re cash ISA’s – I think this is just a case of needs must – and, as usual, any new plan requires tweaking once the tyres hit the road.