This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
No Cat Food retirement portfolio Year 2: withdrawal rate strategy is go [Members]
![No Cat Food retirement portfolio Year 2: withdrawal rate strategy is go [Members] post image](https://monevator.com/wp-content/uploads/2023/11/413.-decumulation-intro-copy-e1699404604796.png)
≡ Menu
The Latest Articles
Essential Reading
Better Investing
Property Posts
Get Money Motivated
Monevator is a place for my thoughts on money and investing. Read our disclaimer. Subscribe to get all our free posts via email. Follow us on Twitter, Facebook, or via RSS. You can also send us a message.
Copyright © 2007-2025 Monevator. All rights reserved.
Disclaimer: All content is for informational purposes only. I make no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions or any damages arising from its display or use. Full disclaimer and privacy policy. This site uses cookies and features affiliate links.
Comments on this entry are closed.
Were it not for this amazing , and as far is I know unique, resource, I very much doubt that I would have the confidence to decumulate DIY. As you mention, goodness knows how the non-hobbyists manage. As I approach the inflexion point, with very similar numbers and timeframe, all I can say is is thank you – this thread is worth the membership on its own and some!
Great article thank you for your work.
I am in a not dissimilar position ( you can see I did a lot of work for the government as I could have just said similar but somehow couldn’t).
One thing though. I have to plan for my wife having to take all this on and she won’t be into dynamic withdrawal calculations, rebalancing or maybe even telephone dealing to roll over maturing bonds which I have to plan around.
Fascinating. Thankyou.
Dynamic withdrawal is right up my street – I was thinking of the super crude (but simple) method of withdrawing 4% of the total market value of my SIPP each year. I need to read the book.
Yes this is great, thanks for this, I’ll just second the comments above on complexity. I’ve stopped employment but haven’t started decumulation. However as my wife is packing in her job shortly this will be something to get to grips with next year…
I have the book, have read the book, but now my memory is suggesting I have forgotten the book. So this article a great refresher in that respect.
I agree this indirectly reinforces just how wrong it is for people to have DC rather than DB pensions. I can only assume all sorts of bad things are going to happen in the future!
Good morning from Australia
It’s a thousand times easier for me over here. Imputation credits and increasing dividends will do the heavy lifting. This facet probably helps psychologically with market fluctuations. We have a high tax free annual threshold and capital gains tax is basically negligible.
I self model inflation which is flat or falling for me – one of your posts gave me this idea!! All this is to say, deaccumulation is very personal according to situational and geographical circumstances.
It’s also such an exciting and privileged time. I love everything about it! Thank you so much for sharing the above.
My fund name is called ‘Spend it All’ to remind me to switch my focus now towards appreciating my hard work and freedom. I’ve said elsewhere that it’s been an enormous suprise to me how much less I’ve spent in my first year. My favourite thing has been floating in the ocean and that’s free.
Addendum: My above post may sound flippant to serious readers. I do have a model. I have a finance, economics maths background. My portfolio of assets will grow despite its (aspirational) ‘spend it all’ name.
Thank you all! I’m very happy it’s proving useful. Working through all the detail ahead of time has been helpful for me, too. Juggling it all is even more fiddly than I imagined.
I really can see the case for annuitising a large part of the portfolio now rates are decent again. While maintaining an emergency fund and an upside portfolio as twin financial outriders.
@Paul a38 – loving the Sir Humphrey vocab. Yes, same here with Mrs TA. She isn’t going to do what I’ve outlined above. She could do it but she isn’t interested enough. Think I’d annuitise ahead of time, or make that my parting suggestion.
@London ALTA – I’ve just listened to a podcast on how much better Australia is faring than the UK:
https://www.prospectmagazine.co.uk/podcasts/prospect-podcast/69365/bonus-episode-why-australia-is-better-than-britain
30% higher GDP per capita! The secret is out. We’re all coming over there 🙂
@TA Have you considered using some of the cash drawn down to make the maximum non-earnings related pension contributions of £2880 net each? This harvests an immediate tax rebate of £720, and frees up another £900 of tax free cash to draw down – a small tax free ‘profit’!
@Martin T – I have not! But it’s a cunning idea. So say I pull out £2880 more than I need from drawdown funds. I get taxed at 20% but that’s made whole again by the £720 rebate. The net gain is the extra £900 in tax-free cash headroom on the crystallised funds side. Is that how you see it? Do you know how this fares re: tax recycling rules? It’s been a while since I’ve looked at them.
Thank you, @TA. I mentioned recently that I have a few more months to go before beginning decumulation. My planned withdrawal strategy has largely been inspired by you, McClung, and the Monevator community – as has my 10×10 portfolio. It’s therefore very helpful indeed to see your thoughtfully worked exercise in such detail for Year 2.
https://monevator.com/fixing-my-portfolio/#comment-1856422
@TA you and @Paul_a38 have reminded me of the importance of updating the instructions for Mrs Mack in case I’m the first to go. For a while, the two of us held Sunday morning ‘education sessions’ and Mrs Mack even took notes. (Sadly, I’m not exaggerating by much when I say we got as far as learning about the difference between an ISA and a SIPP!) In reality, our son will take over the management of the finances, but we need to discuss and agree this with all parties, including the other two children, and put it in writing.
I’m not as enthusiastic as you @London ALTA about going into decumulation! For me, it’s more a mix of apprehension and a morbid curiosity about how it’s going to unfold financially. (Although, give me a few months of decumulation freedom and I’ll hopefully be a bit more positive!)
Like @Rhino, I also need to revisit McClung’s work, and all those decumulation posts in the Monevator vaults. I’m looking forward to it. Instead of floating in the ocean, my first few months of decumulation will be filled with plenty of reading, making notes, and fiddling with spreadsheets. (And, of course, that walking in the Lake District that I’ve mentioned before!)
@TA cheers. Yes I have started to think about annuities. We can afford to wait until my spouse gets a bit older so nothing immediate.
Like you I have sold down some of the index linked funds. They just didn’t work. However iShares have an ‘up to 10 years IL gilt index fund’ with a ter of 0.03%. Can’t be that new since it has >£800m in assets. I have asked Halifax to add it to their list. This at least gets focus on UK inflation. Duration is 5.4 years it says.
@MartinT #9. Hmm interesting but when do HMRC recycling rules kick in ?
@Paul_a38 — Yes that fund is about a year old I believe, I covered it nearly a year ago:
https://monevator.com/short-duration-index-linked-gilt-fund/
As you’ll see in the comments to that article readers have had some luck seeing it slowly made available to new platforms.
I think it does plug a bit of a gap at the short end, though 5.4 years is still plenty of duration to bring interest rate risk into the picture, potentially muddying the near-term inflation hedging.
For most investors I personally don’t think that matters too much (very short-term inflation hedging matters IMHO if you’re trying to hedge very near-term cashflows, otherwise I see *beating* inflation as more important).
Without wishing to speak for him, I believe @TA feels it’s not good enough (for his purposes anyway) compared to the short-term linker ladders he’s been talking about since 2022 though. He’s certainly never seemed exactly smitten by this new fund! 😉
Another huge thank you for this series. I’ve read the book and completely buy in to the ideas, but haven’t got as far as trying the spreadsheet out yet. I’m still slightly vague about the specific steps (and where to obtain the UK inflation figures and for what specific period etc), but have at least a couple of years before needing to do this in earnest.
Apologies for this question, as I recall you’ve already answered (but couldn’t readily find the link). I recall Early Retirement Now had proposed a ‘McClung-Smooth’ where equities were only sold enough to bring them back within the upper threshold (rather than back to the original allocation). I think you had said you were happier using McClung’s rules as written, but wondered if you had any further thoughts?
@TA @Paul the recycling rules are complex, and this is not advice, but essentially this:
-You take a tax-free from a pension
Contributions paid into a pension are larger than they would have been, because you have added some tax-free cash
– After assessing your case, HMRC have decided that the recycling was pre-planned
-The amount of tax-free cash you take is more than £7,500, when added to any tax-free cash taken in the previous 12 months
-The amount of all additional contributions exceeds 30% of the tax-free cash
Making a contribution with tax free cash from someone else’s pension should not count as recycling.
Despite having been reading Monevator and similar things for many years now, as I approach the point of actually drawing on my investments, I realise I’m becoming less confident in managing it all myself.
I’ve been lucky that most of the time I was building up my retirement funds, things generally moved upwards, the covid dip aside. It felt fairly easy. But the lag in bonds over recent years, and now the markets getting erratic, start to complicate decisions.
There’s also, of course, the fact that as you build up your investments, decisions become more consequential. If you’ve got £50,000 and a long way to retirement, maybe you feel less pressure on your decision making than if you’ve got £500,000 and are newly retired.
I’ve also seen my parents aging, and have begun wondering how long I’d be comfortable managing my funds for. At some point it’ll be too complicated for me, so I should find someone to do it for me before that. Is that now?
@DaleK – I reread ERN’s post on Prime Harvesting when preparing for this series and I think his version is a touch more elegant and logical. So I intend to use McClung Smooth when the time comes to sell equities. Thank you for prodding me on this because I thought I’d mentioned it earlier in the series but I’ve just checked and… nope.
I think you’ll find the spreadsheeting straightforward enough when you sit down to properly nut it out. It’s fiddly work and detailed but not intellectually demanding once you get into it.
ONS publish inflation figures. Right now you can see a headline rate on their main page of 3.9% CPIH – Jan 2025. That’s the change over 12-months and they update it monthly. I use that figure.
@Fabius – I think you make an important point. The simplest route is a floor and upside strategy: an index-linked annuity accompanied by an equity portfolio (could be a single fund) plus emergency fund.
I’m near certain to annuitise later in life. There’s a fair chance I won’t want the stress or complexity later in life of managing a volatile portfolio and, as mentioned above, there’s no way Mrs TA will want to deal with it.
Great post, TA, really enjoyed it. I’m going to have to go and read the book now, aren’t I? It’s not obvious why you _wouldn’t_ sell equities to fund spending if they are the thing which you’re now over weight? Surely there’s only one Sharpe Ratio maximising portfolio? Unless you want to embed a momentum bet in your drawdown / asset allocation rules…. which feels punchy?
@fabius
I think the thought of managing a substantial sum of money to finance the rest of your life is bound to be daunting but the reality is not that bad! I retired in late 2007 only to be confronted by 18 months of dire economic news and a massive fall in the markets.
Oddly I didn’t find this particularly concerning I had a very large part of my investments tied up in shares, I was confident that they would recover in time ( I had experience of 1998, 2000-2003 markets falls)
You naturally tend to reduce expenditure and make no big financial decisions.
It’s just a question of having enough cash/short bonds to cover a couple of year’s expenses ( unfortunately I didn’t have that cash reserve then but it all worked out and I now have a decent cash reserve, lesson learnt)
This model portfolio is very interesting but a much simpler equity / bond / cash portfolio would work just fine and not be difficult to take into old age, there can be tendency to overthink it!
We have the benefit of very low expense funds now and if complexity was a concern then a Life Strategy type of fund would work just fine, possibly not optimal but acceptable and still low cost.
@MartinT. Re reinvesting £2880. I withdraw 3600 from the pension, pay 20% tax, then put the £2880 into the pension where it is grossed up to £3600. So the advantage is the 25% tax free element on £3600. That’s £900 on which I save 20% tax ie £180. Is that right? Seems a lot of bother for £180 (but I am lazy).
@Paul point taken, although the spirit of the article is about juicing as much as possible from a relatively small pot. But there are circumstances where the benefit is greater – for example if the input comes from ISA, downsizing, inheritance etc, or one partner is not a tax payer, so you get the £720 benefit without having paid the tax. In the latter case, say one party has net relevant earnings of £12500, it is possible to invest £10k net, reclaim £2500 in tax which has never been paid, and draw a PCLS of £3125, whilst leaving £10k invested, provided you have not started drawdown of taxable income.
@Martin T, thinking about pensions was so much easier when I was a higher rate tax payer :).
Fabius – you make a good point
I think that if you have successfully managed accumulation then de accumulation is a very similar process
Taking money out instead of saving it!
I enjoy reading about complex portfolios but I just chose 3 global index funds plus 2 years cash for living expenses because I know my financial limitations
Rtd 23 yrs now with originally a 30/70 portfolio-very conservative
Now 35/59/6 where 6= cash so not changed much
Now aged 78 – no chance of my wife learning the investing procedures but have 3 capable children who seem to be happy enough to take over when required
You have managed half the financial journey successfully -I am sure you will manage the next stage
xxd09
@Finumus – cheers! Point taken about the momentum bet 🙂 That said, every rebalancing technique contains some version of that under the bonnet.
McClung to his credit explicitly compares ten different rebalancing strategies in the book (including traditional annual rebalancing) and explored other variants that didn’t make the cut. He spends a lot of time comparing them by adjusting parameters e.g. how good do they look when you use the UK or Japanese datasets rather than US. (Annual rebalancing not so hot using UK historical returns.) How about if you adjust the failure rate? Or set a minimum bond floor and so on. I think you’d probably enjoy the book as a source of ideas as much as anything – he has a big chapter on setting aside assets as secondary sources of income to reinforce the main portfolio.
Obvs with Prime Harvesting, the main objective is to avoid selling equities in down markets. But you’d also avoid catching falling knives as you wouldn’t keep rebalancing from bonds to equities during long bear markets e.g. Japan or France post-War.
McClung also makes the point that equity allocations tend to rise significantly (as bonds attrit) when valuations are low.
Anyway, I do think the book would be worth your time. I think I should go back and read it from start to finish again, too 🙂
@Hariseldon it is fascinating reading all the comments but like you say – you can keep it very simple.
My SIPP has 3 or 4 index tracking ETFs, I keep a cash buffer and that’s pretty much it. If I withdraw a fixed % of the total market value once a year, it won’t run out but will vary a bit.
There’s enough stability from 2 state pensions.
It might help that I’m very used to a variable income as I’ve been a contractor for the past 15 years. The way to manage that is to build up a good cash buffer and don’t spend all your income.