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Weekend reading: Can you withdraw as much from your pension as you plan to?

Weekend reading

Good reads from around the Web.

Now that he’s just three years from financial freedom, blogger R.I.T. is rethinking how much he can withdraw from his retirement portfolio.

This week he decided that for a UK investor, 3% looks much safer than the oft-quoted 4%:

Staying with only UK stocks and bonds in your portfolio and following the 4% Rule over a 30 year period would have resulted in you running out of assets 23.8% of the time.

To be 100% “safe” you have to drop to a safe withdrawal rate of 3.05%.

Switch to global stocks and bonds and the news isn’t much better. 100% “safety” and your safe withdrawal rate is still only 3.26%.

The comments following the article are also worth reading. There are some real-life stories from the frontline of early retirement, and more than one millionaire who doesn’t think a million is enough.

I tend to think a million is the bare minimum for me today, the way I intend to do it – which is to replace my drawn earnings from work with investment income and not to touch my capital. (The pot can mainly go to charity when I’m gone, to make me feel less terrible about a life obsessed with finance!)

But if you intend to run down your capital, then your numbers will be very different. A million may well be overkill, depending on your retirement age.

Let’s have a few opinions: What’s your number for a safe withdrawal rate, and what size pot do you need to get it?

And at what age does that enable you to retire?

From the blogs

Making good use of the things that we find…

Passive investing

  • Inner peace through index investing – Canadian Couch Potato
  • Why do ETF yields differ? [Canadian, but interesting] – CCP
  • How robo-advisers could re-invent indexing [For geeks]Kitces

Active investing

Other articles

Product of the week: The Telegraph reports on a new investment trust, P2P Global, that invests in a portfolio of peer-to-peer loans from the likes of Zopa and Ratesetter. It’s targeting a 6-8% yield. Interesting, but this is an unproven model so tread carefully.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

Active investing

  • Change your environment to invest better… – WSJ
  • …or perhaps start meditating – Bloomberg
  • Knowing a business versus its valuation – The Value Perspective
  • The real reason hedge funds have underperformed – Fortune

Other stuff worth reading

  • So, you think you’re rational? – Housel/Motley Fool
  • What happens to your pension when you retire abroad – Guardian
  • London house price rise at fastest rate ever; £588 a day – Telegraph
  • The towns that offer the best buy-to-let returns – Telegraph
  • And there’s crowd-funded BTL [Beware: Unproven!]ThisIsMoney
  • Millionaires: How to invest in an English vineyard – ThisIsMoney

Book of the week: A smart entrepreneurial friend of mine insists that Ricardo Semler’s The Seven-Day Weekend is the best book ever written on business. I’ve finally ordered my copy.

Like these links? Subscribe to get them every week!

  1. Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” []

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{ 71 comments… add one }
  • 51 The Rhino June 2, 2014, 5:48 pm

    I second TIs never stop working approach – trick is to dial it right back time-wise and ensure its something you like/love doing. This is definitely eminently feasible for bright and enterprising people (like this readership)

    Then you have the awesome inverse situation of every £1 you earn being worth about 20-30 times what those pounds are worth that are generating your FI income.

    How quickly would that get you out of a pickle if you had got your sums slightly wrong? very quickly is the answer..

    Mr MM bangs on about this aspect all the time and probably rightly so as it takes a lot of (all?) the worry out of the SWR argument. Then it just comes down to have you got the cajones to actually take the plunge and ‘retire’

    From seeing how a few other people have got on with early retirement you seem to start hanging out with a completely different group of people where random impromptu and interesting opportunities for work seem to pop up quite regularly.

  • 52 ermine June 2, 2014, 10:14 pm

    @Mark Meldon the annuity puzzle was interesting reading, thanks for that. It highlights notable irrationality in my own thinking about the subject, and I am more in favour of annuities than general on here, and I am much less exposed to the SWR issue than most.

    @the Rhino to me the never stop working approach looked less attractive as I got older, and I don’t think I’m the only one though of course it isn’t universal.

    People often get more cantankerous, less tolerant of authority and even working for themselves simply more observant that every day is a larger part of their time left 😉

    However, I do agree that it is hard to avoid the pesky problem of attracting money-making opportunities. I have avoided it by giving the proceeds to people who were prepared to deal with the bother of filling in tax returns and all that tedious paperwork. I will advise. I’ll be paid in beer and wine, occasionally trips abroad, but I’m not going to collect receipts and all that jazz. And if people don’t like it I’m not doing it – it’s my way or the highway. That’s what financial independence means. And it’s sweet.

    Sometimes I’ll do a job pro bono. It’s exasperating for people because they have to catch my imagination, and it’s hard to get a yes, but generally if I take something on then I’ll do it out of personal integrity even if it overruns. Nobody owns an Ermine’s time but me. Perhaps it’s because of the way I left work that this is uniquely important to me.


    I am very much in the lower end of the wealth spectrum of the commenters here – I have never been and never will be worth a million pounds in 2014 money. TBH when I see people wondering if a million pounds isn’t enough to retire on I can’t avoid the disturbing thought that an awful lot of our fellow countrymen will never earn a million pounds (if 2014 money) in a working lifetime of 40 years.

    There’s another risk that we’re all running that hasn’t been mentioned on this thread. We’re all running out of time, one day every 24 hours. Each day your time on earth is getting shorter. You can save money. But you can’t save time. The next week will take 168 of your hours just as much as it’ll take of mine.

    That’s why I decided to take charge of my time. I wish everybody well, and hope that you get the balance right between all the risks you’re running, of which running out of money is one and even one that can be addressed by insurance. If you want to feather-bed your kids then heck- annuitize half your money when annuities reach your SWR. But there are some tail risks you can’t hedge with financial instruments, and as you drive yourselves to 3%, then 2%, think about what those tail risks really mean.

    Wade Pfau may be a genius but when I read that he claims somebody in Germany with a SWR of 0.84% would have been great and dandy I wonder about the good prof’s real-world savoir faire, and the spikes that the average is hiding. Let us take his example of Germany, the low water mark was 1911. Nevertheless, save over 100 times your desired income and you’re sitting pretty. I heard my great grandmother in Germany talk about those days, though I was a young child. She lost her life savings twice, once to Weimar and then again 30 years later. Clearly she didn’t have Pfau-esque savings, but even if she did –

    You are asking an investor to have the cojones to hold a steady 50:50 shares/bond split through a devaluation in the currency of nine orders of magnitude. You may like to think you’re hard, but that’s a big ask. Maybe you are that hard but you still need to eat, and negotiable instruments become non-negotiable in times like that, because trust breaks down.

    What helped that side of my family was having a base in town and having what we would now call a smallholding in a rural area. The currency was butter and eggs at times. At times people paid in muscle power.

    There are risks you can’t hedge with financial instruments. The gold-bugs can put it away too. The Weimar inflation lasted 5 years. If you’re buying your bread with gold, you’ll probably attract some unwelcome attention, and what the hell do you take as change? Gold is a decent long-term store of value, But you gotta survive to the long term. Metal detectorists dig up quite a few hoards over the years…

    Financial instruments can’t help you against societal breakdown. Prepping won’t either, you’ll shoot a lot of people and be tired and jumpy all the time because some of them will have mates you’ll upset – the world you’re making probably looks like one of those Mexican drug towns, without the electricity.

    It’s who you know, what you know and where you are that are the only things that might help you – productive assets (land, seed, knowhow) hand tools and community might help, but it’s still a desperately long shot (largely because of all the preppers and other tooled up guys 😉 )

    So if the 2% SWR starts to get important, there’s a case to be made that being poor in John O’Groats is probably safer than sitting on a £5million stash of financial instruments in London. Particularly if you need to black start the Internet to prove you own them 😉

    For a gander at the sort of tail risks you could be up against take a look at the WEF Global Risks 2014 report. Having to black start the Internet, and even then a serious loss of trust in it, and the synchronous failure of the financial system in developed countries are up there as the most likely, it seems.

  • 53 Neverland June 3, 2014, 8:23 am


    We work for oursleves and the reality is at least for us:

    – the business is precarious (sp?) without constant attention could easily dry-up

    – its not like we could just leave it and go somewhere with no communication tech for a month

    – continuous time and effort reap extrapolating rewards, so being part time about it just likely to lead to meager/little rewards

    Running your own business for the long term is not this easy nirvana that its painted to be in the personal finance blogging community

    But who knows mebbe we’ve got the wrong business and there’s gold in them thar hills….

  • 54 Neverland June 3, 2014, 8:27 am


    You’re probably aware of Goodwin’s law, right? 🙂

  • 55 ermine June 3, 2014, 9:18 am

    @Neverland, yes, my mother is German, and I am familiar with Godwin’s law, though I believe he-who-must-not-be-named was not the problem with the Weimar inflation, which predated that.

  • 56 The Rhino June 3, 2014, 11:27 am

    @ermine I’m loving your butter-barter-economy – no chance of osborne getting his greedy little mits on that. I imagine you to be pops out of a soft-focus 1980’s episode of the darling buds of may..

  • 57 Passive Investor June 3, 2014, 11:50 am

    @ermine @neverland. Just a gentle warning to be careful (from a non-accountant so take with as big a pinch of salt as you wish).

    Gifts in kind in lieu of payment for services are clearly treated by HMRC as taxable benefit in the same way that normal income is. I think the threshold where this counts is quite low too.

    I have some personal experience of this but as I said I am
    certainly not a tax expert.

  • 58 SemiPassive June 3, 2014, 2:32 pm

    Reading the comments about 2 million pound pots I am grateful for Ermine’s comments above and TA’s latest motivational article above this one so the younger folk don’t fling their arms up in despair.
    Simply it is ludicrous to expect todays 20 (and 30) somethings to clear their 50k’s worth of student debt, scrabble to pull together a property deposit, pay their mortgage off and amass 2, or even 1 million in income generating assets in what is realistically a 20 year window (35-55) while you’re in your peak earnings band. Unless you are in the top 1-2% of earners, or create and sell a valuable business. Or inherit a pile of cash.
    Giving up iphones and lattes is not going to be enough.

    But that shouldn’t put people off aiming for some degree of financial freedom. Pay off the mortgage, build up assets of 500k-750k (and at least become a paper millionaire in total net worth inc home!), and work part time or run a side business to cover the shortfall in income. Much more realistic.
    Plus I’ll be far too “cantankerous and intolerant of authority” 🙂 to be working fulltime into my 60s, even if thats possible.

  • 59 SemiPassive June 3, 2014, 2:38 pm

    And one more point, due to taxation it is a case of ever diminishing returns, your first half million is going to let you keep more pounds in your pocket than the second, which will still be better than the third, and so on. It becomes more and more painful to earn it (losing out on the valuable commodity of time as Ermine mentions) while keeping less and less.

  • 60 Vanguardfan June 3, 2014, 6:50 pm

    Yes and with student debt and mortgage, if you want children that’s your ‘peak earning’ 35-55 scuppered (if you ever want to see them)!
    I think many people will be lucky to be in a position to quit work. But the real skill for a happy retiremenr or semi retirement will be in learning how to live a low cost but fulfilling life. I can’t truthfully say I am a great example at the moment, but I live in hope!

  • 61 Grand June 3, 2014, 7:27 pm

    @Semi Passive…

    It’s a challenge isn’t it… but one that seems quite worthwhile.

  • 62 The Investor June 3, 2014, 11:40 pm

    @SemiPassive — Quite right. Yet another reason to smirk in bemusement at those who bizarrely claim ISA use is optional for young savers…

  • 63 dearieme June 4, 2014, 12:06 am

    “I had forgotten about Equitable life and probably stupidly I hadn’t previously realised that the annuity holders got wiped out as well. Awful for them.” Aye, it would have been had it actually happened, but it didn’t. It was only the With Profits annuity holders who got into trouble, poor sods, though it fell short of wipe-out. Similarly the mention above of Insurance Companies going bust – which? Even Equitable Life has managed to stagger to safety – I can’t think of one that went bust in my adult lifetime. When was the last time a British Life Insurer went bust?

    Comparing buying an annuity at 75 with trying to preserve capital to bequeath – the capital will probably pay Inheritance Tax. That means you effectively get a 40% discount on your annuity. Buy, buy, buy!

  • 64 ivanopinion June 4, 2014, 8:46 am

    Strictly speaking, the discount is a little less than 40%, because even if the annuity is bought with a non-pension lump sum, at least a portion of the annuity payments are taxable income. However, the income tax is going to be much lower than 40% IHT, so the point is still a good one.

  • 65 vanguardfan June 4, 2014, 10:36 am

    I’m not sure I follow the logic to that. The putative annuity purchaser is never going to be paying IHT – its the beneficiaries of the estate that will do that. Annuitising destroys the capital so effectively its a 100% inheritance tax rate from the point of view of the beneficiaries!
    I am however pretty favourable to the concept of annuitising enough to provide for your needs.

  • 66 ivanopinion June 4, 2014, 11:35 am

    I think what dearieme is saying is that for every £100,000 you have (over the IHT threshold) when you die, this only “buys” you a £60,000 gift to them, whereas if you had bought an annuity you would have got £100,000 worth (or that amount minus however much it grew between when you would have bought the annuity and when you die).

    However, it isn’t quite an either/or. If I decide not to buy an annuity it is not because I plan to put the money aside and not touch it so it goes in my will to my children. Rather, it would be so I can use it to live off, but as I don’t know when I’m going to die I’ll live off it in a way that I don’t erode the capital significantly. This means as a nice side effect there should be capital left when I die, so my children might get an inheritance one day. If the government confiscates 40% of it, well 60% is better than nothing.

  • 67 Janice June 4, 2014, 3:25 pm

    I don’t disagree with your philosophy, but the hard part is predicting when you will die. I recommend not worrying about having too much money when you die. That is a good problem to have. As you get closer to the end you will better be able to predict things and deal with the situation then.

    Also you are going to spend 40 years in a retirement. Thats not a small amount of time. Thats an entire second life. I like to think about it more like a B list celeb who makes all their money in their 20s and needs to survive the rest of their life on that income. There are a lot of ups and downs that could happen in that time. To think that I can predict all of that accurately 60 years in advance is unrealistic. All these retirement numbers are just educated guesses.

    Good luck to you

  • 68 ray June 4, 2014, 3:33 pm

    I’m not afraid of inflation. Hyper inflation would be game over for all of us – but this is very unlikely in the US because of our reserve currency status. We do, however, have to pay attention to getting the budget closer to in balance, and reducing our dependence on foreign oil, thus getting our balance of trade deficit smaller.

    In the classic book your money or your life, they have a very good section on inflation. They show that thinking people can deal with inflation. Buy used. If orange juice has spiked way up, drink apple juice. Bike around instead of driving.

  • 69 Brian June 4, 2014, 7:14 pm

    It all depends on the ability of companies to raise their prices in times of higher inflation to maintain profits. I believe Benjamin Graham found that equities didn’t always keep up, hence the need to diversify into other areas like property.

    Something that does concern me about inflation from a UK perspective is that essentials like food and heating fuel are rising at between 5%-10%, i.e well above the CPI. (This may be due to the weakened pound and our need to import these things, although rising world population, weird weather and depleting resources may also be playing a part).

    That’s not a conspiracy theory by the way, it’s in the official government data. The reason our CPI is so low is that the average rate gets reduced by the weighting of consumer goods like clothes and digital cameras in the calculation – these are either rising more slowly or reducing in price.

  • 70 Graham Martin June 4, 2014, 8:31 pm

    6-7% ROI is completely reasonable. The whole point of the Couch Potato way of investing is that.. if one thing doesn’t do well, other stuff will.

    I assume you’re investing in your ISA first? From my perspective, the UK’s tax regime is absolutely awesome. Ok, NI is a bit of a pain but hopefully you’ll get something back from that in time (140 quid a week – more than enough to live on, IMHO!).

    I assume you are buying HUKX or VUKE, HMCX, H50E etc, etc. They have good MERs; buying on a “regular investment” with my broker (iweb) costs 2 pounds per transavtion, and as these are Irish domiciled there is no stamp duty (at least, I think that’s why – but you don’t get the dividend tax credit stuff).

    *IF* you chug away at your pension (tax free lump sum at 55, I think?), fill your ISA your tax rate.. is not going to be high, assuming you aren’t earning hundreds of thousands – in which case, well, you don’t really have a problem, right?

    Think about an investment property – it should return a few percent, and generally the value of the house should keep pace with inflation.

    Couch potato and diversity works just as well in the UK as anywhere else, I think.

    You do know the personal allowance is going up to 10k over the next couple of years, per person? Again IMHO – 10k is a lot of cash to spend, if your mortgage is done, and most of your money is in an ISA…

  • 71 SemiPassive June 5, 2014, 10:15 am

    An example of optimal tax efficiency in the UK for your first half million could be to build up 167k in ISAs and 333k in SIPP. At 55 take out your tax free lump sum of 83k and drip that into ISAs over the next few years, perhaps leaving it in an equity income fund during the interim.
    So you’d then be paying zero income tax on a potential income of 20k pa at 4% withdrawl rate.
    Inflation or an unkind stockmarket may take their toll but then the state pension eventually kicks in to top things up.

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