WITHDRAWING MONEY FROM YOUR PENSION

TODAY’S BLOG

WITHDRAWING MONEY FROM YOUR PENSION

I was recently asked to contribute to a piece that appeared in The Telegraph on 15/02/2019. The journalist, Jonathan Jones had heard of me and asked if I would offer some insight into the maths that he was posed with.

The short version is that a 69-year old reader had a pension pot of about £500,000 and wanted £35,000 a year as income, which is about 7% of the fund. The crunch question is was this sustainable?

Sustainable Withdrawal Rate

The short answer is no it isn’t likely to be. However, it is all about context, for starters, the investors other assets, state of health, lifestyle, marital and family circumstances. However, I was asked to ignore this. In the real world of financial planning, no good adviser would ignore these important elements, but certainly for the sake of maths, I was and remain happy to provide the basic outline.

It is historically “good advice” to assume a 4% income as sustainable. This can increase with inflation each year and ensure that the original fund remains alive. All of this is subject to the real world of investment returns, charges and taxes and to put it bluntly, investor behaviour.

Ringmaster

REVIEWS ARE VITAL

I don’t know any adviser that would set up an investment and a withdrawal of 4% a year and never review this. I imagine there are a few out there, just not those that I meet or have any sort of professional relationship with. All financial planning is based on the premise that life changes and plans need reviewing. Whilst I advocate cash flow modelling, which is a brilliant tool, it is a very good aid to understanding the future, but not predicting it. Life and investment returns are not linear. Stuff happens, things change.

I stand by everything in the article, but would caveat it with some real world experience and impress the need to review. The certainty of outcomes is myth. There is no way that someone can say with certainty, that taking £20,000 a year from a £500,000 will last for another 50 years. Its ought to, based upon historic data, it would have done, but that’s why we review.

High Equity Content

Certainly, more exposure to the real engine of a portfolio (equities / stocks) is vital and the more you have the more likely you are to have a rising income for life, but a far more volatile experience. In the real-world investors behave badly, anxiety turns to fear which turns to panic, which turns into a request to “sell, sell, sell” yet this is almost certainly, always the wrong thing to do in a portfolio of globally diverse holdings. I demonstrated this using our software, showing the historic sustainable withdrawal rates for different portfolios and the chance of future success. We also revealed the impact of life expectancy. Of course Jonathan didn’t have the page space to go into depth on the fullness of our conversation and he may also have been heavily edited. That is the difficult life of any journalist, who must create something to catch attention and fill space. The job of a financial planner is explanation, understanding and constructing a robust, reviewed ongoing service.

The art of self-delusion

This is something that many investors, particularly DIY investors believe that they are immune to (lack of fear). Most end up chasing returns, usually buying the current hot tips or best performers. However, this is not the Premier League, it is the real world of investing, past performance guarantees nothing and is certainly no indicator of the future when it comes to stock selection “success”. See Dalbar.com for information about how badly investors underperform.

I think the article is a good overview, but please do not infer advice from it. Context is everything. For all I know, the investor concerned was born in 1950 with a life expectancy of a few months and may have a much younger spouse with three or four children. The advice should always be suitable to the circumstances of the investor.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

WITHDRAWING MONEY FROM YOUR PENSION2023-12-01T12:17:34+00:00

I, Daniel Blake

I, Daniel Blake

The new Ken Loach movie “ I, Daniel Blake” has created something of a ruckus. It would seem that if you hold entrenched political views, then probably you would learn nothing new. If you are a little more willing to be informed or at the very least, challenged, then this film has something to offer.

You might wonder why a financial planner is writing about a story, essentially about poverty and the UK benefits system. After all, our clients don’t draw benefits and are clearly not poor, by most normal definitions. My reasoning is that human dignity is simply a human issue for us all, and of course should disaster strike, any one of us could be left at the mercy of the State system – one that we all contribute towards and reflects our wider collective values.

Daniel Blake is one of those typical, gritty, grim and grey British films, that in truth you probably have to be in the mood for. It isn’t “entertainment” and it isn’t a documentary. However in the days of food banks and some fairly vile tabloid newspapers, it’s a film that needs to be seen, rather like the truthfulness of your own finances.

Passive? moi?

Perhaps like you, I am occasionally found shouting at the TV or radio as something rattles my cage, yet it is not often that I do so in a cinema. Yet, that’s what I was doing within about 15 minutes, exasperated by the ludicrous treatment of someone by box-ticking automatons. I won’t ruin your experience of it by giving away the story, but it resonated with similar experiences that most of us will have had at some point when dealing with some organizations, particularly Governmental ones.

A curriculum vitae…

The story of Daniel, a carpenter in his late 50s or perhaps early 60s suffers a heart attack, signed off work by those professionally qualified to do so (his doctors) and then assessed by a “professional health worker” (as if) that he is not sick enough to be off work… and so the story ensues with an exploration into the penalty system introduced by a man who was actually found to mislead within his CV (according to BBC News night) one Mr. Iain Duncan-Smith.

You cannot be serious..

I know many of you are medical professionals – proper ones, not deemed so by a job title that reflects the ability to read a questionnaire containing medical terminology. So I am sure that some of you will have had experience of being confronted by those less qualified, purporting to know better…. which these days seems to be most people in political office.

Clearly none of us want a society where it is easier and more rewarding to “do nothing” than to provide something of value to others. We don’t want to encourage a culture of benefit vultures or tourists. However this is loaded with political sentiment and bias. One might make the case that a rich businessman that pays no taxes is also a benefit scrounger, not “paying their way” for all the things that the rest of us mere mortals believe important for the wider society.

It seems to me that “the system” simply isn’t very good and attempts to make it work rather better because of bile generated from supposed “journalists” have failed spectacularly.

There’s something very wrong with this isn’t there?

My own former MP was at a hustings and said he was “proud that we have a food bank here” which is hardly something to be proud of, merely reflecting the failure of our “first world” social system and is actually a reflection that the local people believe that this is very wrong, and respond to a very real, very human problem.

Planning upon uncertainty

As for your financial plan… well at the heart of this is the ability to do your sums. To live within your means… which is a lot easier when you are healthy and let’s be honest, wealthy (by comparison). However when health becomes an issue, you have probably ensured that you have savings and insurance to cover certain eventualities (well if you took my advice you did). So it will always appear easier to cope than it is in practice, because you and I are fortunate enough to have enough to plan and think ahead, even thinking about the bleak, improbable and perhaps unlikely. Part of my job is to reduce reliance on the State system by creating independence of it, self-sufficiency.  This is not the same as being disconnected or unconcerned, which is the general line taken by those who have chosen to “critique” the film for being an extreme example….

Ok, there will always be some people that want to do nothing and expect something, but I struggle to believe that is how most of us behave. Most want a better life, not a benefits life. When I talk of lifestyle financial planning I am not advocating one of selfish disconnection, but of self-direction.

Anyway, wherever you are on the political spectrum (and I find myself finding some merit in most arguments from all sides) here is the trailer for a truly valuable film.

 

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

I, Daniel Blake2023-12-01T12:19:01+00:00
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