I've been reading this topic, thinking about replying on and off, but it is now cold and raning outside and the dog is happy by the fire, so ...
I think this approach is wrong. Whilst I appreciate that this is a common way of looking at things, it really is outside your control.
The first thing in planning for retirement is knowing your intended spend. You need that figure, because without that you cannot even begin to work out what you need.
Then you can look at things you can control - discretionary spend mainly, holidays, new cars, gifts to offspring, etc. - ie how much flexibility you have in what you spend.
You also need to factor in expected income - for most that will mainly be the State Pension, and how to fill that gap until it kicks in.
And lastly, your 'end of life' needs - for most that will be single person care home or in home care, but also be very aware that the vast majority of Care Home residents are in there pretty short term, anyone going in aged late 80s (which is when I'd expect to be in that position) is only going to need to fund it for 3 or 4 years, at which point sale of the flat/home you are in is likely to be an adequate source of funds.
Then there are things you cannot control
1) When you die.
2) Inflation.
kempiejon wrote:I think at 50 it's impossible to know what you'll need after your 60th, 70th 80th birthdays. All forecasting 20+ years out seems pointless. Make a plan for the next decade and keep it under review.
This is probably the most sensilbe comment on the thread - you can spend days delving into scenarios,but all you are doing is sticking a finger in the air and making a guess. So don't - aim to have an income level that is manageable, or you are able to live within your income if things change.
Because once you start on target graphs with residual assets ramping down to an expected death date, this will start to govern your retirement and spoil the enjoyment, and in that case you may as well just keep working until you are sure you have enough, which will probably be a lot longer than you needed to
Consider your individual attitude to risk. If you like certainty, then get some. We have a couple of DB schemes that cover the bills, but that could be an annuity. In line with Kempiejon's thinking, I have a pot that I sell down each month roughly equivalent to the SP. that is intended to deplete. At the moment that looks like lasting longer than the 10 years to take me to SP age, but if things change I can trim discretionary spend. As it happens MrsF is still working Part Time, so I recycle £240/month back into a SIPP and we still have a surplus, but that ends in March, when MrsF's 'SP Infill' pot might come into play, although for a lot less than 10 years.
Back to the OP... a couple of observations.
I am modelling :
1. combined view (this is the simpler bit) which produces a sustainable drawdown amount flat across all assets
2. tax free with depletion (as I don't wish to outlive my tax free cash)
3. taxable income without depletion which must do all the preservation to leave money for dependents.
I will give some example withdrawal rates for the sake of discussion:
1. 3% targeting 50% residual value as a floor level but hoping for closer to 90+%
2. 4% tax free to depletion
3. 2% taxable targeting getting an overall residual value in line with 1.
I think you are looking at tax from the wrong angle, what's wrong with outliving your tax free cash?
It isn't clear how much unsheltered assets you have, but they should go first for 2 reasons...
1) reduces future tax burden, £1k taken from a sheltered holding can never be put back.
2) makes a tax return a lot simpler once you're 80
Historically 4% has proved a pretty safe withdrawal with capital reservation, 2% is nearer the Global dividend yield Of course all that can change, but that is what we're basing things at.
If you're taking 2% from a pot then you could just keep it as cash. I'd suggest a 'bad' scenario if you only get 1% return and you increase your take by inflation at 5%, it will last you 30 years. increase the return to 1.5%, or drop inflation to 4%, and you're well into your 80s before it runs out. Then for the 3-4% return just pick VHYL and take the Divi, because if the whole World economy tanks then that's something no model can account for.
Anyway, the sun is out nd the dog is suggesting I've sat here long enough, so I'm off out for a short but leisurely stroll where I absolutely won't be thinking about SWRs. Well, probably not anyway
Paul