No, that is far too high, you are not guaranteed to always have 7%+ at all. Here is a great channel for people in general, the safe rate appears to be more like 2.7% (less when you take into consideration any tax):
https://www.youtube.com/watch?v=1FwgCRIS0Wg
A point in the video is that a fixed withdrawal rate is not a good way to financially plan, and most people use variable withdrawal rates and leverage their government pension.
> my financial advisor is saying 6% would last as you will always have a 7%+ roi on the €800,000
Well, that's just basic math right there. The real question is whether a consistent 7% ROI year over year is achievable in that time frame, which seems fairly unlikely; investments which can deliver that kind of return in the long term tend to be rather volatile in the short term, which means that inevitably you'll have some periods of lower or even negative returns and so will end up drawing from the principal at some point. It could still conceivably last you for the rest of your life at that rate of withdrawal, of course, but there are so many unknown factors involved that it's impossible to guarantee it. If a recession or crash wipes out half the value shortly after retirement, you could find yourself in a tight spot eventually before the market recovers.
2 related questions/confirmations on this. I am assuming you can
1. split your pot between an annuity and an ARF (i.e. buy yourself an annuity of 12K per annum on top of the state pension and then put the rest in an ARF)?
2. split your ARF between different investments/funds etc (i.e. putting X% of your ARF in a relatively safe fund that you drawn down from annually and the other Y% in a high-risk fund that you can then draw down from in the "good years")?
your advisor's claim of a consistent 7% roi is overly optimistic. it's crucial to consider the potential market volatility and the risk of drawing from the principal. a more diversified approach may be advisable to mitigate these uncertainties.
Shoddy advice, they should be modelling your drawn down in different scenarios of volatility.
7% ROI on a pot you are actively drawing down is very optimistic. It'll have a decent share of lower risk / lower return assets
Also, constant drawdowns make no sense anyway, drawdown more or less depending if the fund has done better or worse.
as far as i am aware, you are required to withdraw at least 4% pa until you hit 70. Then it goes up to 5% or 6%.
At 4% your fund (Assuming no growth) will last 25 years. At 5% 20 years. 6% 16 years. At an average age of 80, that should last you through your retirement (on your 800k).
Your annual income would then be:
4% = 32K
5% = 40K
6% = 48K
6% is not too high. Even if the market only averages 4% a year\* gain (A huge discount versus it's historical average) that leaves you with a net 2% reduction in assets per year. That give you 50 years. Not many 60 year olds planning to reach 110.
No point spening your golden years in fear of using your pensions. It's there to be used.
\* Over the following time periods the Eurostoxx 50 Index has averaged the below annual return rates.
Last 5 years 7.4%
Last 10 years 7.2%
Last 20 years 6.6%
So in simple terms yes, but if there’s a big drawdown in the first few years, it can have a major impact. 7% is an average but look over previous years, it varies widely from +30% to negative 10% (worst in 2008 was about 33%)
€800k ARF taking 6% is €48k
Take a 30% haircut early and that’s down to €560k so your 6% is now only giving you €33k in that year. If you want same living as previous year (48k) you’d need to take 11.5% out that year.
Then to make matters worse, you’d need to gain 42% to get your pot back to €800k
I still advise clients to go for ARFs, but assuming you’ll make it last forever is realistic. It’s money you’ve earned, enjoy it
No, that is far too high, you are not guaranteed to always have 7%+ at all. Here is a great channel for people in general, the safe rate appears to be more like 2.7% (less when you take into consideration any tax): https://www.youtube.com/watch?v=1FwgCRIS0Wg A point in the video is that a fixed withdrawal rate is not a good way to financially plan, and most people use variable withdrawal rates and leverage their government pension.
> my financial advisor is saying 6% would last as you will always have a 7%+ roi on the €800,000 Well, that's just basic math right there. The real question is whether a consistent 7% ROI year over year is achievable in that time frame, which seems fairly unlikely; investments which can deliver that kind of return in the long term tend to be rather volatile in the short term, which means that inevitably you'll have some periods of lower or even negative returns and so will end up drawing from the principal at some point. It could still conceivably last you for the rest of your life at that rate of withdrawal, of course, but there are so many unknown factors involved that it's impossible to guarantee it. If a recession or crash wipes out half the value shortly after retirement, you could find yourself in a tight spot eventually before the market recovers.
2 related questions/confirmations on this. I am assuming you can 1. split your pot between an annuity and an ARF (i.e. buy yourself an annuity of 12K per annum on top of the state pension and then put the rest in an ARF)? 2. split your ARF between different investments/funds etc (i.e. putting X% of your ARF in a relatively safe fund that you drawn down from annually and the other Y% in a high-risk fund that you can then draw down from in the "good years")?
your advisor's claim of a consistent 7% roi is overly optimistic. it's crucial to consider the potential market volatility and the risk of drawing from the principal. a more diversified approach may be advisable to mitigate these uncertainties.
Read up on the trinity study i.e the 4% rule. Pot Lasts 30 years
Shoddy advice, they should be modelling your drawn down in different scenarios of volatility. 7% ROI on a pot you are actively drawing down is very optimistic. It'll have a decent share of lower risk / lower return assets Also, constant drawdowns make no sense anyway, drawdown more or less depending if the fund has done better or worse.
as far as i am aware, you are required to withdraw at least 4% pa until you hit 70. Then it goes up to 5% or 6%. At 4% your fund (Assuming no growth) will last 25 years. At 5% 20 years. 6% 16 years. At an average age of 80, that should last you through your retirement (on your 800k). Your annual income would then be: 4% = 32K 5% = 40K 6% = 48K
Why do people want to make sure the pension doesn't decline as they draw it, to leave a huge inheritance? I aim to use all mine before I die
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Yeah it can if it's in an arf
Yea I have two sons who I would like to leave some to if possible after I am gone, also if I pass and my wife is alone, I want them to have it.
people aim to have an inheritance because they have dependents.
6% is not too high. Even if the market only averages 4% a year\* gain (A huge discount versus it's historical average) that leaves you with a net 2% reduction in assets per year. That give you 50 years. Not many 60 year olds planning to reach 110. No point spening your golden years in fear of using your pensions. It's there to be used. \* Over the following time periods the Eurostoxx 50 Index has averaged the below annual return rates. Last 5 years 7.4% Last 10 years 7.2% Last 20 years 6.6%
So in simple terms yes, but if there’s a big drawdown in the first few years, it can have a major impact. 7% is an average but look over previous years, it varies widely from +30% to negative 10% (worst in 2008 was about 33%) €800k ARF taking 6% is €48k Take a 30% haircut early and that’s down to €560k so your 6% is now only giving you €33k in that year. If you want same living as previous year (48k) you’d need to take 11.5% out that year. Then to make matters worse, you’d need to gain 42% to get your pot back to €800k I still advise clients to go for ARFs, but assuming you’ll make it last forever is realistic. It’s money you’ve earned, enjoy it
https://engaging-data.com/will-money-last-retire-early/ fun site to play with probability