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How to drawdown?
Old 05-03-2015, 01:14 PM   #1
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How to drawdown?

So I've been thinking about how to take my money out of my investments in a pound cost averaging manner and this is what I have come up with;

Once per quarter rebalance as follows

Take enough from investments to top up my cash account to two years worth of expenses.
Rebalance non-cash to my asset allocations (currently 70% equity, 30% bonds)

Monthly
Take one months expenses from my 2 year cash account into my current account.
Pay my income from rental property (equal to approx 50% of my expenses but variable due to maintenance costs) into my 2 year cash account

If I spend less than my expenses that goes into a short term savings account to cover those occasional larger one offs)


Does that sound like a sensible plan to people, do you have another approach?
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Old 05-03-2015, 01:59 PM   #2
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Dave, that seems like a sensible way to manage cash flow, but you didn't mention taxes. Since you are in the UK, I can't comment on the details, but here in Canada, capital gains receive the most favourable tax treatment, followed by dividends, with ordinary income taxed the most. And if you are withdrawing from a tax deferred account, there is withholding tax. I plan my withdrawals for tax efficiency thus: Income Planning Tips | Income Planning Speakers | Retirement Income Planning Specialists
Perhaps our British members can comment on how best to do that in the UK.
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Old 05-03-2015, 02:49 PM   #3
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You have a sound plan. I would work with just one cash account & do the separation of funds on paper/spreadsheet.

We also put all dividends and other distributions into the cash account. (in your case, the 2 year cash account).

Rebalancing is done once a year or even less frequently if the various asset classes are not too out of balance (say less than 5% off the desired asset allocation). This will reduce tax hits in taxable accounts.

This topic has been discussed here often, so read through those threads too to see what other people are doing.
Systematic Withdrawals: how do you decide what to sell?
Systematic Withdrawals: a year at a time or monthly?
Retirement Income: fixed income, systematic withdrawals or annuities?
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Old 05-03-2015, 02:51 PM   #4
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Thanks ,

My take on tax consideration in the UK as it affects me

Cash savings interest earned is tax free up to £1000 at current interest rates I can consider that tax free

I cant sensibly draw on my personal pension until 55 (although to the scam merchants love to tell you otherwise, please don't call I am not stupid) so for the next 10 years that means I'll only be withdrawing from my ISA which is tax free to draw from.

That leaves rental income which is under the ~12k tax free allowance so effectively right now I believe my income is effectively all tax free.

The recent changes to the pension system in the UK mean that come 55 I will be able to drawdown from my personal pension which is taxed, but that's far enough away that who knows what the deal will be then?

Social security and a small final salary pension kick in before the ISA is likely to be drained so any tax likely to be more than offset.
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Old 05-03-2015, 03:05 PM   #5
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One more question I have what plans do people have in the event you are no longer mentally fit enough to manage your rebalancing and drawdown yourself?
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Old 05-03-2015, 06:04 PM   #6
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Quote:
Originally Posted by daveneedstoknow View Post
One more question I have what plans do people have in the event you are no longer mentally fit enough to manage your rebalancing and drawdown yourself?
In the US, we have what is generally known as "power of attorney" which is legal a letter/paper that authorizes someone(s) to act in your behalf. In my spouse's & my cases, it's each other, then our son, then even a 3rd party.
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Old 05-03-2015, 08:07 PM   #7
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Originally Posted by gerntz View Post
In the US, we have what is generally known as "power of attorney" which is legal a letter/paper that authorizes someone(s) to act in your behalf. In my spouse's & my cases, it's each other, then our son, then even a 3rd party.
The UK has similar laws.

https://www.gov.uk/power-of-attorney/make-lasting-power
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Old 05-04-2015, 06:41 PM   #8
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Quote:
Originally Posted by gerntz View Post
In the US, we have what is generally known as "power of attorney" which is legal a letter/paper that authorizes someone(s) to act in your behalf. In my spouse's & my cases, it's each other, then our son, then even a 3rd party.
We just had this done last month. Like gerntz, with us it's each other, then DW's nephew and niece. I have a niece who I would trust to do it but she's farther away and even more importantly has some serious health issues that make us believe that DW at least will outlive her.
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Old 05-05-2015, 11:57 AM   #9
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Originally Posted by daveneedstoknow View Post
Does that sound like a sensible plan to people, do you have another approach?
We move money directly from investments to our checking account, whenever the checking account balance "looks too low".

We don't have any other "cash account". We don't time withdrawals for any particular day of the month, or even month of the year.
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Old 05-05-2015, 04:09 PM   #10
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Quote:
Originally Posted by daveneedstoknow View Post
So I've been thinking about how to take my money out of my investments in a pound cost averaging manner and this is what I have come up with;

Once per quarter rebalance as follows

Take enough from investments to top up my cash account to two years worth of expenses.
Rebalance non-cash to my asset allocations (currently 70% equity, 30% bonds)

Monthly
Take one months expenses from my 2 year cash account into my current account.
Pay my income from rental property (equal to approx 50% of my expenses but variable due to maintenance costs) into my 2 year cash account

If I spend less than my expenses that goes into a short term savings account to cover those occasional larger one offs)


Does that sound like a sensible plan to people, do you have another approach?
I like the discipline of your plan.

And it looks like you are planning on periodically adjusting your AA as time goes on (which I'd recommend)
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