Retirement Planning: How To Avoid Running Out Of Money

Most investors focus on building up their investments but another important decision is how much you can spend in retirement. This isn’t as simple as it sounds. The strategy you choose can make the difference between running out of money or leaving a sizeable lump sum for your beneficiaries and dramatically affect the size and variability of your income. So in this video, we’ll look at some of those strategies in detail and see how they work and how they would have fared in the past.
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[@Pensioncraft]

✔ If you become a Premium pensioncraft.com member, you’ll get lots of benefits including access to the drawdown calculators I show you in this video. To find what else we offer and how you can join our friendly community click here www.pensioncraft.com/investor-education/membership/

[@nasirmahmood5684]

Another facet worth looking at is health. No point all this effort into accumulation and decumulation if one hasn’t invested in one’s health from the 40s onwards. Known too many people who’ve died too soon to enjoy their hard-earned retirement.

[@GavinLawrence747]

100% agree. Getting harder and harder to avoid processed and additive laden foods. Even bread has rapeseed oil in now....

[@gravity-arbor]

This is really important. Don’t wait for retirement to be the time to focus on health.

[@shocks123]

First rate, convinced me a subscription is worth while. Thanks

[@Pensioncraft]

Glad it was helpful @shocks123

[@krumw2]

Thanks! Great ptrsentation. I hope many of my fellow Bogleheads wil watch this. WK

[@Pensioncraft]

Thank you @krumw2 much appreciated! Ramin

[@battj1]

Great video, Ramin, very helpful; thanks!

[@Pensioncraft]

Glad you enjoyed it! @battj1

[@rsb8653]

Ramin is top. High quality content. He should have million followers

[@Pensioncraft]

Much appreciated, very kind @rsb8653

[@alexm7310]

Really useful. Thank you ❤

[@Pensioncraft]

You're welcome 😊@alexm7310

[@fusemunk]

As always good minfo. maybe lacked in tax of pension pots and how it effects percentages.

[@juwright1949]

Excellent! Well presented and soundly based in finance. Well done. 👍🏻

[@Pensioncraft]

Thank you kindly! @juwright1949

[@shellyperera2010]

I honestly wonder how the majority of people are going to manage in retirement. We had a pension talk at work today and the good news was that our employer is increasing their pension contributions. But from the comments afterwards it was clear lots of people had next to no knowledge of pensions investments etc. Our pension provider has a good range of funds to choose from. But most people seemed to be in the default which had lost money in the past year. They didn't know they could switch out of the default. There's no advice available as it's regulated etc and the pension provider can't give any. Auto enrollment is undoubtedly a good thing but it needs to be accompanied with free but professional advice so people invest to optimise their pension. I honestly wonder how people are going to manage in retirement especially with the state pension under a question mark in the future. I did recommend your channel to a few friends at work but that's all I could do.

[@coderider3022]

5 Years ago, I had a pension guy come to my work and gave quick 15min 1 to 1 “chats” to anyone interested. I did the risk survey, gave him permission to review my multiple pots then after 6-8 weeks of chasing him, he just concluded 1) my 10% contributions wasn’t enough, 2) transferring would be wrong as fees would go from .3 to .7.

[@shellyperera2010]

​@@coderider3022we had a pension advisor at work too years ago and all he did was try and get you to move your pot to his firm to manage and charge a 2% fee. We said no thanks and started self educating and discovered it's not that difficult to manage your own investments and actually quite interesting!

[@person.X.]

I agree. Societies such as the US and the UK that are in transition away from defined benefit retirement schemes to simply having a pot of savings to use in retirement are in for a horrible shock as few people yet appreciate not only how inadequate their savings are likely to be but even worse what a nightmare it is to manage those savings over their remaining lifetime. Even if you educate yourself by watching videos such as this etc there are still too many unknowns - life expectancy, dementia affecting ability to make decisions and manage money, market returns, inflation, how much spending money you will actually need in retirement year to year. Even worse are those who are renting as they will be hostage to potentially skyrocketing rent or even an absolute lack of availability of housing. It's scary.

[@shellyperera2010]

​@@person.X.agree, managing it in retirement, sequence of returns risk etc. Without sounding patronising most people literally have no knowledge whatsoever and I didn't know too much until recently tbh but luckily started learning in good time before retirement. And investing in poorly performing default funds means you'll have nowhere near as much as you could have had by the time you do retire. It is scary as you say, an absolute time bomb which will hit in around 15 years time I think. The younger generation will pick up the tab as usual. People will have to be paid benefits to survive in retirement with tiny pension pots and having to pay rent etc. State pension kicking in at 70...

[@MrDuncl]

@@person.X. I can't help thinking that DC pensions will be the next Endowment mortgages (overpromising and underdelivering). Still better than nothing though.

[@its1me1cal]

Thanks great informational video 👍

[@Pensioncraft]

Glad it was helpful! @its1me1cal

[@David-rr3hw]

I’ve looked at all these rules over the past few years, but this short video has done more for my complete understanding of each one. A very informative education video as usual.

[@Pensioncraft]

Glad it was helpful! @David-rr3hw

[@workinprogresssince1974]

This is something I think about a lot. I started retirement saving very late, so I have a lot of catching up to do which isn't going to happen on my money. I've decided to keep on working as long as I can (health providing), start taking my private pension at 70 and take an annuity to string out what's left in the pot as long as possible. Combined with a S&S ISA (equally poor in amount) which I will run the same as my pension, some sort of small income and the state pension I should get by without starving to death. I have no particular concerns about leaving money. What's left is left. I have no partner or children or property (as yet), just my brother's family and kids which won't be my responsibility so whatever is left is what is left. I have 20 years to cram as much saving as possible on a small income. And honestly I don't think the projections look as bad providing the investments return. Fingers crossed.

[@shellyperera2010]

Better late than never. Could you look at side hustles to increase income?

[@DPTrainor1]

Thank You.

[@Pensioncraft]

You're welcome @David-rr3hw

[@MarkCW]

Thanks Ramin as always. My personal strategy now that I have retired is so withdraw a maximum of 3% income from my pension. The reason behind this strategy is that I'm assuming an average growth of 8% for my index trackers - 3% average inflation - 2% re-invest leaves 3%. Even though I retired at a difficult times (COVID, high inflation etc.) the strategy seems to be working well. I guess I'm also lucky that I have additional income from BTL property.

[@russcraig1216]

You cannot work on average returns due to sequence of returns and volatility. This is why asset allocation is essential to having a sustainable retirement income. 3% is probably close to the right answer though but asset allocation, horizon, costs, and bequest intentions will drive the right answer for you. Also if you factor in future guaranteed income such as the state pension you may be able to uplift your withdrawal before this revenue kicks in stunning you twitch the amount taken later when your pension kicks in.

[@johnny-S]

Really informative video. With regards to the Guyton Klinger system - perhaps a much easier way of doing this is to simply adjust your withdrawal rate each year to keep it at a constant percentage of the overall value of the portfolio? So if the value goes up, your income goes up, and vice-versa?

[@stevegeek]

Very nice, however personally I'm looking for something in-between the Boglehead and the GK strategy; I want to have a reasonable income in retirement but still leave something to my kids. I guess some kind of hybrid approach might work?

[@simoncook1325]

What about state pension?i want enough to last me until then to bridge the gap 55-67

[@inquaanate2393]

Large emergency fund during retirement. Use it during times of bad return, fill it during times of good return.

[@lawLess-fs1qx]

eminently sensible. seems like a good plan. I must look into it. Can it be that simple.

[@user-wl7jy9wu9m]

I agree totally imo..the older we get after 50 the bigger the emergency fund...

[@user-wl7jy9wu9m]

If everyone could save 100k from a younger age.. we would all be in a far better position by 50..obviously, that's dependent on looking after that 1st 100k

[@russcraig1216]

An emergency fund is just a cash allocation. It changes your asset allocation. As in the long term government bonds have outperformed cash over would be better off with say a 70/30 equity/bond allocation.

[@cyberslim7955]

@@russcraig1216 Just the problem with bonds, when big wars happen, but then there might be a lot of other problems, too...

[@johnhaug1747]

Very good points. How does social security play into the withdrawal rate. Also we don't focus as hard on when to sell a security, as we do on the purchase decision.

[@carlmeanwell9180]

There are three options that come to mind.1. Find a strategy that includes social security / future income in calculation. 2. Reduce portfolio withdrawals by the amount of additional income. Or 3. Ignore additional income and treat it like a bonus! Point 1 would be ideal but not easy to find

[@mundungo5586]

Very stressful being a forced seller in down markets for income.I'm glad I'm an income investor and not a total return investor putting myself in the hands of sequencing risk.Natural yield every time.And no I don't tend to suffer dividend cuts as I use investment trusts.Ive been doing this for 20yrs and so have been through a lot of crises.

[@shellyperera2010]

I think that's a good strategy in retirement. Switch some money to dividend investing.

[@edwardkenworthy7013]

All of those strategies are rather simplistic. None take account of the state pension, which allows you to reduce your withdrawl rate once you reach state retirement age. Nor that at some point, in my modelling it's when I'm 75, you won't be spending as much.

[@stevegeek]

I was just thinking the same! 👍

[@carlmeanwell9180]

The CAPE Based Rule at Early Reitrement Now allows for future earnings (i.e state pension), but finding a global CAPE value to use each year is tricky.

[@lrac111]

Exactly,

[@Ratgibbon]

Chances are there won't be state pension in 20-30 years time, I personally don't include it in my pension plans.

[@odnilniloc]

The reduced spending at 75, does that account for an increase in medical costs that most 75yr olds incur?

[@evilzzzability]

Surely - and I'm being fairly serious here - a market will eventually develop for SORR insurance. You pay a tiny premium if you want to go for a 4% SWR, a higher one for a 5% SWR, and a huge one for, say a 6% SWR, all based upon a model portfolio (as you couldn't control people's actual spending in real life). If that then runs down before a contracted period then then the insurer has to make good on future payments. Otherwise, they pocket the premium. You can get lower premium based upon VWR rails , etc.

[@thoughtsofmoog]

Thanks Ramin I wonder if your goals ‘max income, versus max legacy’ are too binary. I think there’s a third way, that I want, which is ‘maintain my standard of living, and what’s left when I die is whatever’s left when I die’ Put another way, I don’t want to maximise my income in retirement, I just want to maintain my standard of living, and if that leaves a legacy, that’s great.

[@nigelsimpson3547]

How do you work out how much your fund has grown and the inflation rate for these strategies? Do you keep records of the values of your funds on specific days each year or do you use some other figures such as the funds' published growth rates. Likewise with inflation, do you use a published figure like RPI or work out your personal rate? What do people here do?

[@67eamonn]

Stupid question but are these withdrawal amounts before or after tax? Thanks.

[@TheJuryIsOut]

Before tax.

[@jackmills4648]

Just keep working. Never stop. 🤣

[@martingibbs1869]

I don't like seeing my pension dropping incase I live forever.

[@mmabagain]

🤣

[@superduper9357]

I wouldn't worry about that too much!

[@shellyperera2010]

😂

[@harrysahota4072]

Depends on someone's situation, some people have part final salary and money purchase schemes. They want to preserve the money purchase schemes so they can pass it on to their spouse and children etc and live off their final salary scheme

[@Discovery2024-rn8kn]

Who wants to live forever

[@Andygb78]

The best way to avoid running out of money at any age is to spend as little as possible.

[@MrKlawUK]

This shouldn’t be left to individuals unless you’re an expert IMO. More saving for retirement and starting early is critical, but the drawdown phase feels like it needs more support. Most of us aren’t experts and aren’t likely to want to actively manage fluid market behaviours and drawdown planning when we’re 80.

[@MrKlawUK]

Like with an annuity where your individual lifespan is blended with others to be able to accurately predict an average and mitigate impacts if you live longer than average - feels like we need the power of large numbers to help with this too. Eg perhaps a government backed pension with higher optional contributions.

[@syedmalik1908]

I never understand the obsession with inflation. Everybody has a different personal inflation rate, so regardless of the headline rate, it’s very easy to keep your spending constant

[@MrDuncl]

Have you ever come across "Deferred Annuities" ? To me they sound like an excellent idea to avoid running out of money in retirement. However, they seem to be an American thing and aren't at all common in the U.K.

[@rachyett]

If 'dollar cost averaging' is a sensible approach to buying stocks, then so it is to selling stocks. If your portfolio is down no one needs to tell you that it might be a good idea to sell less and spend less. Keep it simple.

[@PhillCurtis]

👍

[@proventure]

Any comment possible on the start timing of the pension withdrawal and the 25% tax free lump sum ?

[@carlmeanwell9180]

If I've understood you correctly, you often hear people mentioning delaying pension withdrawals during a market downturn to avoid sequencing risk, or reducing withdrawal rates, both of which will help the portfolio survive. With regards to the 25% tax free lump sum, this largely depends on personal circumstances, but it may be beneficial to take this yearly / monthly as opposed to all in one go...it's worth doing some research.

[@livethegoodlife1740]

❤.

[@roberthuntley1090]

There are some big unknowns on the spending side to consider. One is your date of death, and the other is if you have to go into a Care Home at some date before that and start paying at least £4k a month in fees (at least until your capital is reduced to a small amount. The third is when you lose interest in expensive foreign holidays etc. (people's ambition to travel seems to decline as they age). The fourth is when you might need to pay out for a private medical procedure. Given all that uncertainty on the spending side, planning to pay yourself a given level of income seems pretty futile.

[@tancreddehauteville764]

Only 1 in 5 people will ever need to go into a care home, and most of these will not be there for more than two years. You shouldn't need to pay for medical procedures in the UK as you are covered by the NHS.

[@roberthuntley1090]

@@tancreddehauteville764 The NHS has unacceptably long, and increasing, waiting lists for many treatments. Its actually quite good in emergency scenarios, but if the problem is something your can live with (e.g. arthritic knee joint) a wait of a year or more is common. That's why if I was in pain I could well be tempted to jump the queue and pay privately.

[@tancreddehauteville764]

@@roberthuntley1090 I get it. I suppose it depends on the condition.

[@erandeser5830]

How not to run out of money is only half the problem. How to not run out AND have nothing left when I die, that is where it gets interesting. The obvious solution is to buy annuities from an insurer, but I cannot find that except in the USA for USAs.

[@VegasMilgauss]

Talking from experience, it’s all great until you factor in care home costs for either you or spouse. Good effort though.

[@tancreddehauteville764]

I still think that the best option is an annuity. It's a set and forget option and gives you peace of mind.

[@superduper9357]

But how much you get depends on lots of parameters. If you die early the insurance company rubs their hands. If you're in drawdown your surviving spouse or children inherit your pot tax free. There's a lot to consider.

[@stevegeek]

@@superduper9357 Agreed. Also, if you're a non-smoker and looking to retire a bit earlier than normal, the annuity is pretty rubbish, in my experience.

[@tancreddehauteville764]

@@superduper9357 It also depends on your circumstances. We have no kids and the wife is due to inherit property worth £1M in the next 15-20 odd years as she is an only child. So an annuity definitely makes sense for me.

[@martinbower2915]

@@tancreddehauteville764 Hope it doesn't happen but a divorce can derail plans pretty quickly

[@briandickie7264]

It’s come back into fashion with 4-7% rates. However, if you can do a bit of annuity & some funds too, you can offset some opportunity return for a stable return. It’s not a binary choice.

[@PazLeBon]

already spent my pension, no idea what wil happen in the future, prob be out robbing people lol

[@user-ol2kf3gl7y]

In 2024,don't set new year financial goals without consulting a financial adviser.there expertise ensure a solid plan for success.Building wealth involves developing good habits like regular putting money away in intervals for solid investments.

[@MarieGeorge-xl9bx]

I agree, based on personal experience working with an investment advisor, I currently have $650k in a well diversified portfolio, that has experienced exponential growth. It is not about having money to invest in stocks,but also you need to be knowledgeable, persistent,and have strong hands to back it up.

[@LorenCorcoran1]

El dólar estadounidense ha llegado al final de su ciclo de vida como cualquier otra moneda fiduciaria de la historia. El oro, la plata y las criptomonedas son la mejor reserva de valor: no los compre para hacerse rico, cómprelos para preservar su riqueza.

[@superduper9357]

Or buy assets that give you capital growth and income like property, bonds and stocks because even if FIAT fails there is value in these and some form of money will come along and replace it.

[@coderider3022]

I doubt your investments reflects this assertion

[@dubsdolby9437]

No drawdown. . 50k a year from dividend isas tax free 🙌 Get paid come rain or shine ✨️

[@stevegeek]

How much dividend ISA would you need to pay 50k per year and would this be individual dividend paying stocks or income funds, if you don't mind me asking? In my experience you can't really expect more than 5% dividend (consistently every year), so you would need £1M.

[@dubsdolby9437]

@stevegeek Around 500k with 200k from my sipp. I just buy Blue Chip companies in bad times when the yields are higher than normal.

[@roberthorsford4266]

It takes a very long time to accumulate £1m in an ISA unless you’ve had exceptional investment returns. Maybe thirty years or so? I confess that I’ve not been thinking strategically for that long!

[@stevegeek]

@@dubsdolby9437 Okay. I started off with my SIPP geared towards income paying stocks / funds but then decided the best overall return would be to focus on growth / accumulation. But who knows what will really work out best. I do like the idea of tax-free income from the ISA.😀👍

[@saigonbaby]

please factor in £5000 a week care home !.

[@nasirmahmood5684]

Not everyone needs a care home and even then, there are ways to shift the burden to the taxpayer.

[@inquaanate2393]

You only live after death in memories. If you pass on money to your grand children they will remember you for their entire lives because you gave then the deposit for their house.

[@user-wl7jy9wu9m]

Sorry but I shut off too complicated and convoluted.. have 5 yrs freedom fund/emergency fund and investments...basically do what you do now...too many charts over saturation

[@shamster7182]

Gary lineker is a pillock ...just saying.

[@GavinLawrence747]

I can take comfort that I have no TV license and therefore he's never had a penny of mine.

[@briandickie7264]

He’s not a pillock. I’d say that was complimenting him.

[@presterjohn71]

He's doing better in life than you are, so what does that make you?

[@adamp6320]

Dave Ramsey says the 4% rule is WRONG WRONG WRONG (and calls you a moron for thinking it works). He wants you to take out 8%, sequencing risk be damned.

[@briandickie7264]

He claims to make 12% tho. If you can match that - take his 8%.

[@nasirmahmood5684]

Depends on your objective. Wanna die rich and leave a pot for loved ones? 4% rule, as the pot does not diminish. Wanna spend your last dime before you take your last breath? Your withdrawal rate should be much higher.

[@porschecarreras992cabriole8]

@@nasirmahmood5684agreed. Use you hard earned money and enjoy life. Then at 67 live on state pension and a much smaller drawdown account. The stock market returns long term 10% so use that as guidance and not just draw 4%. You can easily go to 6% and you want your pot to diminish over time not remain same or increase. I want 100% probability of my pot running out

[@pedazodetorpedo]

What if I don't have any beneficiaries and want to spend every penny while I'm alive?

[@Pensioncraft]

@pedazodetorpedo that's what the Boglehead strategy tries to achieve.