# Pension pot. How long last ?

#### Daddy Ireland

##### Frequent Poster
Say a pension pot of €150k and withdraw 6% per annum and the dwindling pot increases by 4% say on average. How long will the pot last ? Is there an equation ?

#### Sarenco

##### Frequent Poster
It really depends on the sequence of returns.

Here's a short paper from BlackRock that explains the concept -

#### mtk

##### Frequent Poster
roughly using your numbers for assumptions when 150,000*((1.04*.94)^(expiry term))<0
just solve for expiry term in the equation
( ignoring sequence of returns which makes it more complicated )

#### Daddy Ireland

##### Frequent Poster
mtk thanks. Not quite sure how to solve that.

#### orka

##### Frequent Poster
If you are taking 6% of the pot each year it will last indefinitely but your withdrawal will reduce over time (i.e. even if your fund is down to 1,000, your 6% is only €60 so the fund lives on...). If you mean take 6% of the 150,000 (which is 9,000) at the end of each year and the fund grows at 4%, the fund will last about 28 years. This assumes your 9,000 stays flat.

There isn't really an easy equation to use - using Excel is probably the easiest way to work it out.

#### Daddy Ireland

##### Frequent Poster
Thanks Orka. Taking 9k flat per year so approx 28 years. Thats great to have an idea.

#### NoRegretsCoyote

##### Frequent Poster
Thanks Orka. Taking 9k flat per year so approx 28 years. Thats great to have an idea.
Do you expect 9k to have the same purchasing power in 28 years as today? I don't.

I would make allowance for inflation in planning your drawdowns.

#### Paul O Mahoney

##### Registered User
Do you expect 9k to have the same purchasing power in 28 years as today? I don't.

I would make allowance for inflation in planning your drawdowns.
Great point on inflation, I've been using excel to work out this, our "official " inflation and real inflation appears to be two different things.
Official is about 1%, real, my view , about 3% all our expenses are up, utilities, broadband, insurances to name just a few.
I have put and extra line in my analysis for inflation as a minus % on the annual closing balance bit like pension levy, don't know if that is accurate and would like a better method if anyone can suggest one.

#### NoRegretsCoyote

##### Frequent Poster
Official is about 1%, real, my view , about 3% all our expenses are up, utilities, broadband, insurances to name just a few.
Your personal inflation rate may differ, but in general headline inflation measures overstate actual increase in prices as they don't account for quality improvements very well. But that's OT.

Bear in mind that 3% for 28 years will see your drawdown amount more than double! I would use something like 1.5% to 2% myself.

#### Daddy Ireland

##### Frequent Poster
Did an excel working assuming flat 5% withdrawal, 2.5% inflation and 4% growth in pot. Says my pot will run out 19 years.

#### Attachments

• 6 KB Views: 28

#### Daddy Ireland

##### Frequent Poster
Sorry think it should be pot runs out after 23 years and not 19 as I stated.

#### Daddy Ireland

##### Frequent Poster
Its 19 years based on 6% withdrawal i.e my opening post query.

#### jpd

##### Frequent Poster
I don't know how you calculated your figures but they are not at all correct. The spreadsheet you upload is empty

#### jpd

##### Frequent Poster

Of course, the real problem here is that 9,000 in 2040 will not buy anything like 9,000 in 2020
For example, consider how much you could have bought with 9,000 in 2000 and according to the CSO, that would cost 12,000 now
So unless you want to see your living standards decline drastically, a flat 9,000 is completely un-realistic

Also, 4% return may be quite optimistic over 20 years

Last edited:

#### mtk

##### Frequent Poster
if withdrawal is fixed amount like 9k increasing with inflation AND you assume inv. return=inflation rate
The simple formula = pension pot/ income drawn down =150/9= 16 years approx

#### RedOnion

##### Frequent Poster
Sorry think it should be pot runs out after 23 years and not 19 as I stated.
Its 19 years based on 6% withdrawal i.e my opening post query.
Yes, correct.
So in first example, you're taking 5% of you pot in year 1, and increasing the amount you're taking each year by 2.5%, while expecting an investment return of 4% on the remaining pot each year.

That's all fine, but for planning purposes, I wouldn't expect your investment returns to produce any more than inflation (if even that) as in @mtk example above.

#### Daddy Ireland

##### Frequent Poster
Thanks all for input. But assuming investment return only equalling inflation seems an absolute worse case scenario. Thats like saying that if I started a pension today I should expect no return other than a rate of inflation return. Cant imagine anyone taking out a pension under that scenario.

#### RedOnion

##### Frequent Poster
But assuming investment return only equalling inflation seems an absolute worse case scenario.
I don't think so.
To beat inflation, you're taking on investment risk. Which means your pot will go up and down. Doesn't matter much during an accumulating period, but could impact a lot during drawdown phases. If you're invested pot drops by 20% but you take out the same amount, you don't have the capital there to recover. If you're taking investment risk, you need to be able to adjust your drawdown significantly during market downturn.
@Sarenco linked to an explanation about sequence of returns earlier that should explain it.

#### Daddy Ireland

##### Frequent Poster
I don't know how you calculated your figures but they are not at all correct. The spreadsheet you upload is empty
Where are the figures incorrect for assumptions used.

#### jpd

##### Frequent Poster
When I used 6% and 4%, the pot ran out after 26 years rather than 19 or 28