The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income which I calculated should be sustainable over the longer term without depleting the capital. Three years later the plan was revised following the unexpected introduction of pension freedoms in April 2015.
Returns have been mixed over the past year. Edinburgh -6% and HICL -10% have been the main underperformers. On the positive side are Scottish Mortgage +33% and Aberforth +13% and new addition TR Property +17%. My core holdings of Lifestrategy 60 & 40 have provided stability and an increase of £1,125 or 3.9% compared to 2017.
Here is the portfolio
In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,631 - a gain of 38.7%. If we add in average dividends of say 3.7%, this gives a rough total return of 61%
In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £181 - a gain of 72.3% or annualised average of 9.0% p.a.
Taking account of the income withdrawn over the past 6 years of £19,400, the total return including income is 77% which is very satisfactory and works out at an average annualised return of 10.0% p.a.
The original aim of the sipp drawdown was to generate and withdraw a steadily rising natural income from my investments trusts to keep pace with inflation.
Under the pension freedom changes which took effect from April 2015, I am now able to drawdown as much or as little as required. As my pension was my main source of taxable income, it made sense to reduce the pot by transferring the capital tax free to my ISA on the basis that it would be taxed when my state pension started. Over the past three years I have taken out £32,000 tax free. Some of this has been needed for income (£10,350) and the rest has been invested in my ISA to generate more tax-free returns.
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|.....nope..not for me....|
Having been a saver all of my adult life and living well within my means, I find it quite a challenge to become a 'spender' now the extra funds are available! I possibly no longer need the 4% income from my pension as living expenses are covered by the state pension. Frugal Freddie is unlikely to morph overnight into Lavish Larry...I have not so far been looking online for deals on a Caribbean Cruise or along to the showrooms looking at a new Lamborghini so I now need to review my investment plans and decide how to proceed from here on. I will probably post a little more on this when I get used to the new situation.
Obviously I am reasonably happy with my first few years of self-managing a flexi-drawdown sipp portfolio. For the first 3 years, the dividend income predictably rolled in much as planned and importantly, increased each year a little ahead of inflation. For the past three years I have withdrawn significant lump sums tax free and placed the excess which I did not require for income in my ISA. Of course, there are no tax liabilities for all monies subsequently withdrawn from my ISA. I will have less need for income from my SIPP in the future and will therefore slim down some of the income-focussed investments and look at some global growth and possibly one or two 'themed' investments.
If you are managing your SIPP drawdown or you are planning to do this, feel free to share your experience in the comments below.