This article is an extension of a previous article I titled “Retirement income drawdown strategies: Evaluating different drawdown rules” that focused on some drawdown rules that one can apply in managing your annuity income from a living annuity product.
I’ve listed four possible drawdown rules, namely fixed percentage, inflation-adjusted annuity income, target drawdown percentage and a combination of the latter two rules.
In the first article, I evaluated the outcome of each drawdown rule under a specific set of market return conditions that would have applied for a hypothetical post-retirement period of thirty years.
Furthermore, I assumed that at the onset of retirement the initial drawdown rate would have been the equivalent of 5% of retirement capital. I evaluated each rule against two main objectives, namely to yield inflation-adjusted annuity income over long post-retirement periods (real income objective), and the amount of legacy capital available at different points in a post-retirement period of thirty years (legacy capital objective).
The inflation-adjusted annuity income and combination rules gave the best results for the real income objective, while the fixed percentage and combination rules yielded the most legacy capital at various interval points during the post-retirement period.
In this analysis, the same evaluations are done and benchmarked against the same objectives (real income and legacy capital), but at different initial drawdown rates, starting from 3% up to 7% of retirement capital.