Drawdown calcs

Drawdown Calcs

Drawdown calcualtions are relatively simple if you want a deterministic example (see below). I have an excel spreadsheet which demonstrates pension drawdown and i am happy to email to you if you contact me.

Although it easy to get drawdown illustrations and to model different fixed return scenarios, in practice it is difficult to run (and risky) to run a drawdown plan as equity returns are unpredictable.

Wearing my adviser hat at Eadon & Co, I use software than can produce Stochastic modelling for drawdown and if you contact me I will be happy to provide you with a personalised Stochastic drawdown illustration.

Deterministic models assume that every projection is a result of known variables with no randomness involved. Therefore, the same set of initial conditions will always produce the same output. This makes deterministic models straightforward and predictable. For example, if you know the exact interest rate, amount of income withdrawals and charges, you can calculate future drawdown returns. Stochastic models take randomness and uncertainty into account. They use calculations based on probability and past returns to simulate a range of possible outcomes. This results in more sophisticated projections because in the real world, future returns depend on the ups and downs of equity and bond markets, market timing and actual income withdrawals. With stochastic modelling, you might not be able to predict the exact outcome, but you can understand the likelihood of various scenarios, which is crucial for making decisions under uncertainty.