Pensions Planning: The NUMBER

jamesd

Market efficiency theory is wrong. Markets do exhibit both irrational exuberance and excessive pessimism, along with reversion to mean. Shouldn't be so unless behavioral economics are also applied but we have the markets we have and that does let us have some idea of which futures are more likely, though not guaranteed in any particular timeframe.

It's possible to speculate that this will change but that's not the likely outcome.

Investments include bonds and money markets as well as cash and equities. Also other things like P2P that currently look interesting. Safe withdrawal rate theory doesn't assume a rapid recovery. If using historic data and a 100% success rate it assumes historic worst cases, which tend to be high inflation or otherwise low returns.

Approaches like Guyton-Klinger use mixtures of cash, bonds and equities, not drawing on equities until either cash and bonds are both exhausted or there is a big equity gain. Cutting income is also done in case there is no significant recovery. That allows the cash and bonds to last through far longer periods of low returns than cash alone.

Assuming markets haven't changed, reducing US equity exposure and using cash or money market for the removed part is correct positioning at the moment. Reduced equities because of the high cyclically adjusted price/earnings ratio and not bonds because those do less well usually in a low interest rate situation than money markets. Not guaranteed to be best, just most likely.

P2P isn't in studies but looks like a useful alternative, at least for now.

michaels

jamesd wrote: »

Market efficiency theory is wrong. Markets do exhibit both irrational exuberance and excessive pessimism, along with reversion to mean. Shouldn't be so unless behavioral economics are also applied but we have the markets we have and that does let us have some idea of which futures are more likely, though not guaranteed in any particular timeframe.

It's possible to speculate that this will change but that's not the likely outcome.

Investments include bonds and money markets as well as cash and equities. Also other things like P2P that currently look interesting. Safe withdrawal rate theory doesn't assume a rapid recovery. If using historic data and a 100% success rate it assumes historic worst cases, which tend to be high inflation or otherwise low returns.

Approaches like Guyton-Klinger use mixtures of cash, bonds and equities, not drawing on equities until either cash and bonds are both exhausted or there is a big equity gain. Cutting income is also done in case there is no significant recovery. That allows the cash and bonds to last through far longer periods of low returns than cash alone.

Assuming markets haven't changed, reducing US equity exposure and using cash or money market for the removed part is correct positioning at the moment. Reduced equities because of the high cyclically adjusted price/earnings ratio and not bonds because those do less well usually in a low interest rate situation than money markets. Not guaranteed to be best, just most likely.

P2P isn't in studies but looks like a useful alternative, at least for now.

Thanks, confirms what I thought, it is an empirical model not a theoretical one.

Should the same asset allocation rules apply during the accumulation period or does the cash buffer only apply during the drawdown phase?

jamesd

The cash buffer is just for drawdown.

Northamptonblue

I am not a moderator but has this thread gone wildly off topic?

jamesd

Not particularly. Over eight years and a thousand posts there have quite often been digressions into how to achieve the number and what to do when you have. It's a natural part of the discussion, just like discussion of reducing spending to cut the number.

westv

A number of posts on the Number thread relating to numbers rather than THE number.

Terron

Thrugelmir wrote: »

What's plan B for when interest rates start to normalise?

Plan A involves longish fixed rate mortgages until I get my pensions, then selling my former home and using the proceeds from that and the tax free lump sum to pay down/off the mortgages. The income lost should be about made up by the savings in mortgage payments. Three properties are already unmortgaged.

Terron

bostonerimus wrote: »

Owning a rental property is a great income diversifier, but it should be backed up by income from other sources. However, if you have tracker mortgages on the homes you can quickly get into difficulties when interest rates increase.

BTL is part of my retirement income. I have no mortgage on the property and from rent of $20k/year I declare $14k taxable income after expenses are subtracted. The apartment was empty for around 6 months last year when a long time tenant moved out and I took the chance to renovate, so you must have reserves to take you through times without rental income and be able to pay for capital expenses.

I have little other income currently, but will do when I take my pensions. I am getting income from 7 properties so when as now one is empty I still get most of it. I do have reserves in case of emergencies.

My mortgages are all fixed rate.

BOBS

Northamptonblue wrote: »

I am not a moderator but has this thread gone wildly off topic?

just got rather too complicated and way above my understanding.

justme111

This is one of the best threads on here. Every now and again someone comes up with their number and it goes back ĺon track. Simple stuff, complicated stuff, large numbers , small numbers - for all tastes and circumstances