Early-retirement wannabe

[Deleted User]

WannabeEdouard wrote: »

Hi James,

Is this because of a market correction event is high probability in near future?

There is indeed a high probability of a market correction in the near future. Market corrections happen, on average, once a year. The last one took place at the end of 2018.

[Deleted User]

cfw1994 wrote: »

I certainly relate to that first point!
What is a “hobby farm”? You grow hobbies? :rotfl:

You sound in a good place (I don’t just mean Canada, although that is very nice....I once spent a student summer on a farm in Strathroy, Ontario....carefree days!).
Once the offspring are making their way, the “pressures” should ease, I suspect....ours also completes next summer, although the older here is considering a masters (puts off finding work, eh....), so not entirely done with “support”....

We don’t grow hobbies, but we ought to. Farms selling “hobbies” (or rather “experiences” ) tend to do quite well. Right now we are selling honey, trees to nurseries and duck eggs but this will change. Half of the land is not worked - just forest and wildlife. I say “hobby farm” because we are not focusing on maximizing profit.

Our older son also did masters. Turned out to be a waste of a year but he has a good job now. Might be different if your son is doing something like engineering; a masters degree can be quite useful in a technical field.

WannabeEdouard

Deleted_User wrote: »

There is indeed a high probability of a market correction in the near future. Market corrections happen, on average, once a year. The last one took place at the end of 2018.

Ok correction was the wrong word and not my intent, market crash was what i meant to convey. But you knew that

[Deleted User]

WannabeEdouard wrote: »

Ok correction was the wrong word and not my intent, market crash was what i meant to convey. But you knew that

I did but the answer is similar. “Crashes” happen at least annually if not monthly, if you follow talking heads on “business day coverage”. Actual bear markets happen every 5 years or so. Most are inconsequential in the long term.

There could be a really deep and really long downturn which would damage people approaching retirement or in the early days of retirement. Nobody knows if or when it would happen. Trying to time the market is a losers game, not least because you have to guess the timing twice to gain vs just staying invested.

jamesd

WannabeEdouard wrote: »

seems unless I am very unlucky and get market conditions worse than ever before I may well be far better off transferring. Your comment at the end it's not the time to be in 65% equities worries me as your whole post assumes that. Is this because of a market correction event is high probability in near future?

Yes, you'd need to be very unlucky to be worse off. A 50% equity drop that doesn't recover at all for three more years then rises by 25% (50% * 1.25 = 62.5%, still 37.5 down on the start) is very much on the bad range of possible sequences.

There's a relationship between the cyclically adjusted price / earnings ratio of equities and both the expected ten year investment returns and chance of a big 40% size drop. Price / earnings is share price divided by company earnings. Cyclically adjusts for where we are in the economic cycle. So the first post in Drawdown: safe withdrawal rates has this near the end:

"Investment highlight: December 2018 [STRIKE]August[/STRIKE] [STRIKE]April[/STRIKE] [STRIKE]2017[/STRIKE]: You should have lower than usual equity investments at the moment because cyclically adjusted price/earnings ratios (PE10) are above average in some major markets, particularly the US. You might also favour lower PE10 markets with higher than their usual equity weights. I like P2P lending rather than corporate or government bonds for this. See Guyton's sequence of return risk reduction and Bengen's interesting timing thought in the last paragraph of his 2016 small cap paper. But remember that while this has good predictive value for ten year investment returns it has none for one year so it can't tell you specifically when to change, just when conditions are less favourable for equities."

At the moment the US PE10 implies a greater than 25% a year chance of a major drop. But it still might not happen.

I used 65%:35% equities:bonds and cash because that's what was used in the research that led to me using 5% with 1.5% costs. It came up with 5.5% for only UK investments with no costs and some other work has shown that safe withdrawal rates are reduced by about a third of costs.

There isn't a huge difference in outcomes with equities 50% and higher at the start. Going lower than that does matter.

Guyton did some work on managing sequence of returns risk and that gives some rules on when to cut and restore equity percentages.

As a result I've been using a lower equity split than I otherwise would for a few years.

Sea_Eagle

So after reading this thread over the last 4 weeks it is now my turn to share my own situation.
I will be 55 in early 2021, the company that I work for will be closing the Final salary pension in December 2019. It was always my intention to try and retire at 55 if the numbers stacked up.
I can access my DB pension from the age of 55 and the numbers I have been provided with are as follows

£26,000 pa pension @ 55 (gross)
£172,000 TFLS

My wife also has a small DB pension available from 2020 paying

£3,655 pa pension @ 55 (no tax payable)
£24,000 TFLS

We also have £50,000 in various savings and @67 SP pays me £8000 and OH £7000.

Our original plan was take both pensions together and draw down just over £9,000 pa from our pot (the pot would be invested somewhere but not sure exactly where at this point). We have no debts and in order to enjoy our retirement we believe the number that we need is £36000 pa (nett). I should add at this point that we are both in good health.

Prior to the announcement of the pension closure I requested a CETV and this came back @ £1138000, I expect this figure will be now closer to £1150000 by the time the scheme closes and I understand that this takes me over the LTA.

I will be taking independent Financial advise at some point early in the new year but from what I have included above do my numbers add up or am I missing a trick?

arnoldy

Hi Sea Eagle


One factor to bear in mind is that (contrary to popular myth) DB benefits are NOT risk free.


Unless they are the gold and diamond encrusted public pensions which are index linked.


Most Private DB pensions are - at best - CPI linked with a 2.5% cap. All it would take is for a 55 year old retiree to see a few years of 5%+ inflation over the next 20 years to see their pension wither, and for them to be cast into a gentle decline to poverty.


Therefore don't discount the transfer route - even if marginally over LTA.

GunJack

arnoldy wrote: »

Hi Sea Eagle


One factor to bear in mind is that (contrary to popular myth) DB benefits are NOT risk free.


Unless they are the gold and diamond encrusted public pensions which are index linked.


Most Private DB pensions are - at best - CPI linked with a 2.5% cap. All it would take is for a 55 year old retiree to see a few years of 5%+ inflation over the next 20 years to see their pension wither, and for them to be cast into a gentle decline to poverty.


Therefore don't discount the transfer route - even if marginally over LTA.

Think you're a bit out-of date on public sector indexing...they've been CPI capped for a good while now..

[Deleted User]

jamesd wrote: »

As a result I've been using a lower equity split than I otherwise would for a few years.

Agree with what you say about US equities being expensive by historic standards with the PE ratio of 30. Yes, in theory this means lower expected long term returns (unless we get another internet, or a new form of energy or something else to jack up the profits).

The problem is that a) US stockmarket returns have actually been great for a few years. b) many other stock markets have much more reasonably priced equities. c) bonds have even lower expected returns than US stocks.

All in all, I am not sure why one would try to time asset allocation based on market conditions rather than just stick with the plan.

westv

GunJack wrote: »

Think you're a bit out-of date on public sector indexing...they've been CPI capped for a good while now..

Have they? Which ones?