Early-retirement wannabe

BritishInvestor

nirajn123 said:

gadgetmind said:

nirajn123 said:

If you don't mind sharing what do you use for the 50/50 portfolio? Some one decision fund or DIY of all world equity + global aggregate bonds?

VWRL and VGOV for the most part, but I added VFEM and VAPX to the equities to get more emerging/Asia, and added SLXX to to bonds to add some corporate, and also IGLS and IS15 to reduce duration. I also hold some INFR, RIT Capital Partners and Scottish Oriental Smaller Companies, but some of this is historical. I also like picking up Investment Trusts in deeply unloved sectors that are on big discounts and then waiting years/decades for the hot money to pile back into them. This has worked *very* well for me and I wish I'd been bolder with allocations, but that's always the way.

Sorry for ticker codes, but those interested can google them.

OK, so effectively Indexing and some active to boot. Going by your list, I must say we are quite similar in terms of our thinking. I use a combination of VEVE/VAPX/VFEM and AGBP for FI. Moved away from active after the Woodford saga. I do have some VVAL and small cap ETFs which have provided some alpha in the long term. Owning a value factor ETF effectively replicates what you are doing with unloved sectors without taking a sector specific risk - but I guess there is more than one way to skin a cat. 

Things have certainly worked out in the last few years and good to know that a 6% withdrawal is worked through crisis too. My only worry is GBP strengthing further - its fine in the short term but I would worry if it continues when I retire early in 5 years time. 

"and small cap ETFs which have provided some alpha in the long term"
Would be good to understand more about the alpha.

BritishInvestor

nirajn123 said:

gadgetmind said:

Dunno if anyone is interested, but I took my 1st pension payment from my SIPP in November 2018, have now taken 26 payments at a rate of just over 6% pa, and have 2.9% more in my pot than when I started. It peaked at 6.5% up in August 2019 (slightly higher late January 2020 but I only record once per month) and troughed at -10% in April 2020 as lockdown one started. I'm at a 50:50 equity to bond ratio, with rebalancing twice per year as I have to sell something to get enough cash for another six months' of payments. ISTR on one occasion doing a small purchase too but would have to check my records.

Balanced portfolios are a good thing!

You have done well to come through one of the worst drawdown periods in the history and so early in your drawdown journey, fair to say the central bankers deserve huge credit. 6% withdrawal is certainly higher than what I am targeting myself but as long as it works for you in the long term good for you! 

If you don't mind sharing what do you use for the 50/50 portfolio? Some one decision fund or DIY of all world equity + global aggregate bonds?

"You have done well to come through one of the worst drawdown periods in the history "
It depends how you define worst. In terms of retirement portfolio sustainability, it was insignificant.

BritishInvestor

mark55man said:

So I do disagree - it seems you re all aiming far too high, if most years your total pot increases (nominally) then when you die you will have too much left over.  I do understand the need for caution, but too much caution leads to not starting retirement early enough and the wasted opportunities for a healthier early start

I'll not argue anymore though as I'm not a pensions expert - just a mathematician.  Plus someone who does worry if the advice issued is to protect the advisors more than to optimise the retirement  

Protect the advisers in what way?

mark55man

By protect the advisors I meant some combination of the below
* it would be significantly worse press for an advisor to have a client who ran out of money that one who died with a million - even if the client could have made more use of the money when alive
* on a %age fee basis - the more money in the client's account the more money heading in the advisor's direction

So whilst respecting the advisor's wealth of experience and advice, I do think there would be a systemic bias towards being far more cautious in withdrawals than could be justified.  I accept no one could really be cross (especially not litigiously so) at an advisor for ending up with more money. However,  I have read many many diaries on this forum, and the number of people complaining they retired later than they could have, does exceed those complaining they went too early.  Therefore the bias in judgement to safety built into the advice does have a negative consequence - namely advice to work longer/save harder build the pot up or reduce your income expectations.

Now if my understanding is that the aim of a pot is to be drawn down is wrong - fair enough.  Personally I would see it as a a failure if I grossly overegged my starting amount and/or under-egged my income. I concede popping my clogs with significant excess assets is not a hardship but the former 2 definitely would be          

BritishInvestor

mark55man said:

By protect the advisors I meant some combination of the below
* it would be significantly worse press for an advisor to have a client who ran out of money that one who died with a million - even if the client could have made more use of the money when alive
* on a %age fee basis - the more money in the client's account the more money heading in the advisor's direction

So whilst respecting the advisor's wealth of experience and advice, I do think there would be a systemic bias towards being far more cautious in withdrawals than could be justified.  I accept no one could really be cross (especially not litigiously so) at an advisor for ending up with more money. However,  I have read many many diaries on this forum, and the number of people complaining they retired later than they could have, does exceed those complaining they went too early.  Therefore the bias in judgement to safety built into the advice does have a negative consequence - namely advice to work longer/save harder build the pot up or reduce your income expectations.

Now if my understanding is that the aim of a pot is to be drawn down is wrong - fair enough.  Personally I would see it as a a failure if I grossly overegged my starting amount and/or under-egged my income. I concede popping my clogs with significant excess assets is not a hardship but the former 2 definitely would be          

I think you'd first have to consider how many advisers are specialists in retirement planning and would therefore make this decision with a reasonable level of knowledge rather than guesswork. For example, I was reading an adviser recently insisting that a 5% withdrawal rate, over a 40 year period was what he considered perfectly safe for his clients. One wonders on what basis he came to that conclusion.

"However,  I have read many many diaries on this forum, and the number of people complaining they retired later than they could have, does exceed those complaining they went too early."

You would have to look at the profile of when these people retired that have made the comments. If you had people on here that attempted lumpy withdrawals in the late 60s and got crushed by a combination of inflation and sustained market withdrawals in the 70s, you might have a completely different set of answers. 

The discussion when creating a withdrawal policy statement should very much be two way between the client and the adviser so that a sweet spot of starting level of income, future variability of income and success rate (based on historical data) can be arrived at.

jamesd

mark55man said:

So I do disagree - it seems you re all aiming far too high, if most years your total pot increases (nominally) then when you die you will have too much left over.  I do understand the need for caution, but too much caution leads to not starting retirement early enough and the wasted opportunities for a healthier early start

At least for early years, you're wrong if someone is using a tested safe withdrawal rate. Increases are typical in the early years for those.

The key required thing to understand this is that a SWR has to work even in the worst case scenario it includes. Those are far worse than average or routine below average performance. If the horrendously bad thing doesn't happen it's going to be possible to increase the withdrawal rate, either by rebasing with fewer remaining years or by using an inherently variable method like Guyton-Klinger. And that should be done from time to time with fixed rules, say every five years.

Looking back we can now see that those who started drawdown a few years ago have experienced a good sequence so increases are likely.

Many will be drawing at a faster than safe rate to substitute for a not yet in payment state pension. Nominal but still safe decreases are more likely in that case and providing the extra has been allowed for it's still safe.

jamesd

BritishInvestor  I was reading an adviser recently insisting that a 5% withdrawal rate, over a 40 year period was what he considered perfectly safe for his clients. One wonders on what basis he came to that conclusion.

While that's too definitive for my taste I would be happy to describe an initial withdrawal rate of 5% as safe for 40 years provided the Guyton-Klinger rules are being used and charges are moderate. Even then I'd want to add margin via state pension deferral and potentially later partial annuitisation.

While it's not a mistake that you'll make because you know and understand so much, it wouldn't be surprising to me if some people have seen the superb sequence from starting in 2009 and think of it as normal rather than exceptionally good. Meanwhile I suspect that you might be more inclined towards my view that current future prospects are merely moderate, not superb.

I do think that 5% inflation adjusted starting today for 40 years is fairly likely to work but I don't think that it could wisely be described as safe without careful customer selection relating to high guaranteed income in place and tolerance for income drop.

sheslookinhot

This thread used to be a good read, prior to it being highjacked.

westv

Hijacking? Call the Pension SAS. 

Bravepants

sheslookinhot said:

This thread used to be a good read, prior to it being highjacked.

Well, to be fair, the thread's gone on for so long that it's a wonder no-one's yet mentioned Hitler! Oh, !!!!!!.....

https://en.wikipedia.org/wiki/Godwin's_law