The right portfolio for extended retirement

TheTracker

The research around Rising Glidepaths is interesting and I don't think US specific but more probabilistic analysis. On the surface, starting retirement at 50:50 and progressively lifting it to 90:10 sounds counter intuitive, but many of the best ideas do. The author Wade Pfau's blog is excellent and worth reading if you are into such things. The most important information you've given is a rather conservative SWR of 3% and that should be what keeps you safe. Many use 4 or 4.5 (I'm planning 3% + 0.2% fees).

The bigger worry around such instant and early retirement is the psychological and behavioural adjustment. Can you go from full to no involvement so quickly and for so long? You may be tempted to start vanity 2nd careers, or live it up, or simply get bored before 70. Might there be an option and appetite for working the next few years in some less involved but still profit making activity? Have you considered investing some of the money in a new enterprise that will keep you busy and interested without losing money? If you sold a business can you hold a part time back seat job with the buyer?

chucknorris

TheTracker wrote: »

The bigger worry around such instant and early retirement is the psychological and behavioural adjustment. Can you go from full to no involvement so quickly and for so long? You may be tempted to start vanity 2nd careers, or live it up, or simply get bored before 70. Might there be an option and appetite for working the next few years in some less involved but still profit making activity? Have you considered investing some of the money in a new enterprise that will keep you busy and interested without losing money? If you sold a business can you hold a part time back seat job with the buyer?

This was my experience at my first attempt at 'retirement' in my early 40's. I had not prepared for it at all, it was mainly driven by financial circumstances and being completely overloaded (so wealth, but no time to enjoy it). Although I continued to run two businesses after retiring (so not really retirement in the true sense). But after selling one of the businesses I seemed to find myself at a loose end. So I ended up starting a second career as a university lecturer. But as I approach retirement from lecturing I think that it will be very different this time, because I have planned it this time:


1. I am very keen to do a triathlon, but I just don't have the time during semesters 1 and 2 to do all the necessary training, so I only keep on top of my running and let my swimming slip a little and my cycling a lot. Then catch up in the summer, so currently I could only do a triathlon in September, at the end of the summer.


2. I have taken up bowls and although I have done reasonably well, again I find that I am too busy marking to really get on top of my game and compete at the higher county level.


3. We also have outline plans to start spending the winters (or at least a substantial part of the winter) in Spain and/or Portugal, as an outdoor person previously I tended to be more prone to getting bored during the winters.


4. I can also start playing indoor bowls during the winter, when not away in Spain/Portugal.

gadgetmind

dunstonh wrote: »

there will be people that pull out and crystallise that loss.

Perhaps, but we're talking about a group who've built up enough capital to be able to retire early, so they've presumably seen first hand a few market cycles and know how things work.

dunstonh

gadgetmind wrote: »

Perhaps, but we're talking about a group who've built up enough capital to be able to retire early, so they've presumably seen first hand a few market cycles and know how things work.

Doesnt mean anything. The FOS recently upheld a case of a successful business owner with investment properties because they felt he didnt have the experience of investments to utilise single sector funds in a balanced and diverse portfolio. Personally, I think that is a silly outcome as we are not talking unusual investments. However, it does indicate that people who are successful in one area and build up money does not mean they are capable of understanding investments.

Chickereeeee

jamesd wrote: »

With an RPI annuity paying out just 2.5% at 65 the state pension deferral is an easy winner for secure inflation-linked income.

The UK long term stock market return is around 5% plus RPI inflation. The deferral pays 5.8% plus CPI inflation. The expected outcome is barely under-performing investments in the UK stock market, without having the investment risk. And that's before costs, which means it probably actually beats the market. That makes it very useful as a risk reduction tool.

Where did your 3% above inflation value come from? Did you perhaps assume that the 5.8% wasn't inflation-linked?

Your 5.8% is all well and good, but are you not ignoring the first years payment which you dont get, if you defer? It takes you nearly 20 years to 'recover' that lost £10k (in my example) and if you had invested it, much longer.

The old deferral rate was much better, which is why the goverment are changing it.

gadgetmind

dunstonh wrote: »

does not mean they are capable of understanding investments.

I suspect the chap in this case fully understood investments, and how to work the system.

dunstonh

gadgetmind wrote: »

I suspect the chap in this case fully understood investments, and how to work the system.

I suspect the adviser that did the investments for the person that was found against felt the same way.

You could be right. you could be wrong. No harm in pointing out issues though and letting the op decide. After all, if you DIY, you only have yourself to blame.

jamesd

Chickereeeee wrote: »

Your 5.8% is all well and good, but are you not ignoring the first years payment which you dont get, if you defer? It takes you nearly 20 years to 'recover' that lost £10k (in my example) and if you had invested it, much longer.

The purpose is not to get that back, it is to spend it to get the ongoing income without any investment risk. Think more in terms of comparing to buying an annuity to get low risk income, accepting the loss of capital.

This trade for capital for secure income won't necessarily be attractive to those with strong inheritance preservation goals but would work for those who want to maximise reasonably safe income drawing levels during their lifetime. Even with the high inheritance objective the certainty of the income can increase the likely bad case inheritance by reducing the need to draw on capital during a sustained bad time, if one happens.

gadgetmind

jamesd wrote: »

during a sustained bad time, if one happens.

If? They seem to come along once or twice per decade, so figure on a good half dozen during retirement. If the 1st one is *huge* and comes just after retiring ....

jamesd

By sustained bad time I don't mean something as modest as just a 45% market drop followed by a recovery in the 2008/9 and since vein. I mean something closer to the Great Depression or 1970s. The former a huge drop then minimal recovery for around a decade, including drops in income payouts, the latter sustained high inflation.

For the routine stuff I expect 40-50% once or twice a decade and 20% two or three times, just as a matter of routine that you have to be willing too tolerate and deal with. A year's worth of planned income in a cash savings account can deal with these well enough by eliminating the need to draw on capital until the event is over. That's a lot less challenging than April 1973 to June 1982 when annualised inflation was only below 9% for around nine months and had a 26.9% peak