Financial retirement planning

Loughton_Monkey

Your key strength is that (as you put it) money isn't a problem.

Technically speaking, you also have further assets in the form of State Pension entitlement. Whilst this generally gets paid as a recurring income, it does have a theoretical £note "value".

All my own calculations informed me that retiring at 60 requires total usable assets in the order of 20X your required spending. When taking into account retiring (as I did) at 56, and being conservative, I retired on about 40X spending. Like you, 'money isn't a problem' but cash flow, tax minimisation, and future risk can be problematic, or hard work and require clever planning.

In the context of managing money for retirement, perhaps try simplify by not zooming in straight away on words like "equities". Try to think, initially, to think of (a) Savings, and (b) Investments. The latter is a very wide subject and breaks down into things like property, equities, bonds/gilts, derivatives, gold, crowd funding, etc. A very large range. So, for example, your portfolio of houses can behave (from a risk and return point of view) very much like some equities. Savings, and 'cash' [as in the form of a FS pension income, State Pension, and typical cash ISA's] is 'solid', reliable, and generally predictable, but almost never will they keep up with inflation (spending requirement).

Currently, you have hardly anything in 'savings' or 'cash'.

FWIW, my own situation was that FS pensions, and other pensions would produce roughly 1 third of my spending. Another third would come from savings/investment income, and the other third would come from eating into the capital.

But I only assumed 5% on 'investments', and generally produce 7% [over a period]. I have no need to spend 100% up to my budget, and so I have a situation (very nice to be in) in which my spending is virtually covered by 'guaranteed' income and savings/investment returns. In turn, this has given me rather more flexibility in the type of investments I choose.

So firstly, I would recommend sketching out, on a spreadsheet, all your assets in detail, what will happen when you start selling houses, and into what type of 'vehicle' will you put the cash. Don't, at this stage, think too hard about fund A versus fund B or versus bond C. Think more of the structure [S&S or Cash ISAs, Pension pots, drawdown arrangements, ordinary fund investments (for Capital Gains using your tax free limits), or maybe an annuity or two. Just plonk in 'reasonable' average returns - perhaps on the conservative side - and all the taxation implications.

Just as importantly, do some sensitivity analysis on your assumptions (which will quantify your risks of bad investment performance, or high inflation, or low interest rates....), which might inform you as to the most comfortable (for you) mix of savings and investment, or mix of equities and non equity investments.

It is at the last stage, in my view, that you go to town on your detailed investment strategy. You have so many options. Personally, I have a mixed bag.... yes, a few legacy single company shares (risk of 100% loss), and a much larger proportion of equity funds (risk of 40% loss?) across a very wide range of geographies and focus. Then I have a small (but growing) proportion in property/bond funds (lower volatility) together with things like absolute funds which de-risk equity exposure extremely well....

In my experience, a good spreadsheet might take a very long time to develop and perfect to your own satisfaction. But if the structure of your final strategy is 'sound', then you are more likely, I think, to turn it into reality albeit with swings and roundabouts.

chucknorris

Loughton_Monkey wrote: »

Your key strength is that (as you put it) money isn't a problem.

Technically speaking, you also have further assets in the form of State Pension entitlement. Whilst this generally gets paid as a recurring income, it does have a theoretical £note "value".

All my own calculations informed me that retiring at 60 requires total usable assets in the order of 20X your required spending. When taking into account retiring (as I did) at 56, and being conservative, I retired on about 40X spending. Like you, 'money isn't a problem' but cash flow, tax minimisation, and future risk can be problematic, or hard work and require clever planning.

In the context of managing money for retirement, perhaps try simplify by not zooming in straight away on words like "equities". Try to think, initially, to think of (a) Savings, and (b) Investments. The latter is a very wide subject and breaks down into things like property, equities, bonds/gilts, derivatives, gold, crowd funding, etc. A very large range. So, for example, your portfolio of houses can behave (from a risk and return point of view) very much like some equities. Savings, and 'cash' [as in the form of a FS pension income, State Pension, and typical cash ISA's] is 'solid', reliable, and generally predictable, but almost never will they keep up with inflation (spending requirement).

Currently, you have hardly anything in 'savings' or 'cash'.

FWIW, my own situation was that FS pensions, and other pensions would produce roughly 1 third of my spending. Another third would come from savings/investment income, and the other third would come from eating into the capital.

But I only assumed 5% on 'investments', and generally produce 7% [over a period]. I have no need to spend 100% up to my budget, and so I have a situation (very nice to be in) in which my spending is virtually covered by 'guaranteed' income and savings/investment returns. In turn, this has given me rather more flexibility in the type of investments I choose.

So firstly, I would recommend sketching out, on a spreadsheet, all your assets in detail, what will happen when you start selling houses, and into what type of 'vehicle' will you put the cash. Don't, at this stage, think too hard about fund A versus fund B or versus bond C. Think more of the structure [S&S or Cash ISAs, Pension pots, drawdown arrangements, ordinary fund investments (for Capital Gains using your tax free limits), or maybe an annuity or two. Just plonk in 'reasonable' average returns - perhaps on the conservative side - and all the taxation implications.

Just as importantly, do some sensitivity analysis on your assumptions (which will quantify your risks of bad investment performance, or high inflation, or low interest rates....), which might inform you as to the most comfortable (for you) mix of savings and investment, or mix of equities and non equity investments.

It is at the last stage, in my view, that you go to town on your detailed investment strategy. You have so many options. Personally, I have a mixed bag.... yes, a few legacy single company shares (risk of 100% loss), and a much larger proportion of equity funds (risk of 40% loss?) across a very wide range of geographies and focus. Then I have a small (but growing) proportion in property/bond funds (lower volatility) together with things like absolute funds which de-risk equity exposure extremely well....

In my experience, a good spreadsheet might take a very long time to develop and perfect to your own satisfaction. But if the structure of your final strategy is 'sound', then you are more likely, I think, to turn it into reality albeit with swings and roundabouts.

Thanks LM, it is already on spreadsheets, quite sadly I quite enjoy setting it all out and analysing it all on spreadsheets.

Loughton_Monkey

chucknorris wrote: »

Thanks LM, it is already on spreadsheets, quite sadly I quite enjoy setting it all out and analysing it all on spreadsheets.

Yes, I'm probably preaching to the converted. With an actuary wife, you are particularly well placed. Some of them are aware that 2 and 2 doesn't always make 22.

kidmugsy

chucknorris wrote: »

Yes the 2% is more than 2 years of current spending money

So your savings and investments are greater than 100x your annual outgoings. I'm not too clear what you are worried about. Maybe you should plunge the lot into the Harry Browne Permanent Portfolio and rebalance occasionally, otherwise letting it run itself. Or stick much of it into defensive investment trusts such as Personal Assets or Ruffer. Or look at some of the competitors to HBPP. If you diversify, keep costs down, and avoid tax as much as possible, you should be OK. Where OK = really pretty rich.

Al.

chucknorris wrote: »

Sorry I'm not sure what you are getting at? I think you mean the new pension freedoms, but the 'problem' is that most of our money is outside of pensions. I am working on 35 years, just in case I happen to live that long, but surely risk always has to be considered.

I was thinking along the lines of, if I stayed in equities too long, and there was a crash, then I would have to sell them at a lower price for income. To avoid this a certain amount of planning ahead should be done to keep a certain amount of cash for spending, to avoid selling equities at a possible low price. But I thought that there would be some 'rule of thumb' about this.

Sorry, my bad. I was referring to the use of the pension as no longer, a whole of life wrapper. It now has inter generational potential. So, everyone's needs and circumstances are different. Do you intend to pass it on? If so, it could be (or at least the portion of it that you'll never be able to use) a 50 year or more strategy that might compel broader thinking.

chucknorris

kidmugsy wrote: »

So your savings and investments are greater than 100x your annual outgoings. I'm not too clear what you are worried about. Maybe you should plunge the lot into the Harry Browne Permanent Portfolio and rebalance occasionally, otherwise letting it run itself. Or stick much of it into defensive investment trusts such as Personal Assets or Ruffer. Or look at some of the competitors to HBPP. If you diversify, keep costs down, and avoid tax as much as possible, you should be OK. Where OK = really pretty rich.

I'm not worried at all, I'm just exploring the best way forward (yes from a position of strength). I do actually enjoy being hands on, although not to the extent of taking on excessive risk, I took all my risks when I was younger, and it paid off, I'm not going to give it back now.

chucknorris

Al. wrote: »

Sorry, my bad. I was referring to the use of the pension as no longer, a whole of life wrapper. It now has inter generational potential. So, everyone's needs and circumstances are different. Do you intend to pass it on? If so, it could be (or at least the portion of it that you'll never be able to use) a 50 year or more strategy that might compel broader thinking.

Ahh I see, I wouldn't have guessed that you meant that, because we don't have children (so I'm not wired to think about leaving inheritance), hence the comments above about probably not being able to spend it all, if we did have children (hopefully) we wouldn't be selfish and try and spend it all.

chucknorris

Thanks for all your comments everyone, I can see what I will do, but I just wanted to see if anyone came up with anything that I hadn't considered. I am going to find it very strange being a spender rather than investing for the future, after so many years of doing so. Its funny but over the years I have seen money as not something that you spend, but rather something that you use to secure your future with, now that I've arrived at the point where I don't have to, it takes a bit of getting used to. I've been in denial for quite a few years too, but I've told my employed that I am retiring next year, so that was my first step taken.

atush

Just a shame you didn't use pensions earlier if you have just been in them for 4 years?

chucknorris

atush wrote: »

Just a shame you didn't use pensions earlier if you have just been in them for 4 years?

That's right, that is my one regret, but I have forgiven myself, I can't get everything right. I've not done that badly though, when I said 4 years I meant buying additional pension, I have been the the TPS (Teachers Pension Scheme) for 5 years and have bought additional pension there, so on top of my £300k SIPP and ISA's I will also have about £10,500 of final salary pension, I personally value that with multiplier of 27, so it is worth (to me) about £283k. My wife has invested more in her pension (when I said last year, I meant paying up to the max annual allowance, she has always paid a small amount annually) but less ISA than me, between us we'll have about £1.2m in pension/ISA wrappers by the time I am 65. Not huge but, the real money is outside of tax free wrappers. I did consider VCT's but I dropped the idea when I realised that I was being seduced by the tax concessions. I'm not saying VCT's are a bad investment, just that I don't think that they are right for me.