Drawdown Psychology and Capital Burn

Triumph13

westv wrote: »

Oh for the days when "Uni" was an aspiration rather than an expectation!

On that one I couldn't agree more. The number of unsuitable candidates doing unsuitable courses at poor quality institutions is deeply saddening. So many end up saddled with huge debts and unrealistic expectations which is a pretty good recipe for misery. The only bright side (for them, not for the taxpayers) is that so much of that debt will end up being written off.
If my kids had not been academic then I would have tried to steer them towards an apprenticeship, or similar, instead of Uni. As it happens, we have been very lucky in that they are both extremely academic, and they are lucky that we will be able to pay off their student debt for them (just not going to do it up front). We see our mission as helping them to make use of their academic gifts and to find a path through life that maximises their happiness (I'd rather they worked 50 years at a job they love than 25 at one they hate, but which pays better). In their cases Uni is a clear expectation, as it would have been in my generation, but if they come to us proposing an alternative path we will certainly be prepared to listen.

AnotherJoe

Triumph13 wrote: »

Now that is a whole other topic of debate! Do you stay at work longer and pay someone else to do the renovations, or retire earlier and do them yourself. In my case there are a lot of jobs that I would actually enjoy doing myself and would be able to do much more cheaply, but others that will need the builders and the chequebook. I very difficult balancing act indeed.

Well i intended to do the latter, pack job in, redecorate,, then my mate educated me by saying "why dont you just work an extra week or two?" and he was right. I've had redecoration done several times faster than i could, (and better,) I didn't live in a tip for weeks whilst it was part done, I've currently got some work going on in my garden, what would take me a month of backbreaking toil, they will have done in a week.

Fine if its a hobby or you enjoy it, but I reckon I've done my time on these chores and dont relish the 3 hours doing it and 17 hours driving back forth to B&Q to buy that little thing you discover you need last minute when mid-ladder

atush

I'm doing mine a room at a time (sometimes 2- a bedroom and bathroom together).

I get in people to do the plumbing, tiling, lighting, flooring and I do the painting and demo to cut costs.

Triumph13

Before I discovered MMM, I would have agreed with AnotherJoe entirely - and indeed a few years ago when I rebuilt the house it was a complete no brainer to keep doing my job and pay a builder to do theirs (although I did all do the plumbing, tiling and decorating).
Now I find the argument a bit more nuanced - the challenge of doing the jobs and the feeling of achievement afterwards are not to be sniffed at, and I get a wonderful feeling of achievement whenever I see the floor tiles in the porch. But if that kind of thing doesn't give you a buzz, then for gawd's sake follow Joe's advice!

Marine_life

Triumph13 wrote: »

Assumptions are 3.6% investment income / growth on an 80% equity portfolio and a zero real return on cash.

80% allocation to equities is pretty racy for someone approaching retirement but clearly that is the key driver of your 3.6% real return. Is that allocation because you want to make sure you can fund your spending from income rather than capital?

I would feel a little more relaxed with a lower equity allocation, maybe a slightly lower return but then less volatility. Of course that means you will need to be comfortable with drawing down some capital.

Actually the right answer may be somewhere in between i.e. if you want to maintain your high equity allocation then spend in the good years and cut back in the bad. Or adjust your allocation for less volatility but plan for a steady draw down of capital over the initial years.

missile

Triumph13 wrote: »

Assuming you have read the thread, I'd be very interested to know on what basis you have come to that conclusion as I'd say I'm being massively over-prudent on any reasonable set of assumptions.
Our current lifestyle was looking eminently sustainable if I'd gone at 50. I'm planning an extra three years work with a savings rate of 60 - 70% even before you add in investment returns. That should make us pretty well bomb proof.

You said "30 months from retirement We'll be 53 and 55. Kids will be 14 and 16".
The kids are now 11+ and 13+?
I am surprised you are planning to retire before kids leave school.
I would be interested to know, how have you estimated what financial assistance they may require? :rotfl:

bigadaj

missile wrote: »

You said "30 months from retirement We'll be 53 and 55. Kids will be 14 and 16".
The kids are now 11+ and 13+?
I am surprised you are planning to retire before kids leave school.
I would be interested to know, how have you estimated what financial assistance they may require? :rotfl:

You seem to have a particular and specific problem with the OPs proposal which says more about you than him.

What is the difference between retirement and living by independent means, apart from terminology.

So long as you have a rarsonable income stream then the decision to work or not, and the extent to do so, is personal choice.

In terms of financial assistance for children then that will vary, there's an absolute duty to fund until 16, it is now rare to not extend this to 18 and many will do so to 21 or older. At any age parents may well contribute for various reasons so teh age at which support may stop, and the extent to which it will continue, can all be modelled as alrt of the scenario.

I'm in my late forties and have older cousins who are still effectively being supported by my aunts and uncles so there is logically a time at which this should or ultimately have to stop.

AnotherJoe

Triumph13 wrote: »

Before I discovered MMM, I would have agreed with AnotherJoe entirely - and indeed a few years ago when I rebuilt the house it was a complete no brainer to keep doing my job and pay a builder to do theirs (although I did all do the plumbing, tiling and decorating).
Now I find the argument a bit more nuanced - the challenge of doing the jobs and the feeling of achievement afterwards are not to be sniffed at, and I get a wonderful feeling of achievement whenever I see the floor tiles in the porch. But if that kind of thing doesn't give you a buzz, then for gawd's sake follow Joe's advice!

MMM ? What's that ?

DancingBadger

AnotherJoe wrote: »

MMM ? What's that ?

http://www.mrmoneymustache.com

Triumph13

Marine_life wrote: »

80% allocation to equities is pretty racy for someone approaching retirement but clearly that is the key driver of your 3.6% real return. Is that allocation because you want to make sure you can fund your spending from income rather than capital?

I would feel a little more relaxed with a lower equity allocation, maybe a slightly lower return but then less volatility. Of course that means you will need to be comfortable with drawing down some capital.

Actually the right answer may be somewhere in between i.e. if you want to maintain your high equity allocation then spend in the good years and cut back in the bad. Or adjust your allocation for less volatility but plan for a steady draw down of capital over the initial years.

The 80% equity is not as racy as it looks as those funds are only part of the overall picture.
Once all the DBs and SPs are on line, they will more than cover all my basic expenditure and so high volatility on the investment income translates to a very easily acceptable level of volatility in overall income for me (especially as I'm expecting to under spend anyway.)
In the first period of retirement, income will be more volatile, but I will be using big chunks of cash or near-cash to reduce that volatility such that a 40% drop in the markets would translate to a 25% drop in expected income - which is well within my tolerance zone. In practice I would probably also use some further cash reserves to minimise asset sales for a while after a huge crash.
In the period running up to retirement I am a little more exposed, but the portion that will be converted to cash is sitting in a diversified assets fund to limit volatility a bit.
The overall aim on the 80% fund it to provide a perpetuity. As I want this income stream to still be there for my kids when I'm gone, it needs to have a very high equity component to maximise long term growth so I may actually go higher than 80%. With a withdrawal rate of 3.6% of current value I would hope that it would actually grow faster than inflation - hence the need to keep an eye on the LTA issues at 75 - and I'm most likely to end up with an income significantly above my needs in later life, giving plenty of opportunity to help the kids out in life as well as providing for them after death.
I'm in the fortunate position of having enough slack that I don't have to strive for maximum efficiency in my financial planning, but can concentrate much more on what will give me peace of mind and this feels like the right balance to me.