Retirement portfolio for someone in their 60's

Triumph13

If I was as over-provided as you, and with no particular desire to massively inflate my lifestyle, I would be looking to create a stress-free portfolio that gave multiple income streams with loads of headroom / redundancy, and then indulge your interest in managing investments by re-investing the excess income each period in additional 'for fun' portfolios.
Incomes streams could be something like 1) Your part-time earnings/DB pension and state pension 2)Your remaining investment properties, 3)An income producing investment trust portfolio, 4)A global equity tracker, selling a small fixed percentage per year. All of those basically look after themselves (apart from the investment property maybe) and keep the money rolling in in a way that you don't have to worry too much about continuing to manage them in your dotage / your wife managing them if you predecease her.
You have no need to go chasing returns, nor do you need to get paranoid about defensive holdings in case markets drop - if markets drop you'll still have far more than you ever need so don't fret yourself into an early grave worrying about it.

ukdw

chucknorris wrote: »

I use a multiplier of 28.5, which is based upon annuities of similar criteria (but with a slightly lower multiplier, because I don't think annuities are the best products, although I don't entirely dismiss them either).

I like the idea of including a multiplier of the state pension as a very safe percentage of an overall portfolio as you have done. I would be tempted however to use a lower multiplier of say 18 - which is mid way between the 17.25 5.8% deferral rate and 19 which in my case would be the average number of years that SP is likely to be available (age 86 minus age 67).

Along the same lines it is then interesting to compare this with expected cash requirements too - to see what percentage of overall requirements would be satisfied by SP and DBs and what percentage remains to be satisfied from other slightly more risky investments.


In my case

kidmugsy

ukdw wrote: »

I like the idea of including a multiplier of the state pension as a very safe percentage of an overall portfolio as you have done. I would be tempted however to use a lower multiplier of say 18

The most logical way to get the right multiplier is to look up inflation-linked annuity rates for someone your age. Consider making some small correction to allow for their being RPI-linked rather than CPI-linked, and then reflect on the triple-lock for pensions and decide not to bother with the correction.

Divide your annual pension income by the annuity rate expressed as a decimal (e.g. 3.2% = .032). You'll find that the multiplier far exceeds 18 unless you are very old. By using an annuity rate you've automatically allowed for the longevity question.

Here's a place to start.
https://www.hl.co.uk/pensions/annuities/annuity-best-buy-rates

ukdw

kidmugsy wrote: »

The most logical way to get the right multiplier is to look up inflation-linked annuity rates for someone your age. Consider making some small correction to allow for their being RPI-linked rather than CPI-linked, and then reflect on the triple-lock for pensions and decide not to bother with the correction.

Divide your annual pension income by the annuity rate expressed as a decimal (e.g. 3.2% = .032). You'll find that the multiplier far exceeds 18 unless you are very old. By using an annuity rate you've automatically allowed for the longevity question.

Here's a place to start.
https://www.hl.co.uk/pensions/annuities/annuity-best-buy-rates

If annuities are a major component of a pension portfolio then I agree that annuity rates are the best thing to use when valuing the SP.

However if the rest of the pension is drawdown then wouldn't using safe withdrawal rate percentage equivalents of the SP make for more realistic comparisons of the different parts of the pension portfolio?

Based on my 18x figure I have calculated two SPs for a couple early retiring at 55 on £24k a year being worth about 42% of the required pension fund. With the other 58% coming to a requirement of about £480k.

Marine_life

Great thread.

At 52 and now 54 days from retirement its something that's coming very much into focus.

I agree with the comments on yield. Whether its psychological or whatever I think there is something very comforting from dividends / interest hitting the bank account on a regular basis.

I have a portfolio which is build of individual shares (my HYP) which yields around 6% and then a mix of investment trusts, funds, ETFs etc. Over the last couple of years I have been tending to favour ETFs for their low charges.

My ETFs contain a mixture of equities and bonds with the bonds including a mixture of government, investment grade and high yield bonds.

I've been increasing my allocation to P2P (which is now around 10% of my portfolio). I am exclusively in asset back P2P as the rates on consumer accounts are just too low to justify the risk. My P2P portfolio is generating around 6%.

Unfortunately we still have around 25% of our portfolio doing nothing but I hope to move that down to 3-4 years of expenses.

Audaxer

Linton wrote: »

1) A mixture of directly held shares (32%). IT (12%), Private Equity fund (8%), OEICs/UTs(48%)
2) Certainly at the expense of much of the capital growth. There is no deliberate attempt to increase the capital value and it may be necessary in the future to replenish the income portfolio from the growth portfolio as part of overall rebalancing.
3) The portfolio is about 62% equity, 26% bonds with the rest in cash and "others". The UK represents about 50% of the equity with the rest mainly in Europe and the Far East. However significant amount of the bonds are in the USA. The Far East likes dividends. The USA is bad for dividends because of their tax system.
4) No - with only 60% equity and a focus on diversification the portfolio is certainly less risky than a pure equity one. The UK equity is about 50% FTSE250 midrange companies.
5) I hold 19 individual shares, 6 OEICs, 1 IT and 1 private equity fund in the income portfolio. The portfolio is intended to be fixed. Once a year I will check the Yields and replace anything that falls below about 4%. Typically this would be 1 or 2 of the directly held shares. Individually held companies may fail (only one so far) and a new one added. Recently following the Brexit vote I increased the portfolio by 40% almost entirely invested abroad. The aim was to reduce the income to 50% UK to provide better security for the future.

Thanks Linton for your detailed response which is really helpful.

I don't think I'm brave enough to go for individual shares. I was going to stick with ITs rather than OEICs as I thought that regular dividends would be more consistent with ITs as they can hold money back in good times to help pay out growing dividends in bad times?

I was initially looking at ITs like City of London, Edinburgh and Temple Bar for UK Equity Income, but maybe yields are too low if you are focusing on income only?

I was also considering including high yield bonds/fixed interest ITs like New City High Yield, TwentyFour Select Monthly Income and City Merchants High Yield. They do seem to have great yields, but would they be considered as high risk?

Thrugelmir

Audaxer wrote: »

I was also considering including high yield bonds/fixed interest ITs like New City High Yield, TwentyFour Select Monthly Income and City Merchants High Yield. They do seem to have great yields, but would they be considered as high risk?

The Fed has a huge balance sheet to unwind. Yields may well drift upwards as a consequence. Our own BOE has bought £10 billion of Corporate grade bond debt since last September. All of which will be sold back into the market at a later date.

economic

Thrugelmir wrote: »

The Fed has a huge balance sheet to unwind. Yields may well drift upwards as a consequence. Our own BOE has bought £10 billion of Corporate grade bond debt since last September. All of which will be sold back into the market at a later date.

What's your point?

bigadaj

economic wrote: »

What's your point?

Risk of capital loss presumably.

Triumph13

economic wrote: »

What's your point?

If you didn't get his point, can I interest you in buying some bonds?