Getting Ready to Retire

MallyGirl

I entered a huge number of figures into a very complicated ss (along with a fair few assumptions) and it had her loan being written off after 30 years with her still owing over £200,000!! It is just funny money - at that point her 9% of everything over £25k wasn't even covering the interest being added each month.
Maybe if you are going in to a high paying job like medicine or finance then it is worth paying off ASAP but otherwise, nope.

tacpot12

brokenglasses wrote: »

OK. That makes sense. Do you think I should start selling equities and building the cash fund now or would you suggest waiting until I crystallise the benefits at 55?

I tend to agree with Kidmugsy that the short term outlook for equities is not great, so if your intention is to crystallise your benefits at age 55, then taking his advice and moving all of your portfolio into a gilt (or cash) would be the best option.

There are two risks with doing this:
1. The LTA might increase between the point at which you convert to cash/gilt and the point at which you crystalise your benefits. You could a view on whether you want to risk losing out on a bit of extra tax free income, or whether you want to be certain of locking in the value of your benefits at the current LTA. I would tend to err towards locking into the value at the current LTA and not worry any any chance of a little more tax free income.
2. You are potentially missing out on a great deal of investment performance by crystalising your entire portfolio at age 55. I'm lucky enough not to have to worry about the LTA in my early retirement, but I hope that by drawing down my pension as a series of UFPLSs, I will eventually exceed the LTA and start having to pay tax on all my pension income rather than just 75% of it.

The high CAPE at the moment does concern me somewhat. One strategy I had considered if there was a downturn was to rent out our current house and live in smaller rented accommodation in a cheaper part of the country. But again, that's not feasible while the kids are at home.

When I decided that I liked the CAPE-based rules proposed on the EarlyRetirementNow log, I considered whether it was appropriate to use the CAPE for the US Stock Market, and decided that it was not. I was able to find a site that calculated and published the CAPEs for all stockmarkets - see https://www.starcapital.de/en/research/stock-market-valuation/?SortBy=Shiller_PE

I propose to use the UK CAPE, which is currently at 16.9, which isn't actually that high. (It is just a little above its mean).

Triumph13

I'm planning to play the long game on the kids student loans as I think the upsides outweigh the downsides. They take the loans, I leave the money in an equity portfolio the gains on which have a good chance of matching or beating the interest anyway. Yes there is risk, but I can afford to wait my time for a recovery if it comes to it. If it becomes clear the kids are never likely to repay their loans, eg because they do multiple degrees or opt for a career path that's unlikely to ever pay really big bucks, then I'll simply reimburse their repayments and wait for the inevitable write off.
If they opt for a career path that would result in full repayment, only then would I pay off the loans for them, if necessary reimbursing their repayments whilst waiting for a stock market rally.

caldejud

Hi There

We were in a similar position to yourself a few years ago and both of us had different views of how much we invested in risky assets and how much in cash and I for one had a much lower outlook of how much we would need to meet our spending habits than my husband . My point is that we each drew up our own separate plans of how much we needed as bottom line with luxury spend on top and then created different investment & what-if scenarios - we put both plans together to form the compromise and we ended up with a 30% / 70% split between cash savings and investments.

I used and still do use the Retireeasy lifeplan to model our ongoing financial well-being as quite a few on this board do and I have now converted by husband to use it too! - although he still rolls out his many spreadsheets from time to time.

Funnily enough our bottom line spending pattern since both of us packed up work has fallen quite a bit and we have put that down to spending much less on eating out, cloths and household items - our luxury spend has only increased a little - mainly on holidays and the family.

Our cash pot falls each year but we are also drawing down far less than we expected from our invested funds to keep it topped up - I must say though that our investments have performed very well over the last 3 years and of course this could all go pop with Brexit and Trump causing so much uncertainty.

I hope this helps in some way.

woody190388

I have two daughters with Student Loans. My view is that I will leave them with the loans and but support them with a similarly sized contribution to their first home purchase. I see little point in paying off their student debt when there is no certainty that they will have to pay all of it or, even potentially, any of it back.

brokenglasses

Thanks for all the responses. This has given me a lot more confidence about retiring plus a some really great points to consider.

Cash Buffer
There are several suggestion that I keep 2-3 years in Cash to draw from in a market correction.

What are peoples views on holding Bonds or REITs instead of putting all of that into Cash?

I'm also going to re-read the sections on holding cash reserves in Beyond the 4% Rule by Abraham Okusanya. If I remember correctly he didn't feel it helped returns in the long run. But perhaps it's worth it just to sleep better night?

Student Loans
I'm going to need to do some research and thinking about the student loans. It may make sense to let the kids build up the debt but help them pay it off afterwards only if it looks like they'll earning well above the £25k threshold to make it worthwhile and our portfolio is in a good condition.

ams25

brokenglasses wrote: »

Thanks for all the responses. This has given me a lot more confidence about retiring plus a some really great points to consider.

Cash Buffer
There are several suggestion that I keep 2-3 years in Cash to draw from in a market correction.

What are peoples views on holding Bonds or REITs instead of putting all of that into Cash?

I'm also going to re-read the sections on holding cash reserves in Beyond the 4% Rule by Abraham Okusanya. If I remember correctly he didn't feel it helped returns in the long run. But perhaps it's worth it just to sleep better night?

Student Loans
I'm going to need to do some research and thinking about the student loans. It may make sense to let the kids build up the debt but help them pay it off afterwards only if it looks like they'll earning well above the £25k threshold to make it worthwhile and our portfolio is in a good condition.

I hold non equities in cash, various savings accounts, P2P, bonds, REITs and some absolute return funds. None ideal, but probably all better than values falling 20-40% in a downturn when you need funds.

I disagree with whoever said put most of your SIPP funds in cash. Work out the right asset allocation for you for the whole portfolio and ensure a sufficient amount is in non equity funds for draw-down etc, but not too much. But it will be different for decumulation than accumulation. I went from c.90:10 to 50:50 when i stopped working/earning but intend to increase the equity allocation again progressively over the next 10 years. (the first 10 years being the most vulnerable to a poor sequence of returns).

You are right that "Beyond the 4% Rule" advised against too much cash as it is a drag on returns. c.3% withdrawal rate is based on a 50:50 or 60:40 portfolio (typically) and wouldn't work with too much cash. While I am holding a little too much cash.. so slightly more than 2 years.. it makes me sleep better even if historically its not the best option for returns. And I don't feel the need to chase returns, which helps and i would argue you don't either.

Re student loans, unless its clear your kids are going to be very high earners I think the advice from Mr ML himself :money: is take out the loans. To quote him "Beware paying tuition fees upfront, it could leave you £10,000s worse off". See here

kidmugsy

cfw1994 wrote: »

I too feel there is an overdue correction in the global markets.....
...but if I had locked my funds into very low interest but far safer things 12 months ago, I'd have missed out on a huge rise.

But 12 month ago you weren't pressing up against the LTA.

bostonerimus

caldejud wrote: »

We were in a similar position to yourself a few years ago and both of us had different views of how much we invested in risky assets and how much in cash and I for one had a much lower outlook of how much we would need to meet our spending habits than my husband . My point is that we each drew up our own separate plans of how much we needed as bottom line with luxury spend on top and then created different investment & what-if scenarios - we put both plans together to form the compromise and we ended up with a 30% / 70% split between cash savings and investments.

Retirement income plans must be developed so they can survive the inevitable downturns that will occur over what might be 40 years. They also have to keep pace with inflation. Those with large pension pots and investment accounts compared to their income need have the luxury of choosing between conservative and risky strategies because if they take lots of risk hey have enough to easily survive a downturn or they also have enough to provide sufficient income with a low risk low return strategy. However, if you are like most people and need to get as much as they can from the pension pot income generation must be somehow optimized and for that a balance of risk and return is needed.....and hence the numerous models of withdrawal rates given a range of investments and economic parameters like inflation.

MK62

brokenglasses wrote: »

Cash Buffer
There are several suggestion that I keep 2-3 years in Cash to draw from in a market correction.

What are peoples views on holding Bonds or REITs instead of putting all of that into Cash?

I'm also going to re-read the sections on holding cash reserves in Beyond the 4% Rule by Abraham Okusanya. If I remember correctly he didn't feel it helped returns in the long run. But perhaps it's worth it just to sleep better night?

The cash buffer approach is to help to protect the value of the invested part of your portfolio from sequence risk, especially in the early years of your retirement.

It is a drag on returns in rising markets - it's also a brake on losses in a falling one.
To view it purely on it's effect on investment returns is probably missing the point of why it's there in the first place - if markets always rose you would never need a cash buffer.....it's only there for some downside protection, and that will always come at the cost of some upside when markets rise.

It's just like insurance I suppose - better to have and not need, than to need and not have........


PS - you'll probably already be holding bonds and property investments in your balanced portfolio - holding more of each isn't really a cash buffer as such, just changing your portfolio asset allocation. It would also depend which bonds you mean.....the most uncorrelated to equities are probably index-linked GILTs, but they may well return less than cash at the moment (though I haven't checked recently).....