level of sustainable income?

Thrugelmir

Deleted_User wrote: »

Getting high returns isn’t the purpose of bonds in my portfolio.

I didn't mention high returns. I'm merely refering to the more recent situation where the BOE (in the case of the UK) is effectively depressing yields. Likewise may do so for the foreseeable future.

CPI inflation rate in December 1999 was 1.11%. (Averaged 1.35% for the entire year).

Looking at the DMO following yields were available (to maturity ) in December 1999.

Short 5.95%
Medium 5.28%
Long 4.41%

Hence my reference to heavy lifting from the equity part of the portfolio at current levels of yield. There's been a bull market in Government Gilts (and US Treasuries) for some 40 years.

jamesd

Malthusian wrote: »

I would find greater piece of mind in drawing down from cash during a crash, at the cost of lower overall growth due to cash drag, rather than drawing a lower rate of income from a 100% equities portfolio that can survive pound cost ravaging.

Same here.

Malthusian wrote: »

The tricky thing about safe withdrawal rates is that it stops being a safe withdrawal rate during a crash - albeit hopefully temporarily - as the fall in the fund value increases the withdrawal %.

So long as the conditions are within the analysis range and success rate used it's always safe. Being in a crash doesn't change that.

Malthusian wrote: »

A while ago I posted a worked example of how a safe withdrawal rate can stop being a safe withdrawal rate (albeit this was using the 4% rule, average multi-asset performance, a deliberately cherry-picked worst possible starting point and no Guyton-Klinger cleverness).

Interesting but you didn't use a rate that was safe, you used 4% that's not 100% safe. Assuming annual charges and costs came to 1.5% that'd be the 3.2% I used earlier. And as you wrote later in that discussion:

"Re-running my previous scenario with a 3% initial withdrawal (increasing with inflation) leaves you with £80k today after drawing £80k in income (compared with £33k today after drawing £105k in income for 4% withdrawals)."

That 3% is a lot more like the main UK safe withdrawal rate for the UK without any small caps.

Still, I like state pension deferral and eventually annuity buying because those do provide useful protection against some possible bad times. Say you started with £8,500 state pension and deferred for ten years at today's 5.8% rate by spending £85,000 (ignoring inflation). That takes you to £12,750 a year of inflation linked income and that's pretty decent for covering basic living costs in bad times.

jamesd

Linton wrote: »

The problem I see with that all or nothing approach is that to have any significant affect on short term risk you need a moderately high % of bonds which means significantly less equity than would otherwise be possible.

Even 10% is pretty useful. Pretending drawing is at 4%, dividends are 2.5% (of 100% not the 90%) then that's only 1.5% a year coming from the 10% of bond and cash capital. That'll handle six years.

Linton wrote: »

In the UK either holding safe Government bonds or cash are simply alternative ways of being out of the market. In the short term cash is probably safer.

One year US Treasuries with no capital risk beat longer term in low inflation situations in the US. So short dated or money market or cash look good now.

Linton

jamesd wrote: »

Even 10% is pretty useful. Pretending drawing is at 4%, dividends are 2.5% (of 100% not the 90%) then that's only 1.5% a year coming from the 10% of bond and cash capital. That'll handle six years.

Yes, but cash would achieve the same benefit with less of a £ capital risk assuming you are using bond funds.
I agree with your example of the benefit of dividends for an investor requiring income.

One year US Treasuries with no capital risk beat longer term in low inflation situations in the US. So short dated or money market or cash look good now.

iif you are a UK investor are US Treasuries your recommendation? What about currency risk?

jamesd

US Treasuries aren't what would fit a UK person. Domestic short dated or money market or cash would for the bond portion of a portfolio.