What to do??

SteveC3

tcallaghan93 said:

2. In my humble amateur unqualified opinion, transfer the SW pension to either a Vanguard SIPP or a cheaper platform and buy a Vanguard target retirement fund or lifestrategy fund. You're 61 now and you want to use it imminently, and the TR2020 fund is 50% stocks 50% bonds like your SW now, but it needs to last and you sound like you can plan on above 

Vanguard don't do a drawdown scheme yet though. Or do they?

Albermarle

SteveC3 said:

tcallaghan93 said:

2. In my humble amateur unqualified opinion, transfer the SW pension to either a Vanguard SIPP or a cheaper platform and buy a Vanguard target retirement fund or lifestrategy fund. You're 61 now and you want to use it imminently, and the TR2020 fund is 50% stocks 50% bonds like your SW now, but it needs to last and you sound like you can plan on above 

Vanguard don't do a drawdown scheme yet though. Or do they?

That is correct , one is planned but if it is anything like the SIPP arriving , it could be quite a long wait.

83705628

BritishInvestor said:

tcallaghan93 said:

 and even if there is volatility the great thing about owning more UK equity is say you keep your withdrawal rate at a nice safe 4%, that's just the UK's dividend, you won't even be touching the capital. 

Happy to take questions, I'm here all week

Safe withdrawal rate of 4% without touching the capital?

Depends what you mean by safe. If you want a balanced portfolio to last indefinitely then go with 3%. 4% is fine if just for retirement.
I don't think if terms of "not touching capital" I just use the phrase because people understand it. I think in terms of the total return. So many investors chase income thinking it's unsustainable to sell capital. But all of the funds I suggested except the FTSE 250 and FTSE All World High Dividend Yield are accumulating funds, so you have to sell some of your holdings to generate income. If you want, most of those funds have an income version you can buy instead.
With the UK's dividend yield well over 4%, if you invested 100% in a FTSE 100 or FTSE All Share index fund and sell 4% a year or 1% a quarter and in effect, you would not be touching the capital. I was talking specifically about UK equity. Global equity dividend yield is ~2.5% and generally with equity it is sustainable indefinitely to only take the dividends as long as you're prepared for occasional dividend cuts. I don't think that a 4% withdrawal rate is sustainable indefinitely on my whole suggested portfolio. A safe withdrawal rate is the real return net of fees.
UK equity yield 4.7% + 2% real growth -~0.4% fees (average of the FTAS and FTSE 250 funds) = 6.3% real total return net of fees, x 40% = 2.5% 
Global equity yield 2.5% + 2% real growth -~2% speculation -~0.4% fees = 4.1% real total return in £ net of fees x 20% = 0.8%
Bonds have a habit of matching inflation so I'll call it a 0% real return, at worst -.5% net of fees, x 40% = -0.2% to 0%
So the total expected real return net of fees on the portfolio I suggested would be 3.1%-3.3%. To be safe, if you wanted this to last indefinitely a 3% withdrawal rate would make sense.

83705628

SteveC3 said:

Slightly off on a tangent...
What are the views on holding fixed interest as well as cash?
Such as this, which is available in my SW pension acc.
https://documents.feprecisionplus.com/factsheet/swpoc/fs/BV56_SLG.pdf

You should always hold some it's just a case of what and how much. Right now government bond yields are less than cash, so in my post earlier I suggested you go 40% bonds, of that 20% corporate (10% UK 10% US, average yield 2%, should return 1.7% net of fees), 10% inflation linked (always good to have some of these for inflation insurance) and 10% either cash or short-term or a money market fund. Unfortunately you can't put SIPP money into a savings account so you kinda have to do this if you want to have a balance of stocks to bonds.

83705628

SteveC3 said:

tcallaghan93 said:

2. In my humble amateur unqualified opinion, transfer the SW pension to either a Vanguard SIPP or a cheaper platform and buy a Vanguard target retirement fund or lifestrategy fund. You're 61 now and you want to use it imminently, and the TR2020 fund is 50% stocks 50% bonds like your SW now, but it needs to last and you sound like you can plan on above 

Vanguard don't do a drawdown scheme yet though. Or do they?

Not yet but when they do it will have that feature, they already have it for ISAs and general accounts.

BritishInvestor

tcallaghan93 said:

BritishInvestor said:

tcallaghan93 said:

 and even if there is volatility the great thing about owning more UK equity is say you keep your withdrawal rate at a nice safe 4%, that's just the UK's dividend, you won't even be touching the capital. 

Happy to take questions, I'm here all week

Safe withdrawal rate of 4% without touching the capital?

Depends what you mean by safe. If you want a balanced portfolio to last indefinitely then go with 3%. 4% is fine if just for retirement.
I don't think if terms of "not touching capital" I just use the phrase because people understand it. I think in terms of the total return. So many investors chase income thinking it's unsustainable to sell capital. But all of the funds I suggested except the FTSE 250 and FTSE All World High Dividend Yield are accumulating funds, so you have to sell some of your holdings to generate income. If you want, most of those funds have an income version you can buy instead.
With the UK's dividend yield well over 4%, if you invested 100% in a FTSE 100 or FTSE All Share index fund and sell 4% a year or 1% a quarter and in effect, you would not be touching the capital. I was talking specifically about UK equity. Global equity dividend yield is ~2.5% and generally with equity it is sustainable indefinitely to only take the dividends as long as you're prepared for occasional dividend cuts. I don't think that a 4% withdrawal rate is sustainable indefinitely on my whole suggested portfolio. A safe withdrawal rate is the real return net of fees.
UK equity yield 4.7% + 2% real growth -~0.4% fees (average of the FTAS and FTSE 250 funds) = 6.3% real total return net of fees, x 40% = 2.5% 
Global equity yield 2.5% + 2% real growth -~2% speculation -~0.4% fees = 4.1% real total return in £ net of fees x 20% = 0.8%
Bonds have a habit of matching inflation so I'll call it a 0% real return, at worst -.5% net of fees, x 40% = -0.2% to 0%
So the total expected real return net of fees on the portfolio I suggested would be 3.1%-3.3%. To be safe, if you wanted this to last indefinitely a 3% withdrawal rate would make sense.

Surely a robust plan/withdrawal rate has to take into account potential tricky market conditions? I'm not sure that 4% would be fine for retirement if we were to encounter one of those - for example in the 70s when the UK market took a hammering and you were withdrawing increasing sums each year to match rapidly increasing living costs.

k6chris

tcallaghan93 said:

UK equity yield 4.7% + 2% real growth -~0.4% fees (average of the FTAS and FTSE 250 funds) = 6.3% real total return net of fees, x 40% = 2.5% 

Not doubting these figures, but what are they based on??

DairyQueen

tcallaghan93 said:

SteveC3 said:

Slightly off on a tangent...
What are the views on holding fixed interest as well as cash?
Such as this, which is available in my SW pension acc.
https://documents.feprecisionplus.com/factsheet/swpoc/fs/BV56_SLG.pdf

You should always hold some it's just a case of what and how much. Right now government bond yields are less than cash, so in my post earlier I suggested you go 40% bonds, of that 20% corporate (10% UK 10% US, average yield 2%, should return 1.7% net of fees), 10% inflation linked (always good to have some of these for inflation insurance) and 10% either cash or short-term or a money market fund. Unfortunately you can't put SIPP money into a savings account so you kinda have to do this if you want to have a balance of stocks to bonds.

Highlighted and a question: why? 

QE has screwed the bond market. Inflation-linked are so expensive that capital loss is likely. Gilts are a guaranteed loss if held to maturity thanks to large financial institution competition in the primary market. Corporates are behaving more like equities and some investment grade are being downgraded to junk. Medium-and-long dated will bomb in price if inflation takes off and short-dated already return zilch. Ditto money market funds. Bonds reduce volatility but, other than this, in the current climate they appear to have zero function. Cash also reduces volatility and is exposed to inflation risk, but at least no capital risk.

I am open to persuasion re: why bonds instead of cash.

83705628

BritishInvestor said:

tcallaghan93 said:

BritishInvestor said:

tcallaghan93 said:

 and even if there is volatility the great thing about owning more UK equity is say you keep your withdrawal rate at a nice safe 4%, that's just the UK's dividend, you won't even be touching the capital. 

Happy to take questions, I'm here all week

Safe withdrawal rate of 4% without touching the capital?

Depends what you mean by safe. If you want a balanced portfolio to last indefinitely then go with 3%. 4% is fine if just for retirement.
I don't think if terms of "not touching capital" I just use the phrase because people understand it. I think in terms of the total return. So many investors chase income thinking it's unsustainable to sell capital. But all of the funds I suggested except the FTSE 250 and FTSE All World High Dividend Yield are accumulating funds, so you have to sell some of your holdings to generate income. If you want, most of those funds have an income version you can buy instead.
With the UK's dividend yield well over 4%, if you invested 100% in a FTSE 100 or FTSE All Share index fund and sell 4% a year or 1% a quarter and in effect, you would not be touching the capital. I was talking specifically about UK equity. Global equity dividend yield is ~2.5% and generally with equity it is sustainable indefinitely to only take the dividends as long as you're prepared for occasional dividend cuts. I don't think that a 4% withdrawal rate is sustainable indefinitely on my whole suggested portfolio. A safe withdrawal rate is the real return net of fees.
UK equity yield 4.7% + 2% real growth -~0.4% fees (average of the FTAS and FTSE 250 funds) = 6.3% real total return net of fees, x 40% = 2.5% 
Global equity yield 2.5% + 2% real growth -~2% speculation -~0.4% fees = 4.1% real total return in £ net of fees x 20% = 0.8%
Bonds have a habit of matching inflation so I'll call it a 0% real return, at worst -.5% net of fees, x 40% = -0.2% to 0%
So the total expected real return net of fees on the portfolio I suggested would be 3.1%-3.3%. To be safe, if you wanted this to last indefinitely a 3% withdrawal rate would make sense.

Surely a robust plan/withdrawal rate has to take into account potential tricky market conditions? I'm not sure that 4% would be fine for retirement if we were to encounter one of those - for example in the 70s when the UK market took a hammering and you were withdrawing increasing sums each year to match rapidly increasing living costs.

That 4% withdrawal is a robust plan based on comparing historical returns of different retirement portfolio allocations. In a bad year you can a. Drawdown savings til the recovery b. Drawdown bonds til the recovery c. Ride it out and assume everything's going to be fine d. Go back to work e. Equity release f. Borrow a little... The list goes on.

Thrugelmir

tcallaghan93 said:

BritishInvestor said:

tcallaghan93 said:

 and even if there is volatility the great thing about owning more UK equity is say you keep your withdrawal rate at a nice safe 4%, that's just the UK's dividend, you won't even be touching the capital. 

Happy to take questions, I'm here all week

Safe withdrawal rate of 4% without touching the capital?

Depends what you mean by safe. If you want a balanced portfolio to last indefinitely then go with 3%. 4% is fine if just for retirement.
I don't think if terms of "not touching capital" I just use the phrase because people understand it. I think in terms of the total return. So many investors chase income thinking it's unsustainable to sell capital. But all of the funds I suggested except the FTSE 250 and FTSE All World High Dividend Yield are accumulating funds, so you have to sell some of your holdings to generate income. If you want, most of those funds have an income version you can buy instead.
With the UK's dividend yield well over 4%, if you invested 100% in a FTSE 100 or FTSE All Share index fund and sell 4% a year or 1% a quarter and in effect, you would not be touching the capital. I was talking specifically about UK equity. Global equity dividend yield is ~2.5% and generally with equity it is sustainable indefinitely to only take the dividends as long as you're prepared for occasional dividend cuts. I don't think that a 4% withdrawal rate is sustainable indefinitely on my whole suggested portfolio. A safe withdrawal rate is the real return net of fees.
UK equity yield 4.7% + 2% real growth -~0.4% fees (average of the FTAS and FTSE 250 funds) = 6.3% real total return net of fees, x 40% = 2.5% 
Global equity yield 2.5% + 2% real growth -~2% speculation -~0.4% fees = 4.1% real total return in £ net of fees x 20% = 0.8%
Bonds have a habit of matching inflation so I'll call it a 0% real return, at worst -.5% net of fees, x 40% = -0.2% to 0%
So the total expected real return net of fees on the portfolio I suggested would be 3.1%-3.3%. To be safe, if you wanted this to last indefinitely a 3% withdrawal rate would make sense.

Does your thinking factor in the raft of dividend cancellations and cuts not just in the UK but the wider global markets. Likewise where's the real growth of 2% going to come from.