Investing for Decumulation - Recommended Reading

quirkydeptless

Deleted_User said:

Malthusen is being factual here. 

By the way, https://www.adl.org/education/references/hate-symbols/88

Not a bingo reference then

AnotherJoe

TBC15 said:

BritishInvestor said:

Audaxer said:

BritishInvestor said:

Audaxer said:

TBC15 said:

I’ve been retired for just over a year and didn’t change my investment strategy ( 100% market no bonds) coming up to retirement apart from building up a cash buffer of about 4 yrs of cash.

The remarks of BritishInvestor gave me cause to revisit the 4yr cash buffer comfort blanket part of my plan. I’m now reasonably convinced my supper king size is a bit over the top and a double (1-2ys expenditure) would be more appropriate.

TBC15, are you currently in receipt of any other retirement income like DB pensions, or State Pension yet?  If not, 100% equities and only 1-2 years cash does sound like high risk to me, but I think it maybe depends on what percentage you need to drawdown each year. If for example you need to drawdown over 3.5% of your pot each year, do you not think a bad sequence of returns over the next decade could be particularly risky?

I think it's important to clarify what "high risk" is. For some, it's not taking enough equity exposure and running out of money. For others, they see high risk as their portfolio falling too far during periods of turbulence.
Regarding a poor series of returns, we already have historical returns and can perform this analysis, unless you are suggesting modelling something worse than we have seen previously/have data for?

Yes, you could run out of money if you don't have enough equity exposure to fund your retirement, but I think you could also run out of money with too much equity exposure and a bad sequence of returns when you are having to sell capital for income. Historically I'm not sure if 100% equities has done any better throughout a long retirement than having a more balanced portfolio including a percentage of bonds and other defensive assets.

If someone has enough other forms of secure income and/or built up a larger portfolio than they will need to fund their retirement, they might decide to go 100% equities, which is fine and not necessarily "high risk" in that they will still not run out of money. However in these circumstances some might take the view that going 100% equities is just not necessary for them, and they would rather have more available cash for spending when young enough to enjoy it.   

The major issue for me with someone with 100% equity exposure is investor, not investment behaviour. If you look at historical drawdowns I'm sure that there will have been people that couldn't stomach multi-year equity drawdowns.


If someone has a larger portfolio than required, surely they will take less equity exposure - I don't understand why you would want unnecessary volatility (as you point out in your last sentence)?

If you have got enjoyment out of the thrill of the chase over a considerable no of years and find yourself comfortable at retirement why not carry on?

That would be me.  I could go to cash now and even with inflation at 2 or 3% be comfortable over 20-30 years. Now, you might say "ahah but thats current inflation, suppose we go back to 5, 6 maybe 10% or higher inflation", in which case, well its a good thing i remained in shares since only they ultimately can match inflation.

And long term, 20 years say, its almost certain my investments will rise substantially and worst case, match inflation, so i'd be giving up that for what? An annuity? At my present age an annuity with inflation catered for up to say 5% (can you even protect against higher?) would probably be equivalent to a 50-75% drop in the value of my investments!  Thats volatility !

 

If i get to 80 or so maybe I'll look at an annuity again then and perhaps use some of my pot to buy one.

I realise though I am an outlier, most here seem want to get to a value, so their (say) 3.5% drawdown rate matches their carefully calculated retirement spending requirement,  and then lock that in / retire at that point.

Audaxer

AnotherJoe said:

I realise though I am an outlier, most here seem want to get to a value, so their (say) 3.5% drawdown rate matches their carefully calculated retirement spending requirement,  and then lock that in / retire at that point.

AnotherJoe, interested to know what annual drawdown percentage you take from your pot?