One for the experts( you know who you are!)

BritishInvestor

HarryGray said:

BritishInvestor said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. 

I'm not sure it's as clear cut as that.

Nothing is clear cut, simply stating that statistically the best retirement drawdown ignoring a clients Attitude to Risk is 100% equity at a constant withdrawal rate. There is no evidence anywhere to suggest that 'lifestyling' works 

What dataset are you using to determine that 100% equity gives the best success rate?

BritishInvestor

Mistermeaner said:

Audaxer said:

HarryGray said:

BritishInvestor said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. 

I'm not sure it's as clear cut as that.

Nothing is clear cut, simply stating that statistically the best retirement drawdown ignoring a clients Attitude to Risk is 100% equity at a constant withdrawal rate. There is no evidence anywhere to suggest that 'lifestyling' works 

I would have thought that if you have a portfolio of 100% equity and there is a poor sequence of returns, especially in the first decade of retirement, there would be more risk of running out of money than with a balanced portfolio?

There was a great thread somewhere recently (that I can't find) that covered this in some detail referencing various studies 

The somewhat surprising conclusion was that you are generally better off 100% in equities - or at least no worse off 

There has only been something like 2 or 3 starting years of retirement in the last 100+ years when this would have depleted your pot in 30years

Would be good to see the studies, and to be clear whether success means least (percentage of) historical failures or how long the money lasted for in the worst historical outcome.
It's also worth bearing in mind that these studies might not have included real-world issues such as various fees and investor (mis)behaviour.

MarkCarnage

Your portfolio is certainly defensive.....particularly if you look at things holistically.
Although you don't put numbers on it, which is understandable, you essentially have an (almost) guaranteed annuity with some inflation protection in the form of the DB pension, which will be supplemented by more guaranteed annuity when you hit state pension age.......therefore my view is that the SIPP portfolio could take more (sensible) equity risk. I don't think you need that much cash either......I would personally reduce the bonds quite a bit - your DB pension is essentially the bonds bit - and add to equities. You could even use some wealth preservation funds/investment trusts instead of the pure bond funds, and let someone else do the asset allocation within that. Either use a global equity tracker fund, or a couple of global equity investment trusts.
If there was a couple of bad years, you still have the cash buffer, and by your own admission, the SIPP is for the discretionary spend, and you could always vary it a bit depending on how good or bad the returns were.
The phrase 'reckless conservatism' has been used to describe approaches not unlike this......please don't take that negatively, it's meant to suggest that you can take a bit more of what some describe as 'risk' and others wouldn't. You've got a fair bit of inflation risk in such a high weighting to cash and nominal bonds. 

kinger101

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

kinger101

Audaxer said:

HarryGray said:

BritishInvestor said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. 

I'm not sure it's as clear cut as that.

Nothing is clear cut, simply stating that statistically the best retirement drawdown ignoring a clients Attitude to Risk is 100% equity at a constant withdrawal rate. There is no evidence anywhere to suggest that 'lifestyling' works 

I would have thought that if you have a portfolio of 100% equity and there is a poor sequence of returns, especially in the first decade of retirement, there would be more risk of running out of money than with a balanced portfolio?

You're right, but people like using the historic moving window because it gives them the answer they like.  They haven't envisaged that the poor sequence of returns could be worse than any of the historic events.  Or that we don't really have that much historic data on which to build particularly robust assumptions about the future.  

Audaxer

MarkCarnage said:

The phrase 'reckless conservatism' has been used to describe approaches not unlike this......please don't take that negatively, it's meant to suggest that you can take a bit more of what some describe as 'risk' and others wouldn't. You've got a fair bit of inflation risk in such a high weighting to cash and nominal bonds. 

I know what you mean and that would be applicable in most cases. However if someone like OP has more than enough income from DB pension and cash to fill the gap before SPs arrive, they have the luxury of being able to choose to take more investment risk, or choose keep it in lower risk investments or even more in cash. The latter option would be if they wanted funds to be readily available for any planned big spend items, like new car or major house improvements. If they needed these funds to produce more income, as well as growth to leave a larger inheritance then I would agree that a portfolio with more equity would be required.

jamesd

Amateurretiree said:

...
We are quite risk averse, currently in Defensive funds( but pretty much back where we were pre COVID.
DH retired last year at 60, gets SP at 66, I’m 58, SP at 57.
My DB pretty much covers essentials but we like long haul holidays normally a couple of times a year which can eat up a fair bit, but we want to do it while we can.

The topic Drawdown: safe withdrawal rates contains the outline of a plan and a summary of and introduction to the research into income drawdown. You should read the initial posts.

One way to plan for your DH is to check their state pension entitlement and set aside 6 years of that to draw as income until state pension age.

State pension deferral increases the pension by 5.8% per year deferred. Assuming DH has normal life expectancy deferring for ten years seems sensible so set aside another ten years worth to fund this. For a £9,000 initial pension this would get an extra £5,220 a year of guaranteed income with uncapped inflation increases, and actually more because that ignores the triple lock increases while deferring.

Now take 5% of whatever isn't set aside as extra income on top of the state pension set aside. It's not guaranteed but this is likely to be sustainable for life.* Increase with inflation each year.

* experts might notice the sleight of hand here: 5% is above 4% rule but state pension deferral adds back 5.8% and I excluded the funds set aside for that.

Tassie_Devil

Mistermeaner said:

Audaxer said:

HarryGray said:

BritishInvestor said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. 

I'm not sure it's as clear cut as that.

Nothing is clear cut, simply stating that statistically the best retirement drawdown ignoring a clients Attitude to Risk is 100% equity at a constant withdrawal rate. There is no evidence anywhere to suggest that 'lifestyling' works 

I would have thought that if you have a portfolio of 100% equity and there is a poor sequence of returns, especially in the first decade of retirement, there would be more risk of running out of money than with a balanced portfolio?

There was a great thread somewhere recently (that I can't find) that covered this in some detail referencing various studies 

The somewhat surprising conclusion was that you are generally better off 100% in equities - or at least no worse off 

There has only been something like 2 or 3 starting years of retirement in the last 100+ years when this would have depleted your pot in 30years

I think it was a post that linked to this article:

https://edrempel.com/reliably-maximize-retirement-income-4-rule-safe/

Amateurretiree

Thanks everyone for your input. Lots of food for thought and I certainly need to do a lot of research.
We haven’t sold any equities, and the small dip the funds took have recovered( might even be up a bit).
Really appreciate all of the advice everyone on this forum gives .

AnotherJoe

kinger101 said:

HarryGray said:

Well, technically the most optimal asset allocation at a 4% withdrawal rate is 100% equity. That has the highest success rate out of any asset allocation throughout retirement. Obviously sequencing risk is a big risk, so long as take no large withdrawals you would be pretty much set. 

You do NOT want to be in a cautious asset allocation throughout retirement. 

Presumably you also think there are no black swans.

DoNt see why you'd think that since he did point out there were 3 years when it underperformed. But all you can do is go with the odds.