Is a DC derisking/"Lifestyle Strategy" worthwhile if I intend to drawdown?

Dandytf

I have limited Equities <10% and opted for Medium Risk Drawdown.
Medium Managed Lifecycle seems to be very high 60% of Diversified Growth.
Almost 25% Gilts.
+ my small % of Corp bonds 
Though considering retiring 10-12 years max 55-57.

[Deleted User]

ZingPowZing said:

Ok. Mordko: What is the cut off age for ambition?

Do you measure your ambition in millions of pounds? 

[Deleted User]

Deleted_User said:

ZingPowZing said:

Ok. Mordko: What is the cut off age for ambition?

Do you measure your ambition in millions of pounds? 

On a site that measures success by money saved/gained: Of course.
And since we're hardly likely to meet outside..

[Deleted User]

Good luck. You’ll need it.

[Deleted User]

Good luck. You’ll need it. - 
No more than Mordko, so lets dismiss that notion.

Audaxer

AnotherJoe said:

Audaxer said:

AnotherJoe said:

Deleted_User said:

tacpot12 said:

If you expect to live more than 15 years more, you want a large proportion of your portfolio to remain invested in equities. The amount you need to live on for the next three years or so should be held in cash or cash-like investments. 
Lifestyling is a bad idea of most people IMHO.

Equities have high short-term risks. 10 years or less is short term. If you need to withdraw from your portfolio in the next 10 years, putting everything except a couple of years’ worth of income into stocks is a high risk strategy. Unfavourable sequence of returns can undermine your plans. 

I'm withdrawing now, so that's within the next ten years, I have 90% in equities. If the equities halved I'd still be fine, I'd take from the 10% cash. 

Interested to know what percentage you are drawing per year?

Roughly 2% (of total not just pension)
Which will halve soon in terms of need as small DB and then SP kick in. 

But I will likely keep it up or increase to try not to hit the LTA at 75. 

I'll just have to be resigned to paying tax after 4 years without. First world problem. 

Lucky / smart / fortunate/ solid (through crashes) with Investments. 

A nice position to be in as a 2% withdrawal rate (and then 1% when other pensions kick in) should be easily sustainable, even with a much lower percentage of equities. However as your view is that 90% equities will give you better long term returns than say, 60% equities, why limit yourself to a such low withdrawal rate?  

[Deleted User]

Benjamin Graham (Warren Buffett’s teacher) recommended distributing one's portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital. Graham's philosophy was first and foremost, to preserve capital, and then to try to make it grow.

The only thing that has changed is that the markets are more efficient. 

jamesd

AIBU said:

DC pension funds all seem to plan a lifestyle strategy of derisking - moving out of equities and into bonds/cash - on tapering basis in the 10 years before my selected pension age.

I'm not really keen on lifestyling or thinking of it as derisking, instead just considering what fits you best. For more on the things I mention here see Drawdown: safe withdrawal rates which has links to the relevant publications.

1. Equities below 50% long term starts to significantly reduce the safe withdrawal rate so keeping no lower than this is likely to be good. Times when it won't matter so much are if you have ample money or are using Guyton's sequence of returns risk reduction approach and cyclically adjusted price/earnings happens to be high, as it is now in many markets.
2. A rising equity glidepath as described by Kitces does well. The Guyton-Klinger rules have this property. It means relatively high bonds (including cash) at the start and much income taken from that portion so the equity percentage rises. This protects you from the bad or just mediocre initial ten years that Mordko has written about.
3. Whether 100% equities produces the highest SWR depends on the study. 100% tends to do best in purely synthetic random tests while 50-75% tends to do better with historic returns. Stay no lower than 50% and the SWR difference is modest enough to choose your preferred investment risk (volatility) level.
4. You might initially think of a minimum of ten years of investment income in bonds including cash then notice that dividends at a reduced rate would continue and reduce to between five and seven years.
5 What drawdown strategy and success rate do you want to use? Blanchett has some guidance on picking a success rate. Failure meas adjusting to lower income than anticipated by our chosen method.
6. Is the resulting  income acceptable? If not you might need to change withdrawal strategy, investment mix and when you can retire. If it's high you might tweak risk down.

jamesd

AnotherJoe said:
 unless you are withdrawing the absolute maximum you need to live on then you want as much to be invested as possible and a few years in cash as a guard against falls. 

That's the key consideration. SWRs are based on the bad sequences and a person who has low spending flexibility must have the higher bonds level to survive the worst cases. There's a price: their average spending power over time will be lower because of the reduced equities once they adjust upwards if they live through less challenging times.

A person who can easily cut can go high equities, shrug and say no problem, cutting my non-essential spending is easy.

BritishInvestor

jamesd said:

AIBU said:

DC pension funds all seem to plan a lifestyle strategy of derisking - moving out of equities and into bonds/cash - on tapering basis in the 10 years before my selected pension age.

I'm not really keen on lifestyling or thinking of it as derisking, instead just considering what fits you best. For more on the things I mention here see Drawdown: safe withdrawal rates which has links to the relevant publications.

1. Equities below 50% long term starts to significantly reduce the safe withdrawal rate so keeping no lower than this is likely to be good. Times when it won't matter so much are if you have ample money or are using Guyton's sequence of returns risk reduction approach and cyclically adjusted price/earnings happens to be high, as it is now in many markets.
2. A rising equity glidepath as described by Kitces does well. The Guyton-Klinger rules have this property. It means relatively high bonds (including cash) at the start and much income taken from that portion so the equity percentage rises. This protects you from the bad or just mediocre initial ten years that Mordko has written about.
3. Whether 100% equities produces the highest SWR depends on the study. 100% tends to do best in purely synthetic random tests while 50-75% tends to do better with historic returns. Stay no lower than 50% and the SWR difference is modest enough to choose your preferred investment risk (volatility) level.
4. You might initially think of a minimum of ten years of investment income in bonds including cash then notice that dividends at a reduced rate would continue and reduce to between five and seven years.
5 What drawdown strategy and success rate do you want to use? Blanchett has some guidance on picking a success rate. Failure meas adjusting to lower income than anticipated by our chosen method.
6. Is the resulting  income acceptable? If not you might need to change withdrawal strategy, investment mix and when you can retire. If it's high you might tweak risk down.

"2. A rising equity glidepath as described by Kitces does well. The Guyton-Klinger rules have this property."
Which rule in particular?