Equity percentage in the deaccumulation phase

TBC15

pip895 said:

TBC15 said:

I’ve been retired about a year and half.

Apart from my 3yr cash bucket I’m 100 equities.

How much do you allow the cash % drop before topping up from equity in a downturn? Some say there is a sweet spot around 80% equities..  Do you have other income from say DB pension?

I’m a bit new to retirement at the moment.

Every April top up the cash bucket unless investments have gone south.

Wife’s SP due next year, mine in 4 years.

Traded in my DB 3 years ago.

Edit Just forgot I’m draining my SIPP (it used to be DB pension) at just under PA

Alexland

Around 60-65% equities seems reasonable although if you have accumulated enough (and with the rental income) that you could cut back on discretionary spending during market dips you might be able to go higher to say 70% but then if you plan to draw at an accelerated rate for the first few years until SP begins then you might want to ring fence that part of the pot and run it on a very low or zero risk basis depending on how long it will be used for. Given current asset valuations I wouldn't expect any real growth above inflation during retirement and if it happens that would be a bonus. Still if the pot is very large for your needs then it might be possible to try for the holy grail of going up to around 80% equities / 5% bonds / 15% cash to get some real growth and living off natural yield which is something I am considering as our current spending (once the mortgage is repaid and kids move out) isn't much higher than 2xSP anyway.

aroominyork

I have never bought or read a book on investing - most of what I have learned has been from this site. I'll be retiring within ten years so am starting to think about how I'll then structure my investments. Do books like "Living Off Your Money: The Modern Mechanics of Investing During Retirement" teach anything that this forum doesn't?

PS  I see three issues in retirement. 1) Choosing an affordable drawdown amount. 2) Tax efficiency. 3) Asset allocation and rebalancing.

Albermarle

Still if the pot is very large for your needs then it might be possible to try for the holy grail of going up to around 80% equities / 5% bonds / 15% cash to get some real growth

Maybe a caveat needed here. If your pot is so large that you could be hitting LTA , then going for growth within the pension is not necessarily a good idea. Better to be more aggressively invested outside the pension and nice and steady within it .

Alexland

Albermarle said:

Maybe a caveat needed here. If your pot is so large that you could be hitting LTA , then going for growth within the pension is not necessarily a good idea. Better to be more aggressively invested outside the pension and nice and steady within it .

Yes and that's the problem the cash rates are more attractive outside a pension than within.

Prism

aroominyork said:

I have never bought or read a book on investing - most of what I have learned has been from this site. I'll be retiring within ten years so am starting to think about how I'll then structure my investments. Do books like "Living Off Your Money: The Modern Mechanics of Investing During Retirement" teach anything that this forum doesn't?

PS  I see three issues in retirement. 1) Choosing an affordable drawdown amount. 2) Tax efficiency. 3) Asset allocation and rebalancing.

I own a copy of Living off Your Money and for me it was well worth the money. It covers a number of topics and back tests lots of possible strategies across 100 years of UK, US and Japan markets. It has given me a good starting point for my plans. You can get the first 3 chapters for free online which gives you enough to see if it works for you.

I will not be using it all though. The book covers rebalancing (thats in chapter 3 which is free), withdrawal percentages and stock/bond splits - those bits I will use. It also covers portfolio and asset allocation which I won't be using except in general principle, which is higher return lower volatility is better (obviously). It then covers how to include annuities, bond ladders and the like.

OldMusicGuy

aroominyork said:

I have never bought or read a book on investing - most of what I have learned has been from this site. I'll be retiring within ten years so am starting to think about how I'll then structure my investments. Do books like "Living Off Your Money: The Modern Mechanics of Investing During Retirement" teach anything that this forum doesn't?

PS  I see three issues in retirement. 1) Choosing an affordable drawdown amount. 2) Tax efficiency. 3) Asset allocation and rebalancing.

Living off you money is quite a hard read. However, IMO it is the most complete and comprehensive review of investing data from around the world (not just US) coupled with extensive backtesting that shows how various strategies may work through retirement. I found it very helpful in deciding an investment strategy for my retirement, but I am very detail and numbers oriented so find evidence-based research like this helpful. It didn't teach me anything new (because I had already read a lot before getting this book) but it helped give me confidence in my strategy. Better advice than any IFA could give me IMO, and it didn't demand a percentage of my portfolio......   

DairyQueen

The equity %age of our combined portfolio has drifted up over the last year but I have decided to leave it at it's current 77.5% until my next rebalance.

I am comfortable with that level of risk as we have other income that currently covers all but major spends, and which will be supplemented by SPs in a few years. However, we are front loading drawdown from SIPP cash in the short-term in order to max tax allowances and because Mr DQ needs to stay on the right side of his protected LTA.

From what I have read, falling below a 50% equity allocation could leave you vulnerable to exhausting the pot over the duration of a decades-long retirement. If our allocation falls below 60% I would feel uneasy.  

I hold sufficient cash/bonds to sustain drawdown over the short term (rolling 5 years). Currently, 9% bonds and 13.5% cash but I am hoping that the outlook for bonds will be brighter by the time we stop front-loading as the returns on SIPP-wrapped cash are so pathetic.

How a portfolio is structured for drawdown will depend on an individual's financial situation. Front-loading/tax/LTA/taking yield (or not) are a few of the variables but holding a decent %age in equities - i.e. >50% - seems to be recommended for most scenarios.

@Alexland:  I didn't know that 80% was the optimum. I have variously read that it's 50/60/70. Are there any articles/sources that you could link? TIA.

[Deleted User]

TBC15 said:

I’ve been retired about a year and half.

Apart from my 3yr cash bucket I’m 100 equities.

Retired this month
My strategy as well

[Deleted User]

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation.