What is your trigger point to start spending from cash buffer?? + QE, Does it change the game?

SouthCoastBoy

Personally I think the main issue is the productivity of the UK. Benefits are too high in the UK along with govt pensions, it appears the govt are going to increase these in line with CPI, if this happens it means the non producers will be able to consume even more, while the producers are restricted to below inflation wage rises. A little ironic when the BoE are urging wage constraint, they should also be mentioning benefit, pension constraint (e.g. govt db's rises constrained), I think inflation will carry on increasing until the govt limit rises to the non producers (e.g. benefit receivers and pensioners) 

michaels

SouthCoastBoy said:

Personally I think the main issue is the productivity of the UK. Benefits are too high in the UK along with govt pensions, it appears the govt are going to increase these in line with CPI, if this happens it means the non producers will be able to consume even more, while the producers are restricted to below inflation wage rises. A little ironic when the BoE are urging wage constraint, they should also be mentioning benefit, pension constraint (e.g. govt db's rises constrained), I think inflation will carry on increasing until the govt limit rises to the non producers (e.g. benefit receivers and pensioners) 

Problem is many of those non-producers are already in a 'heat or eat' situation due to the price rises.  Do you want to force them into to doing one or the other so that the producers can continue to afford that second foreign holiday or bi-annual new car?

michaels

GazzaBloom said:

Linton said:

Yes, the fall in equity values, safe bond prices, and the rise in inflation are only partially linked.  Each has some specific causes that do not affect both the other two.  For example the fall in bond prices was due to the rise in intereatrates which was going to happen some time anyway.  Inflation, at least initially, arose from post covid supply problems both in manufacturing and in transport.  And the equity fall was prompted by the supply problems and Ukraine.

The current inflation is interesting, on the face of it, it seems to be supply side issues rather than demand side. Demand is only returning to the pre-covid "normal" levels but it's the supply chains in commodities, good and services that are struggling to match this "normal" demand due to the Ukraine conflict, further China lockdowns and post rest of world covid lockdown hangovers.

Yet Governments seem to taking the traditional stance of trying to quell demand rather than boosting and alleviating issues in the demand side, where the real problem is.

Not sure, we may also have a hangover of excess savings made during the coid period (which also spurred asset prices adding to a wealth affect) which people are now trying to run down, so demand is actually higher than normal for the level of income?

GazzaBloom

michaels said:

GazzaBloom said:

Linton said:

Yes, the fall in equity values, safe bond prices, and the rise in inflation are only partially linked.  Each has some specific causes that do not affect both the other two.  For example the fall in bond prices was due to the rise in intereatrates which was going to happen some time anyway.  Inflation, at least initially, arose from post covid supply problems both in manufacturing and in transport.  And the equity fall was prompted by the supply problems and Ukraine.

The current inflation is interesting, on the face of it, it seems to be supply side issues rather than demand side. Demand is only returning to the pre-covid "normal" levels but it's the supply chains in commodities, good and services that are struggling to match this "normal" demand due to the Ukraine conflict, further China lockdowns and post rest of world covid lockdown hangovers.

Yet Governments seem to taking the traditional stance of trying to quell demand rather than boosting and alleviating issues in the demand side, where the real problem is.

Not sure, we may also have a hangover of excess savings made during the coid period (which also spurred asset prices adding to a wealth affect) which people are now trying to run down, so demand is actually higher than normal for the level of income?

Yeah, it's complex, but as an example look at the airlines/airports. It's not just a UK problem, I've read than many international airports are also struggling to keep up with this years holiday season demand, but, that demand is not yet back to full 2019 levels.

Parking_Trouble

SouthCoastBoy said:

Personally I think the main issue is the productivity of the UK. Benefits are too high in the UK along with govt pensions, it appears the govt are going to increase these in line with CPI, if this happens it means the non producers will be able to consume even more, while the producers are restricted to below inflation wage rises. A little ironic when the BoE are urging wage constraint, they should also be mentioning benefit, pension constraint (e.g. govt db's rises constrained), I think inflation will carry on increasing until the govt limit rises to the non producers (e.g. benefit receivers and pensioners) 

So those on a barely liveable income should be hung out to dry?

How are they going to consume more if they are simply trying to keep pace with inflation and keep their head above water?

I find it staggering how much money is sloshing about in London. Plenty of people willing and able to borrow huge sums of money to buy £1m+ houses whilst half a mile away the reliance on foodbanks continues to rise. By all means take more off the top earners to help those that need it. I wouldn't equate income with productivity either. There are so many 'unskilled' workers in finance and service industries earning huge sums that I wouldn't call productive.

Maybe I've gone soft in retirement but there is enough money in this country to improve the NHS,  housing and education and help get people off the benefits system and into productive work. The State pension is not enough to lead an extravagant lifestyle 

Sea_Shell

Sea_Shell said:

GazzaBloom said:

Whereas someone needing to drawdown say 4% or more from their investments without a cash buffer, could be in trouble if there was a poor sequence of returns early on. I certainly wouldn't feel comfortable if I needed to drawdown 4% each year without having a cash buffer.

That's really my point.  If you are withdrawing at above a sustainable withdrawal rate, there is no evidence that a cash buffer will increase your chances of success, in fact, it is likely to reduce the chances of success.

Exactly, having a cash buffer is like saying "I don't believe that the Safe Withdrawal Rate I have set is actually Safe!

The concept of the SWR, if set correctly should negate the need for a cash buffer. Cash buffers are really a soother to calm the nerves during market downturns, but in the cold light of day they only serve to detract from portfolio performance and longevity.

I shall crunch some numbers excluding our cash altogether and see where we're at, at month end.

As promised, I've looked at our "when is a cash buffer not a cash buffer" figures, and if you exclude all our cash, we have a pot invested of £518,500.   3% of which would give us £15,500.   Tight, but within target.

This is mostly on a 60% equities split.  

Our "cash" is then a "nice to have" cushion, for whatever we want/need it to be.   Capital expenditure, top-up spends etc etc.

Make of that what you will. 

Audaxer

Sea_Shell said:

Sea_Shell said:

GazzaBloom said:

Whereas someone needing to drawdown say 4% or more from their investments without a cash buffer, could be in trouble if there was a poor sequence of returns early on. I certainly wouldn't feel comfortable if I needed to drawdown 4% each year without having a cash buffer.

That's really my point.  If you are withdrawing at above a sustainable withdrawal rate, there is no evidence that a cash buffer will increase your chances of success, in fact, it is likely to reduce the chances of success.

Exactly, having a cash buffer is like saying "I don't believe that the Safe Withdrawal Rate I have set is actually Safe!

The concept of the SWR, if set correctly should negate the need for a cash buffer. Cash buffers are really a soother to calm the nerves during market downturns, but in the cold light of day they only serve to detract from portfolio performance and longevity.

I shall crunch some numbers excluding our cash altogether and see where we're at, at month end.

As promised, I've looked at our "when is a cash buffer not a cash buffer" figures, and if you exclude all our cash, we have a pot invested of £518,500.   3% of which would give us £15,500.   Tight, but within target.

This is mostly on a 60% equities split.  

Our "cash" is then a "nice to have" cushion, for whatever we want/need it to be.   Capital expenditure, top-up spends etc etc.

Make of that what you will. 

You should absolutely fine with that as 3% should cover most if not all of your spend at your current spending rate. I think your DB pension kicks in about 10 years? when you will need less than 3% from your investments. Then when your SPs kick in, I would think your investments could also be classed as a nice to have even bigger cushion.

westv

Sea_Shell said:

Sea_Shell said:

GazzaBloom said:

Whereas someone needing to drawdown say 4% or more from their investments without a cash buffer, could be in trouble if there was a poor sequence of returns early on. I certainly wouldn't feel comfortable if I needed to drawdown 4% each year without having a cash buffer.

That's really my point.  If you are withdrawing at above a sustainable withdrawal rate, there is no evidence that a cash buffer will increase your chances of success, in fact, it is likely to reduce the chances of success.

Exactly, having a cash buffer is like saying "I don't believe that the Safe Withdrawal Rate I have set is actually Safe!

The concept of the SWR, if set correctly should negate the need for a cash buffer. Cash buffers are really a soother to calm the nerves during market downturns, but in the cold light of day they only serve to detract from portfolio performance and longevity.

I shall crunch some numbers excluding our cash altogether and see where we're at, at month end.

As promised, I've looked at our "when is a cash buffer not a cash buffer" figures, and if you exclude all our cash, we have a pot invested of £518,500.   3% of which would give us £15,500.   Tight, but within target.

This is mostly on a 60% equities split.  

Our "cash" is then a "nice to have" cushion, for whatever we want/need it to be.   Capital expenditure, top-up spends etc etc.

Make of that what you will. 

Does the £518,500 include your 25% tax free? I can't remember if you took it early or have left it in to come out over time.

Sea_Shell

westv said:

Sea_Shell said:

Sea_Shell said:

GazzaBloom said:

Whereas someone needing to drawdown say 4% or more from their investments without a cash buffer, could be in trouble if there was a poor sequence of returns early on. I certainly wouldn't feel comfortable if I needed to drawdown 4% each year without having a cash buffer.

That's really my point.  If you are withdrawing at above a sustainable withdrawal rate, there is no evidence that a cash buffer will increase your chances of success, in fact, it is likely to reduce the chances of success.

Exactly, having a cash buffer is like saying "I don't believe that the Safe Withdrawal Rate I have set is actually Safe!

The concept of the SWR, if set correctly should negate the need for a cash buffer. Cash buffers are really a soother to calm the nerves during market downturns, but in the cold light of day they only serve to detract from portfolio performance and longevity.

I shall crunch some numbers excluding our cash altogether and see where we're at, at month end.

As promised, I've looked at our "when is a cash buffer not a cash buffer" figures, and if you exclude all our cash, we have a pot invested of £518,500.   3% of which would give us £15,500.   Tight, but within target.

This is mostly on a 60% equities split.  

Our "cash" is then a "nice to have" cushion, for whatever we want/need it to be.   Capital expenditure, top-up spends etc etc.

Make of that what you will. 

Does the £518,500 include your 25% tax free? I can't remember if you took it early or have left it in to come out over time.

Most of that, bar about £36k, is untouched.

The £36k is the taxable balance after 25% tax free has been taken, which is the only part currently in DD.

MK62

Sea_Shell said:

Sea_Shell said:

GazzaBloom said:

Whereas someone needing to drawdown say 4% or more from their investments without a cash buffer, could be in trouble if there was a poor sequence of returns early on. I certainly wouldn't feel comfortable if I needed to drawdown 4% each year without having a cash buffer.

That's really my point.  If you are withdrawing at above a sustainable withdrawal rate, there is no evidence that a cash buffer will increase your chances of success, in fact, it is likely to reduce the chances of success.

Exactly, having a cash buffer is like saying "I don't believe that the Safe Withdrawal Rate I have set is actually Safe!

The concept of the SWR, if set correctly should negate the need for a cash buffer. Cash buffers are really a soother to calm the nerves during market downturns, but in the cold light of day they only serve to detract from portfolio performance and longevity.

I shall crunch some numbers excluding our cash altogether and see where we're at, at month end.

As promised, I've looked at our "when is a cash buffer not a cash buffer" figures, and if you exclude all our cash, we have a pot invested of £518,500.   3% of which would give us £15,500.   Tight, but within target.

This is mostly on a 60% equities split.  

Our "cash" is then a "nice to have" cushion, for whatever we want/need it to be.   Capital expenditure, top-up spends etc etc.

Make of that what you will. 

If the numbers work for you, then does it really matter that much what anyone else makes of it?....everyone's different anyway.

That said, 3% looks like a reasonably safe starting point to me, and then you always have your cash to use as you see fit (how about that for a "trigger point".... )