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

cfw1994

Sea_Shell said:

Audaxer said:

Sea_Shell said:

Interested to see how other people feel about movements in the markets, and what their personal take is on when (or if) they'll stop* spending any drawdown from investments and turn to their cash buffer for a period?

Do you look at what is happening to your pension drawdown fund in isolation?
Do you look at your whole investment portfolio?
Do you look at it on a month by month basis?
Or on a year on year basis?
5% drop, 10, 20, or more?
Do you go by your "gut" or some technical data, if so what "weather vane" are you using?

* I don't necessarily mean suspend D/D but to re-invest that money outside of the pension, for tax purposes, using a similar if not identical fund, and spend cash instead.

I wouldn't be selling investments that have fallen in value. In your position I would take your income from your cash buffer and drawdown from your SIPP the maximum you can tax free, and reinvest the proceeds in a similar fund within your S&S ISA. Once markets have recovered, I would then reimburse the cash buffer back to it's original weighting in your portfolio.

That's pretty much our plan, word for word.
Interested in what other people's plans are though, in case we're missing something.

Well, I only started our drawdown last September.....& then put it on hold at the start of this month, having seen the drawdown pot shrink by 13% since the 'recent peak' in November 👀
I know some 'experts' here poo-poo'd my actions, but since that pot is now down 22%, I am pretty confident it was the right move to make at the time 🤷‍♂️

When we will restart it?  
I doubt if it will be before the new tax year.....I would like to see it back up to at least within 10% of that peak, which of course could be a year or more away. 

Is there any science behind our choices?  
Not especially 🤣 
I was (am) very wary of the SOR risk, & we will gauge things very regularly in these first few years...

To those saying check this annually: I feel that in early years, that is too infrequent, unless you have taken the OMY Syndrome to fill up the buffers 🤣   I'd rather have the time ⏰
Then again, time, as with everything, will tell 😎

Sea_Shell

I'll be checking on my squirrelled nuts tomorrow!! 😉

cfw1994

Sea_Shell said:

I'll be checking on my squirrelled nuts tomorrow!! 😉

I've frankly been checking ours so often, dunstonh would have apoplexy 🤣

[Deleted User]

Well, I only started our drawdown last September.....& then put it on hold at the start of this month, having seen the drawdown pot shrink by 13% since the 'recent peak' in November 👀
I know some 'experts' here poo-poo'd my actions, but since that pot is now down 22%, I am pretty confident it was the right move to make at the time 🤷‍♂️

I know you took offence to what I said. Wasn’t intentional nor targeted at you.

To be clear, 

1. Not an expert

2. Very supportive of variable withdrawal strategy.  

3. My comments were aimed at the general tone of the posts in the tread along the lines of “the world is ending” and quotes from the market gurus spreading panic at the first sight of fairly usual market volatility.  

People were also focused on the recent (under)performance of certain racy growth  funds. A good time to do study a fund is before you buy and “recent performance” shouldn’t be the focus anyway.  

4. 22% drop - is that in your overall liquid assets or just a small portion? It seems like an awful lot vs overall market performance.  You might want to look at a more optimal asset allocation for someone in the early stages of retirement. Just don’t rush it; best time to change is when things are a bit calmer. 

zagfles

I'm not sure what people here are invested in, or whether they're taking too much notice of a bit of froth, but VLS100 is up over 12% since a year ago, the S&P 500 is up 19%. Just look at most 5 year or even 3 or 1 year charts for most mainstream global trackers/indices and the drop since Nov looks trivial. Or is everyone in highly volatile funds like BG American etc?

michaels

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

Anonymous101

michaels said:

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

I think I understand the theory behind SWR's but what you've hit on is THE flaw in SWR. They work in theory but no-one in their right mind would continue to sell assets and spend as they set out once you get to the extremes of the cases which turned out ok.

If you're portfolio drops 50,60,70% of course you're going to alter spending habits, the SWR theory swims against the tide of human nature there. That's why threads like this are so interesting because what starts as a 5-10% drop and market timing ends up being panic selling. As the falls get bigger eventually everyone develops the fear of running out of money.

Sea_Shell

We are all human, so of course when faced with financial choices there will always be a tug of war between head and heart.

Sometimes you have to trust your gut, not your spreadsheet...others, you have to trust your spreadsheet!!

zagfles

Anonymous101 said:

michaels said:

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

I think I understand the theory behind SWR's but what you've hit on is THE flaw in SWR. They work in theory but no-one in their right mind would continue to sell assets and spend as they set out once you get to the extremes of the cases which turned out ok.

If you're portfolio drops 50,60,70% of course you're going to alter spending habits, the SWR theory swims against the tide of human nature there. That's why threads like this are so interesting because what starts as a 5-10% drop and market timing ends up being panic selling. As the falls get bigger eventually everyone develops the fear of running out of money.

Emotions asides, drawing a static "SWR" probably doesn't make financial sense either, using a dynamic withdrawal rate would likely deliver better results overall, see link I posted earlier. Obviously assuming you can cope with swings in income.

But whatever, you need a plan which you stick to and which is designed to cope with big market swings, far bigger than those of the last 3 months, if you go changing your plan because of fairly normal market movements eg Nov to now, how are you going to cope with a 40% drop? 

Thrugelmir

zagfles said:

Anonymous101 said:

michaels said:

I find this thread really interesting in that almost everyone:
a) thinks they can time the markets (change asset mix depending on current equity valuations) and
b) don't seem to understand the theory behind SWR

The latter does reveal a flaw in SWR - many of the lowest scenarios (the ones that determine the historical SWR) have seen situations where the pot shrinks to some low multiple of the annual withdrawal amount quite early in the historical period and then recovers, fine with hindsight but had you 'lived' that series of returns I can guarantee you that everyone would have reduced withdrawals when they saw their pot fall to such a low multiple so early and would thus have had some years where they actually drew less than what turned out to be safe.

I think I understand the theory behind SWR's but what you've hit on is THE flaw in SWR. They work in theory but no-one in their right mind would continue to sell assets and spend as they set out once you get to the extremes of the cases which turned out ok.

If you're portfolio drops 50,60,70% of course you're going to alter spending habits, the SWR theory swims against the tide of human nature there. That's why threads like this are so interesting because what starts as a 5-10% drop and market timing ends up being panic selling. As the falls get bigger eventually everyone develops the fear of running out of money.

Emotions asides, drawing a static "SWR" probably doesn't make financial sense either, using a dynamic withdrawal rate would likely deliver better results overall, see link I posted earlier. Obviously assuming you can cope with swings in income.

But whatever, you need a plan which you stick to and which is designed to cope with big market swings, far bigger than those of the last 3 months, if you go changing your plan because of fairly normal markets movements eg Nov to now, how are you going to cope with a 40% drop? 

Fairly normal movements. That's an interesting take.   Worst fall in the S&P in January ever........