Using a cashflow ladder in retirement?

BritishInvestor

bostonerimus said:

dunstonh said:

However, as with so much I see in personal finance, I just see them as an unnecessary complication.

Actually, you rarely see the various names mentioned in financial services.   They usually just appear on discussion sites.

Ok, I see them in the magazines and promoted by the celebrity financial gurus and I think that's were most people come across them. I just feel that they add to the "financial white noise" and are most useful in selling books than anything else.

Yep, as with most things financial, simple is often best.

Thrugelmir

BritishInvestor said:

dunstonh said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Cash is indeed trash in long term portfolios.  However, if the cash is feeding short term withdrawals, then it is not trash.  Hence the whole reason for segmenting the portfolio into short,medium, long in the first place.

"Hence the whole reason for segmenting the portfolio into short,medium, long in the first place."

But as has been discussed, it's not clear why this is done either.

Not least the volatility of different asset classes. Last week the Nasdaq 100 Index was down 3.5% in a trading day, but closed the session up 3.3%. Will be some unfortunate souls that chose to liquidate some holdings that day. 

Prism

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

bostonerimus

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

I've spent long hours looking at the results of such papers by the likes of Bengen, Pfau, Guyton etc and all the Monte Carlo simulations in the world don't change that everything depends on the stock/bond/inflation datasets you use. As the bond bubble started to deflate I took them out of my planning and bought into a DB pension and paid off the mortgage on a rental property. That allowed me to concentrate on equities with the rest of my money and ignore the uncertainty of the returns. Years ago when DB pensions and annuities were the rule the risk and uncertainty in the results was taken on by insurance companies and pension funds who, hopefully, could absorb it better than the individual. That's mostly gone now. When I started my planning I set out to avoid the uncertainty and possibility of running out of money as I liked the old way of doing things. As we get deeper into the current way of funding retirement where the individual is directly exposed to the risks of the market it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?

BritishInvestor

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

" If we get back to being properly rewarded for the risk of bonds then maybe less cash."

But aren't you then getting into the realms of tactical asset allocation. For example, should large-cap growth shares also not be excluded given currently lofty valuations?

BritishInvestor

bostonerimus said:

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

I've spent long hours looking at the results of such papers by the likes of Bengen, Pfau, Guyton etc and all the Monte Carlo simulations in the world don't change that everything depends on the stock/bond/inflation datasets you use. As the bond bubble started to deflate I took them out of my planning and bought into a DB pension and paid off the mortgage on a rental property. That allowed me to concentrate on equities with the rest of my money and ignore the uncertainty of the returns. Years ago when DB pensions and annuities were the rule the risk and uncertainty in the results was taken on by insurance companies and pension funds who, hopefully, could absorb it better than the individual. That's mostly gone now. When I started my planning I set out to avoid the uncertainty and possibility of running out of money as I liked the old way of doing things. As we get deeper into the current way of funding retirement where the individual is directly exposed to the risks of the market it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?

"it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?"

What's your guess?

bostonerimus

BritishInvestor said:

bostonerimus said:

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

I've spent long hours looking at the results of such papers by the likes of Bengen, Pfau, Guyton etc and all the Monte Carlo simulations in the world don't change that everything depends on the stock/bond/inflation datasets you use. As the bond bubble started to deflate I took them out of my planning and bought into a DB pension and paid off the mortgage on a rental property. That allowed me to concentrate on equities with the rest of my money and ignore the uncertainty of the returns. Years ago when DB pensions and annuities were the rule the risk and uncertainty in the results was taken on by insurance companies and pension funds who, hopefully, could absorb it better than the individual. That's mostly gone now. When I started my planning I set out to avoid the uncertainty and possibility of running out of money as I liked the old way of doing things. As we get deeper into the current way of funding retirement where the individual is directly exposed to the risks of the market it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?

"it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?"

What's your guess?

A bit of everything with a very large in increase in the variation in outcomes from "the good old" DB days. People on low salaries will find it hard and they will work longer. Idiots on big salaries will also find it hard.

Thrugelmir

bostonerimus said:

BritishInvestor said:

bostonerimus said:

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

I've spent long hours looking at the results of such papers by the likes of Bengen, Pfau, Guyton etc and all the Monte Carlo simulations in the world don't change that everything depends on the stock/bond/inflation datasets you use. As the bond bubble started to deflate I took them out of my planning and bought into a DB pension and paid off the mortgage on a rental property. That allowed me to concentrate on equities with the rest of my money and ignore the uncertainty of the returns. Years ago when DB pensions and annuities were the rule the risk and uncertainty in the results was taken on by insurance companies and pension funds who, hopefully, could absorb it better than the individual. That's mostly gone now. When I started my planning I set out to avoid the uncertainty and possibility of running out of money as I liked the old way of doing things. As we get deeper into the current way of funding retirement where the individual is directly exposed to the risks of the market it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?

"it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?"

What's your guess?

 People on low salaries will find it hard and they will work longer. 

Fortunately thanks to the pension auto enrolment scheme (2012-2018). Some 10.2 million people started a new pension plan. Small steps create big outcomes. 

bostonerimus

Thrugelmir said:

bostonerimus said:

BritishInvestor said:

bostonerimus said:

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

I've spent long hours looking at the results of such papers by the likes of Bengen, Pfau, Guyton etc and all the Monte Carlo simulations in the world don't change that everything depends on the stock/bond/inflation datasets you use. As the bond bubble started to deflate I took them out of my planning and bought into a DB pension and paid off the mortgage on a rental property. That allowed me to concentrate on equities with the rest of my money and ignore the uncertainty of the returns. Years ago when DB pensions and annuities were the rule the risk and uncertainty in the results was taken on by insurance companies and pension funds who, hopefully, could absorb it better than the individual. That's mostly gone now. When I started my planning I set out to avoid the uncertainty and possibility of running out of money as I liked the old way of doing things. As we get deeper into the current way of funding retirement where the individual is directly exposed to the risks of the market it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?

"it will be interesting to see how things work out: will people spend their pot down sensibly and die skint, will they lose it well before they die or will they be passing on wealth to the next generation?"

What's your guess?

 People on low salaries will find it hard and they will work longer. 

Fortunately thanks to the pension auto enrolment scheme (2012-2018). Some 10.2 million people started a new pension plan. Small steps create big outcomes. 

Yes, having to opt out rather than in is good. However, the employee is still directly exposed to the markets so the outcomes will be uncertain. When my Dad started working for ICI (remember them) in 1947 after he got out of the RAF he was a lowly electrical engineering tech and was auto enrolled into a non-contributory DB pension. I don't think we've really progressed much at all.

Linton

BritishInvestor said:

Prism said:

BritishInvestor said:

Prism said:

westv said:

Presumably if a cash made that much difference then it would have been part of the original "4% studies".

Yes, in fact there are almost no studies that include cash. They all assume the downturn is protected by bonds. This is probably why you get quite a few questions on if/how much to have in a cash buffer and how to use it.

https://finalytiq.co.uk/wp-content/uploads/2017/02/FPA-Journal-December-1997-Conserving-Client-Portfolios-During-Retirement-Part-III.pdf

"As a final word, it is fair to conclude that cash is indeed "trash" in long-term investment portfolios, particularly when the client in seeking to maximize withdrawals."

Thanks. From chart 7 it looks like swapping some intermediate bonds (up to 50%) for cash doesn't change the withdrawal rate by much at all. In the current situation of cash typically returning more than bonds I would still likely do that. If we get back to being properly rewarded for the risk of bonds then maybe less cash. Besides, retirement cash isn't likely to be T-Bills or even instant access. Its more likely to be in savings accounts paying more interest. As some point the line between cash and bonds blurs.

" If we get back to being properly rewarded for the risk of bonds then maybe less cash."

But aren't you then getting into the realms of tactical asset allocation. For example, should large-cap growth shares also not be excluded given currently lofty valuations?

The difference between bonds and equity is that with (safe) bonds you know for certain, barring end of the world scenarios, what your total return will be from the day you bought until maturity.   So you are able to sensibly judge one outcome against another and make "tactical decisions" appropriate for your particular situation.

Equity comes with no guarantees so any tactical asset allocation must be pased on your guesses which, given a perfect market, could just as well turn out wrong.

As to asset allocation with equity: the important thing in my view is to avoid over-reliance on any one factor.