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Using a cashflow ladder in retirement?
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GazzaBloom said:bostonerimus said:GazzaBloom said:To put all this worry about 30-40 year retirement and having enough money into context, I have just learned today that a former colleague and friend of of mine has died at age 63...that's 8 years left for me should I suffer the same fate.
Retirement planning must be a balance between saving, sweating investment asset allocation and balancing fear of long term low returns, market crashes, too much exposure to market volatility, preservation of capital, etc, etc... and a sudden curtailment or derailment of plans.
This is why I have taken my DB pension at the earliest opportunity at age 55, with tax free lump sum and reduced annual payment so there can be some living today as no-one knows what tomorrow holds or how many tomorrows there will be. I would be happy to be 80 and living a modest life having not worked longer than I really wanted, travelled, bought a really nice guitar or two, relaxed and fixed up my house earlier in life, rather than having lived in fear of running out of money fretting this mortal coil and suddenly departing.
I also took my DB pension early which means like you and bostonerimus, I am lucky enough to have guaranteed income beyond the state pension to rely on. For those without such fall back positions (and whose essential spending is above that affordable on the state pension), then planning for a retirement duration to aged 100 might be considered fairly sensible, if conservative, particularly for a couple since a roughly 10% chance of one or other partner living to that age is currently predicted. Drop that by about 5 years or so (i.e. to 95) if you'd prefer a 25% chance of outliving your plan and another 5-10 (i.e. to 85-90) if you'd prefer a 50% chance.
Apologies to the OP - the above is definitely drifting off topic... so, to come back on topic, I would definitely have a look at McClung's "Living off your Money" to see what historical backtesting (US mostly, but UK results are also tabulated - although the limitations of the dataset he uses means that some of the worst periods for the UK are omitted) has made of various bucket and cash strategies (the relevant chapter, Chapter 3, is freely downloadable at http://livingoffyourmoney.com/wp-content/uploads/2016/05/LivingOffYourOwnMoney_eBook_FirstThreeChapters.pdf).
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GazzaBloom said:
This is why I have taken my DB pension at the earliest opportunity at age 55, with tax free lump sum and reduced annual payment so there can be some living today as no-one knows what tomorrow holds or how many tomorrows there will be.0 -
Thrugelmir said:GazzaBloom said:
This is why I have taken my DB pension at the earliest opportunity at age 55, with tax free lump sum and reduced annual payment so there can be some living today as no-one knows what tomorrow holds or how many tomorrows there will be.1 -
Prism said:BritishInvestor said:Linton said: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".
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."
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?
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.
I guess the point I am trying to make is why introduce complexity/fiddling when there is little evidence to suggest that the plain vanilla, periodically rebalanced, 60/40 portfolio is"broken".
Which period was this - the 1970s?0 -
Thrugelmir said:BritishInvestor said:Linton said: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".
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."
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?
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.
I guess the point I am trying to make is why introduce complexity/fiddling when there is little evidence to suggest that the plain vanilla, periodically rebalanced, 60/40 portfolio is"broken".
https://www.timelineapp.co/blog/no-qe-didnt-break-the-4-rule/
"According to Professor Elroy Dimson, UK bond investors lost half their wealth in real terms in the inflationary period from 1972 to 1974! In the period between 1914 and 1920, UK bonds lost over 60% in real terms over seven consecutive years. But the SWR framework would have held its own during this period."
The above may or may not happen in the future.0 -
BritishInvestor said:Thrugelmir said:BritishInvestor said:Linton said: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".
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."
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?
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.
I guess the point I am trying to make is why introduce complexity/fiddling when there is little evidence to suggest that the plain vanilla, periodically rebalanced, 60/40 portfolio is"broken".1 -
Thrugelmir said:BritishInvestor said:Thrugelmir said:BritishInvestor said:Linton said: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".
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."
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?
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.
I guess the point I am trying to make is why introduce complexity/fiddling when there is little evidence to suggest that the plain vanilla, periodically rebalanced, 60/40 portfolio is"broken".
1. It's probably an allocation that most investors would be happy to stick with during times of volatility (or maybe 50/50).
2. The benefit of increasing equity (in SWR terms) tends to (typically) taper off as you go towards 100%.
rather than in reference to MPT.0 -
BritishInvestor said:Prism said:BritishInvestor said:Linton said: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".
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."
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?
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.
I guess the point I am trying to make is why introduce complexity/fiddling when there is little evidence to suggest that the plain vanilla, periodically rebalanced, 60/40 portfolio is"broken".
Which period was this - the 1970s?
Just to be clear, when I say cash I don't really mean cash. Except for near term income requirements which would be instant access I would use fixed term savings accounts - which technically are bonds with better yields.1
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