Pension Funds and De-Risking

Linton

Notepad_Phil said:

k6chris said:

My finacial aims in retirement are to provide an income that meets our needs whilst being able to sleep at night. This forum is really useful for identifying things which are both helpful and harmful to those objectives.  A 2-3 year cash buffer may or may not optimise investment returns, but it helps me sleep and does not appear to be in the 'harmful' catagory.  Thanks all for your insight and discussion. 

I think too much cash would only be harmful if it meant that you hadn't enough in investments so that you had to rely on too high a SWR from your investments through your retirement.

Indeed.  But that is part of optimising for "peace of mind".  Clearly, worry about whether  you can actually afford to retire is a major factor in the equation.

One thing to bear in mind is that SWR matches the worst reasonably possible outcome assuming you are happy to accept that the past is a good model of the future.  If you dont accept this then SWRs are pointless anyway.  And if SWR matches the worst possible outcome, for most people most of the time, it will prove to be very pessimistic.

MK62

Thrugelmir said:

Though history does repeat itself. Which results in future events not being as unpredictable as they may seem. 

......though there's no way to know when it will repeat.....

jim8888 said:

The way this thread has progressed underlines to me that I can model the future to the cows come home and still not have the answer I'm looking for. 

Future modelling is just to see what your plan could cope with.....you just have to bear in mind that you can't reasonably plan for any and all eventualities.......personally I think the key is to have reasonable expectations from the off and accept that the last resort of reducing income might be the only viable option in some cases, however unpalatable that might be.

zagfles

jim8888 said:

The way this thread has progressed underlines to me that I can model the future to the cows come home and still not have the answer I'm looking for. The psychological reality for me has been, however, that I just like having a cash buffer in place as the markets do what they do. On paper I suppose it can be historically  "proved" that this isn't an optimum approach, but it has given me peace of mind. 

I think whatever strategy you decide on, you need a plan as to how it would work in practice. Otherwise you'll constantly be tempted to think you can out-think the market and predict short term movements. For instance, when do you fall back on the buffer, after a 5% fall, 20%, 50%? When do you refloat it? Or do you stick a finger in the air each and every time there's turbulence? How would you cope eg if in 2001 and 2002 you saw the market dip, used most/all or your cash buffer, only to see the market go down further? 

Even if you don't want to do a full simulation, it's well worth looking at historical market graphs and thinking "what would I do in this situation" and then applying the same to other situations. It's easy to remember recent events as typical, eg the COVID dip, and any cash buffer strategy would have coped with that, but perhaps forgetting about other more long term dips, eg 2000, 2007, Japan in 1989 etc.

Thrugelmir

MK62 said:

Thrugelmir said:

Though history does repeat itself. Which results in future events not being as unpredictable as they may seem. 

......though there's no way to know when it will repeat.....

One doesn't need to know precisely when , in order to position a portfolio though. Optimising to achieve the best ROI over a set period of time can be a better policy than simply opting for the maximisation route. Markets as we all know aren't linear in nature. 

MK62

Thrugelmir said:

MK62 said:

Thrugelmir said:

Though history does repeat itself. Which results in future events not being as unpredictable as they may seem. 

......though there's no way to know when it will repeat.....

One doesn't need to know precisely when , in order to position a portfolio though. Optimising to achieve the best ROI over a set period of time can be a better policy than simply opting for the maximisation route. Markets as we all know aren't linear in nature. 

Yes....my comment was  "tongue in cheek".....

Thrugelmir

MK62 said:

Thrugelmir said:

MK62 said:

Thrugelmir said:

Though history does repeat itself. Which results in future events not being as unpredictable as they may seem. 

......though there's no way to know when it will repeat.....

One doesn't need to know precisely when , in order to position a portfolio though. Optimising to achieve the best ROI over a set period of time can be a better policy than simply opting for the maximisation route. Markets as we all know aren't linear in nature. 

Yes....my comment was  "tongue in cheek".....

 ..........