Have 10% inflation and falling markets affected your drawdown plan?

bostonerimus

jim8888 said:

I'm a bit late to this post, but it's good to know I'm not the only one wondering if all the "fire" advice about SWR's, passive indexing and the rest has been somewhat of a house of cards?! I'm relying on DC pots at the moment and trying to keep my monthly budgets as stable as possible (helped massively by not having a big mortgage). I quite like a bit of "belt pulling" but I'm hoping inflation will drop back to under 5% soon. For me, no doubt like everyone else, petrol and energy costs have been the things that have really taken off in terms of what I budgeted versus what I'm spending. I now monitor them very closely! I haven't changed my investments, most of which sit in a Vanguard 80/20 LS fund, but last year I did cash in two years of annual expenses to live off out of our DC pension pots. Whether things will be better or worse in two years, who knows, but I try to reassure myself that in five years surely things will be levelled out and that this period will be seen as one of those blips on an upward trending investment growth line!

Great post. The various DC drawdown strategies are based on historical data and if our current period ends up being captured in the, let’s say 3 sigma, statistics of that data then we will probably be fine. But we also have to factor in how people implement their strategy ie are they running to cash and panic selling so that they crystallize losses and miss out on future gain that might save their plan.

I think indexing is still preferable to a more active investing strategy, but doubt the concentration on DC retirement funding over that last couple of decades. Pooled strategies like DB pensions and annuities have the benefit of mortality credits and I hope that they get included in a more hybrid approach from now on.

QrizB

D924 said:

Yearly living costs at a bare minimum for survival are now 20% of my capital instead of 7-8% so it's pretty much over for me unless the market rebounds hard within the next year.

And I'm also unemployable due to 2 years out of work thinking I had FIRE'd.

...

I am 28 and I have just over £100k in capital (but £50k was meant to be ringfenced for something, which would have made my life infinitely better and maybe even be able to cope with working) and about £11k a year living costs now.

@D924 it would be good to know more of the investment strategy you adopted that was intended to let you FIRE at 26 on £100k of assets with 8% drawdown, and exactly when the wheels came off.

From reading some of your other threads, were you partly invested in crypto assets?

JoeCrystal said:

Well, why get a seasonal job to tide you over?

I can vouch for this. My 18yo son found an agency warehouse job paying adult minimum wage within a few days of finishing his A-levels, and worked it on-and-off for three months before going away to university. He was making £380 gross per week, so 30 weeks a year of that will cover your £11k pa living costs.
(This assumes you're able-bodied; I appreciate it's harder to find a suitable job if you aren't.)

SouthCoastBoy

Deleted_User said:

Albermarle said:

Deleted_User said:

SouthCoastBoy said:

Albermarle said:

SouthCoastBoy said:

 bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I'm 100% dc and from my perspective I will most probably continue working rather than retire early. It was interesting reading comments of db increases on some pensions being restricted to 2.5% or 5%. That is not dissimilar to holding cash in current climate I am now getting over 4% on 12 month fixed term bonds

If I remember correctly you were anxious about retiring early even before this current situation developed, despite having built up a very large war chest. So I guess whatever the economic situation you will feel the same ?

Yes, I was/am anxious for exactly the scenario that has played out, high inflation & low equity growth. Don't think my anxiety about this will ever change, however I think I have made the right decision to continue with work for now

I agree. We are playing out one of the worst scenarios if inflation sticks. Much more onerous to retirees than anything we’ve seen. 

Thanks for the scary comments . I suppose it is Halloween tomorrow 

There are 4 major risk categories which can permanently damage our plans:
- inflation
- deflation 
- confiscation (including punitive taxation)
- devastation
The first of these is playing out… The good news is that its probably the least damaging and the easiest to insure against. 

I think the confiscation is in full flow, illustrated by the freezing of allowances, with inflation running as it is this is a massive tax increase for the workers, while people on benefits get rises, and then there is confusion about low productivity? Wealth is being transferred from the workers to the non workers. We live in a strange world.

michaels

SouthCoastBoy said:

I think inflation is going to stick around for longer than BOE expect. BoE have been pretty poor with their forecasts so far, not sure if it is more in hope rather than judgement.

This their current assessment,
Prices have risen by 10.1% compared to a year ago. That is well above our 2% target. We expect the rate of inflation to peak at 11% in October and then remain above 10% for a few months before starting to come down. 

First round inflation has come from increases in input prices - energy, food, raw materials.  Unless these continue increasing in price then this inflation will 'work its way through' the system and indeed might even reverse if they fall back again which is not unheard of as they tend to be cyclical.

What is less clear is how the 'secondary inflation' resulting from wage increases and/or excess monetary demand will play out.  Labour markets remain tight but the inflation on imported goods is taking a lot of spending power out of the economy.  The BoE have to guess how this will play out, not helped by not knowing what will happen to commodity prices, what will happen to aggregate demand (savings ratio etc) and what the gov balance (tax minus spending) will be.

german_keeper

SouthCoastBoy said:

Deleted_User said:

Albermarle said:

Deleted_User said:

SouthCoastBoy said:

Albermarle said:

SouthCoastBoy said:

 bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I'm 100% dc and from my perspective I will most probably continue working rather than retire early. It was interesting reading comments of db increases on some pensions being restricted to 2.5% or 5%. That is not dissimilar to holding cash in current climate I am now getting over 4% on 12 month fixed term bonds

If I remember correctly you were anxious about retiring early even before this current situation developed, despite having built up a very large war chest. So I guess whatever the economic situation you will feel the same ?

Yes, I was/am anxious for exactly the scenario that has played out, high inflation & low equity growth. Don't think my anxiety about this will ever change, however I think I have made the right decision to continue with work for now

I agree. We are playing out one of the worst scenarios if inflation sticks. Much more onerous to retirees than anything we’ve seen. 

Thanks for the scary comments . I suppose it is Halloween tomorrow 

There are 4 major risk categories which can permanently damage our plans:
- inflation
- deflation 
- confiscation (including punitive taxation)
- devastation
The first of these is playing out… The good news is that its probably the least damaging and the easiest to insure against. 

I think the confiscation is in full flow, illustrated by the freezing of allowances, with inflation running as it is this is a massive tax increase for the workers, while people on benefits get rises, and then there is confusion about low productivity? Wealth is being transferred from the workers to the non workers. We live in a strange world.

The vast majority of the benefits bill is spent on pensioners, disabled people and people in work. Anyone not working but deemed capable of work is expected to keep detailed records of what steps they have taken to find work. People working part time and claiming benefits are also expected to do the same if their circumstances dictate that they could work full time. How rigorously those rules are applied I wouldn't know, may even be some sort of postcode lottery.

But if there is indeed a small army of lazy feckless scroungers out there then I am more than happy to pay my few bob a week to ensure benefits are kept at a decent level in the unfortunate event that me or a family member ever has to claim.

jim8888

bostonerimus said:

jim8888 said:

I'm a bit late to this post, but it's good to know I'm not the only one wondering if all the "fire" advice about SWR's, passive indexing and the rest has been somewhat of a house of cards?! I'm relying on DC pots at the moment and trying to keep my monthly budgets as stable as possible (helped massively by not having a big mortgage). I quite like a bit of "belt pulling" but I'm hoping inflation will drop back to under 5% soon. For me, no doubt like everyone else, petrol and energy costs have been the things that have really taken off in terms of what I budgeted versus what I'm spending. I now monitor them very closely! I haven't changed my investments, most of which sit in a Vanguard 80/20 LS fund, but last year I did cash in two years of annual expenses to live off out of our DC pension pots. Whether things will be better or worse in two years, who knows, but I try to reassure myself that in five years surely things will be levelled out and that this period will be seen as one of those blips on an upward trending investment growth line!

Great post. The various DC drawdown strategies are based on historical data and if our current period ends up being captured in the, let’s say 3 sigma, statistics of that data then we will probably be fine. But we also have to factor in how people implement their strategy ie are they running to cash and panic selling so that they crystallize losses and miss out on future gain that might save their plan.

I think indexing is still preferable to a more active investing strategy, but doubt the concentration on DC retirement funding over that last couple of decades. Pooled strategies like DB pensions and annuities have the benefit of mortality credits and I hope that they get included in a more hybrid approach from now on.

I reckon that my monthly expenditure has risen by about 7% versus where I thought it would be when I originally planned out what we needed to cover for bills and spending on a monthly basis. So, for the moment, it's something we feel we can cover without panic. What is annoying though is that I took out two years of cash cover and stuck £40k of that into ISA's, but decided to still see if I could get some growth from a fund as opposed to just sitting with cash. Resultantly I chose to put this element into a "safer" Vanguard 40% Equity, 60% Bond LS fund. This has now taken a pasting in the last six months and has effectively shortened my intended two year "cash" buffer by two months. I suppose it could have been worse, but of course the worry is that it could still get worse! 

NannaH

I can understand the temptation to try and eke out some growth, especially with how poor savings rates were.  I did the same with £20k in an S&S ISA and promptly lost 25% in a bond heavy fund. 
 I suppose you could say you’d have lost 10% of the cash value to inflation anyway.  

I’m torn between hoping savings interest rates stay above 3% for a few years and being horrified by what that means for my Daughter’s mortgage. 

Albermarle

jim8888 said:

I'm a bit late to this post, but it's good to know I'm not the only one wondering if all the "fire" advice about SWR's, passive indexing and the rest has been somewhat of a house of cards?! I'm relying on DC pots at the moment and trying to keep my monthly budgets as stable as possible (helped massively by not having a big mortgage). I quite like a bit of "belt pulling" but I'm hoping inflation will drop back to under 5% soon. For me, no doubt like everyone else, petrol and energy costs have been the things that have really taken off in terms of what I budgeted versus what I'm spending. I now monitor them very closely! I haven't changed my investments, most of which sit in a Vanguard 80/20 LS fund, but last year I did cash in two years of annual expenses to live off out of our DC pension pots. Whether things will be better or worse in two years, who knows, but I try to reassure myself that in five years surely things will be levelled out and that this period will be seen as one of those blips on an upward trending investment growth line!

If we look at the typical medium risk portfolio, it is probably down around 15% give or take a % or two. In historical terms this is not some kind of unexpected disaster, but is almost par for the course, after years of growth. To some extent all periods of loss and growth are blips, although with the caveat we do not what the future holds.
So from an investment point of view (unless you were too heavy in bonds) it could be a lot worse.
The bigger problem of course is high inflation at the same time. Even if the annual rate falls back the current increased prices for virtually everything will remain baked in.
So maybe the best strategy is not to worry about your investments too much, but keep a close eye on spending.
Just an opinion.

Sea_Shell

Albermarle said:

jim8888 said:

I'm a bit late to this post, but it's good to know I'm not the only one wondering if all the "fire" advice about SWR's, passive indexing and the rest has been somewhat of a house of cards?! I'm relying on DC pots at the moment and trying to keep my monthly budgets as stable as possible (helped massively by not having a big mortgage). I quite like a bit of "belt pulling" but I'm hoping inflation will drop back to under 5% soon. For me, no doubt like everyone else, petrol and energy costs have been the things that have really taken off in terms of what I budgeted versus what I'm spending. I now monitor them very closely! I haven't changed my investments, most of which sit in a Vanguard 80/20 LS fund, but last year I did cash in two years of annual expenses to live off out of our DC pension pots. Whether things will be better or worse in two years, who knows, but I try to reassure myself that in five years surely things will be levelled out and that this period will be seen as one of those blips on an upward trending investment growth line!

If we look at the typical medium risk portfolio, it is probably down around 15% give or take a % or two. In historical terms this is not some kind of unexpected disaster, but is almost par for the course, after years of growth. To some extent all periods of loss and growth are blips, although with the caveat we do not what the future holds.
So from an investment point of view (unless you were too heavy in bonds) it could be a lot worse.
The bigger problem of course is high inflation at the same time. Even if the annual rate falls back the current increased prices for virtually everything will remain baked in.
So maybe the best strategy is not to worry about your investments too much, but keep a close eye on spending.
Just an opinion.

Agree.    Obviously not much we can do about true essential spends,, however we have full control over our discretionary spending more so than what the markets or inflation do.

Control what you CAN control, and keep your fingers crossed about everything else.

SouthCoastBoy

A15% decrease coupled with 10% inflation is a substantial erosion of wealth in 12 months, no wonder some people are concerned.