Flexible Retirement Planner Tool - Do my inputs look OK?

DT2001

OldScientist said:

My apologies to @GenX0212 since a ladder may not suit their needs, but I thought I'd just add the results of some historical backtesting since it may be of interest to others. In each case, I've assumed £36k from the portfolio/ladder before SP and £16k from portfolio/ladder after SP (asset returns from macrohistory.net).

The results with no ladder.



These are the same as an earlier post (but in slightly different form). There was a small probability (just under 10%) that the portfolio would be exhausted before 20 years had elapsed.

Next the case where the ladder was constructed to cover the first 12 years (I've assumed a cost of £400k to provide an income of £36k as per my earlier post)


Several things to note:
1) Even in the worst cases, the portfolio was not exhausted during the 20 year period
2) The amount left in the portfolio was higher in the worst 25% of cases (the 25th percentile value was about £200k with or without the ladder) and worse in the best 75% of cases (e.g. at the 75th percentile, £750k without the ladder and £475k with). In other words, the ladder protects the downside, but reduces the upside.

With the longer ladder suggested by @michaels (i.e., £36k for the first 12 years and another 10 years of £16k costing £570k) the outcomes looked as follows

Several things to note:
1) The portfolio was never exhausted (not surprising since no withdrawals were taken during the 20 year period shown in the graph), but worth noting that the real value was still below that of the initial value in the worst cases.
2) The portfolio value in the worst 10% of cases was better than those with the shorter ladder. However, the upside cases are much worse than either without a ladder or with the short ladder, e.g., at the 25th percentile the portfolio had £100k compared to £200k in the other two scenarios.

The overall conclusion is that the IL gilt ladder did an excellent job of protecting the income stream in the worst historical markets, but at the expense of worse outcomes in better markets. Which solution appeals (and as I've implemented it as an either/or, whereas partially funding the income with a ladder is also an option in order to capture a bit of the strengths of each approach) is a personal decision since one isn't better than the other, merely different.

Of course, the usual caveats that these are historical results and future results could be worse than historical results, etc.

Whilst I at times struggle to follow your data I think your conclusions are spot on. It is a case of horses for courses however I recall Linton asking me why I was considering something if I had already ‘won’ the game. In other words if you can meet your goals why consider any riskier options? In my case I think the goalposts move! Originally we set a target for our funds to provide an income of X and now we would like X but also to ensure we assist our children as much as possible. I personally like the idea of a mix of income streams added to a flexible budget