My retirement portfolio...11 months from drawdown

Pat38493

GazzaBloom said:

Bostonerimus1 said:

I like a high equity percentage portfolio for those with good control over their budget and sources of income that are decoupled from the stock market. If the OP and their spouse were 10 years older and about to draw their SPs I'd really like their plan, but drawing 27k from a 500k equity portfolio with a lot of US tech in it right now has too much sequence of returns risk for me. For the next 10 years I'd go with more fixed income in the portfolio and then increase the equity percentage closer to SP age or just add an annuity. 

I hear you but same such advice would have possibly advised holding bonds/bonds funds in 2022...

Someone posted the other day that bonds are somewhat less unpredictable than stocks, in the sense that quite a few people (mainly professionals I expect) were able to predict that bond funds were going to go down and that interest rates were pretty sure to start rising, and they adjusted their strategy a bit - however the rise in interest rates was even more rapid than many predicted so I think a lot of them had made smaller adjustments than they obviously would have done if they had known the magnitude.

It's a similar situation now - it's a reasonable bet that bond funds will start to go up more as interest rates start to come down, but it's not clear when that will happen or how fast it will be.

Quickly googling it so I'm not 100% sure this is right, but it looks like the long term average global interest rate for the last 100 years or so was 2.5% or less (please correct me someone if this is wrong as Microsoft Copilot told me this!), and the average global bond yield was above 4%.

MK62

Not sure about global average interest rates, but you can see UK rates over the last 50 years here......  https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp  ........not worked out the average, but I'd be surprised if it was as low as 2.5%.......maybe this century the average might be 2.5%, but the post GFC period of near zero rates was something of an anomaly, historically speaking.
Generally not a fan of using long term averages for planning purposes though.....they can give misleading results.

Bostonerimus1

GazzaBloom said:

Bostonerimus1 said:

I like a high equity percentage portfolio for those with good control over their budget and sources of income that are decoupled from the stock market. If the OP and their spouse were 10 years older and about to draw their SPs I'd really like their plan, but drawing 27k from a 500k equity portfolio with a lot of US tech in it right now has too much sequence of returns risk for me. For the next 10 years I'd go with more fixed income in the portfolio and then increase the equity percentage closer to SP age or just add an annuity. 

I hear you but same such advice would have possibly advised holding bonds/bonds funds in 2022...

Long term bond funds were really bad to be holding in 2022, and I would not advise you to hold any of them with a 10 year horizon to SP/retirement with your budget and income needs and sources. So keep average bond fund durations less than 10 years. One good thing is your cash allocation. A less equity and tech heavy portfolio would give you more drawdown choices and reduce risk which I think needs to be a more prominent factor for you when you are retiring well before SP age. It's good to be a bit of a pessimist when planning for retirement and think about the worst case scenarios, also always plan for a mortality well beyond the average  -  I use 95 in my planning. I retired at 52 and would not have done so without being debt free and income coming from a rental property and a DB pension. I keep 2 year's spending in cash as I'm aware that the rental property might need expensive repairs that I can't foresee and I have a 85% equity portfolio because market losses won't affect my income and I can ride them out.

Pat38493

MK62 said:

Not sure about global average interest rates, but you can see UK rates over the last 50 years here......  https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp  ........not worked out the average, but I'd be surprised if it was as low as 2.5%.......maybe this century the average might be 2.5%, but the post GFC period of near zero rates was something of an anomaly, historically speaking.
Generally not a fan of using long term averages for planning purposes though.....they can give misleading results.

You’re right for the UK at least - looks like rates were way over 2.5% for most of the last 50 years and actually they were in double digits for most of the first half of that time - so much for the vaunted capabilities of AI (although my question was about global interest rates rather than UK).

This was actually my first gut feel before I got that info from copilot - it also raises the question why are we expecting interest rates to come down any time soon, or even at all - I haven’t calculated the average either but looking through that table I suspect that we are already below the long term average, so I don’t really know why everyone expects them to come down (and stay down).

Cus

GazzaBloom said:

I retire in December this year and commence drawdown in April 2025.

Mortgage & debt free.

I have a DB pension paying out £6,227 a year of which 50% will increase with CPI capped at 5%.

Age 57, I will be 58 when drawdown commences, wife already retired, age 54. We have full state pensions due at age 67.

We need £33,078 per year in today's money for base living expenses which includes a £12K discretionary amount for entertainment, UK travel, days out etc.

Current portfolio in addition to the DB pension is

My DC Pension (0.16% AMC):

Blackrock US Equity Index:               £164,893.82 (30.45% of portfolio)

HSBC Islamic Global Equity Index:   £166,531.93 (30.76% of portfolio)

Legal & General Global Tech Index:   £85,683.90 (15.83% of portfolio)

Cash:                                                  £36,396.23 (earning 5.25% interest) (6.72% of portfolio)

Wife’s DC pension (0.15% AMC):

Vanguard S&P 500 ETF:                    £61,800.28 (11.41% of portfolio)

S&S ISA:

Legal & General Global Tech Index:  £12,893.63 (2.38% of portfolio)

Cash ISA:                                          £13,235.30 (earning 2.65%) (2.44% of portfolio)

Total:                                                 £541,435.09

Remaining contributions before drawdown starts is £42,082 cash into my DC pension and £2,000 into the cash ISA. We should be 83% equities funds / 17% cash or thereabouts at drawdown, or I will rebalance to around that.

Timeline and FiCalc shows 100% success rate when back tested using some 5% adjustment dynamic spending rules for first 15 years. I have added some one-off large purchases on a new car & home improvements into these as well but they are discretionary and not urgent.

I have a high risk tolerance and the heavy weighting to US stocks is intentional. Don't like or want bonds so a barbell of equity index funds and cash is my preferred position.

Anyone have any thoughts on this position, noting the above preferences? 

Sorry haven't read all the replies but if you have reached your number, then why would you want to risk the pot with high risk equities? Do you need more? 

Bostonerimus1

Cus said:

GazzaBloom said:

I retire in December this year and commence drawdown in April 2025.

Mortgage & debt free.

I have a DB pension paying out £6,227 a year of which 50% will increase with CPI capped at 5%.

Age 57, I will be 58 when drawdown commences, wife already retired, age 54. We have full state pensions due at age 67.

We need £33,078 per year in today's money for base living expenses which includes a £12K discretionary amount for entertainment, UK travel, days out etc.

Current portfolio in addition to the DB pension is

My DC Pension (0.16% AMC):

Blackrock US Equity Index:               £164,893.82 (30.45% of portfolio)

HSBC Islamic Global Equity Index:   £166,531.93 (30.76% of portfolio)

Legal & General Global Tech Index:   £85,683.90 (15.83% of portfolio)

Cash:                                                  £36,396.23 (earning 5.25% interest) (6.72% of portfolio)

Wife’s DC pension (0.15% AMC):

Vanguard S&P 500 ETF:                    £61,800.28 (11.41% of portfolio)

S&S ISA:

Legal & General Global Tech Index:  £12,893.63 (2.38% of portfolio)

Cash ISA:                                          £13,235.30 (earning 2.65%) (2.44% of portfolio)

Total:                                                 £541,435.09

Remaining contributions before drawdown starts is £42,082 cash into my DC pension and £2,000 into the cash ISA. We should be 83% equities funds / 17% cash or thereabouts at drawdown, or I will rebalance to around that.

Timeline and FiCalc shows 100% success rate when back tested using some 5% adjustment dynamic spending rules for first 15 years. I have added some one-off large purchases on a new car & home improvements into these as well but they are discretionary and not urgent.

I have a high risk tolerance and the heavy weighting to US stocks is intentional. Don't like or want bonds so a barbell of equity index funds and cash is my preferred position.

Anyone have any thoughts on this position, noting the above preferences? 

Sorry haven't read all the replies but if you have reached your number, then why would you want to risk the pot with high risk equities? Do you need more? 

Some studies have shown that a rising equity percentage allocation increases the probability of success and if you have retirement income sources from places other than your investments then having a high equity allocation might not be a risk to your retirement success and could mean you can spend more or leave more to your heirs. However, the reality of seeing your income generating investments fall by 20% is not pleasant. I'm retirement and I've seen my portfolio go down by almost that much over the last couple of years only to see it more than recover. But when it was down I could at least be sanguine and not have to take any action because my retirement income comes from other sources. The OP will have to spend cash to avoid selling into a falling market when the next crash occurs and hope that their cash lasts so they can avoid crystalizing some losses. If they are prepared for that and can sleep calmly knowing that their plan will probably see them ok then they should go for it, but I would find that situation worrying which is why I planned to avoid it.

GazzaBloom

Bostonerimus1 said:

Cus said:

GazzaBloom said:

I retire in December this year and commence drawdown in April 2025.

Mortgage & debt free.

I have a DB pension paying out £6,227 a year of which 50% will increase with CPI capped at 5%.

Age 57, I will be 58 when drawdown commences, wife already retired, age 54. We have full state pensions due at age 67.

We need £33,078 per year in today's money for base living expenses which includes a £12K discretionary amount for entertainment, UK travel, days out etc.

Current portfolio in addition to the DB pension is

My DC Pension (0.16% AMC):

Blackrock US Equity Index:               £164,893.82 (30.45% of portfolio)

HSBC Islamic Global Equity Index:   £166,531.93 (30.76% of portfolio)

Legal & General Global Tech Index:   £85,683.90 (15.83% of portfolio)

Cash:                                                  £36,396.23 (earning 5.25% interest) (6.72% of portfolio)

Wife’s DC pension (0.15% AMC):

Vanguard S&P 500 ETF:                    £61,800.28 (11.41% of portfolio)

S&S ISA:

Legal & General Global Tech Index:  £12,893.63 (2.38% of portfolio)

Cash ISA:                                          £13,235.30 (earning 2.65%) (2.44% of portfolio)

Total:                                                 £541,435.09

Remaining contributions before drawdown starts is £42,082 cash into my DC pension and £2,000 into the cash ISA. We should be 83% equities funds / 17% cash or thereabouts at drawdown, or I will rebalance to around that.

Timeline and FiCalc shows 100% success rate when back tested using some 5% adjustment dynamic spending rules for first 15 years. I have added some one-off large purchases on a new car & home improvements into these as well but they are discretionary and not urgent.

I have a high risk tolerance and the heavy weighting to US stocks is intentional. Don't like or want bonds so a barbell of equity index funds and cash is my preferred position.

Anyone have any thoughts on this position, noting the above preferences? 

Sorry haven't read all the replies but if you have reached your number, then why would you want to risk the pot with high risk equities? Do you need more? 

Some studies have shown that a rising equity percentage allocation increases the probability of success and if you have retirement income sources from places other than your investments then having a high equity allocation might not be a risk to your retirement success and could mean you can spend more or leave more to your heirs. However, the reality of seeing your income generating investments fall by 20% is not pleasant. I'm retirement and I've seen my portfolio go down by almost that much over the last couple of years only to see it more than recover. But when it was down I could at least be sanguine and not have to take any action because my retirement income comes from other sources. The OP will have to spend cash to avoid selling into a falling market when the next crash occurs and hope that their cash lasts so they can avoid crystalizing some losses. If they are prepared for that and can sleep calmly knowing that their plan will probably see them ok then they should go for it, but I would find that situation worrying which is why I planned to avoid it.

That's the plan. Lowering the equities below 75% sees the modelled probability of success start to decline below 100%. Don't forget I am increasing the cash level between now and drawdown and will possibly rebalance it so there is even more. I may go 75/25 equities cash which will see a cash amount that could cover 5 years of living expenses if I chose to use it that way. That would get us to within 4 years of state pension. Current plan is modelled to cover to age 100.

I have mulled over “income” generating assets in the past. I like cash paying 5%, I like short term money market funds paying around the same but really don't like bond funds or income focussed equity funds. If I am going to have money invested my strong preference is simply to keep it in accumulating growth focussed equity index funds with everything else held completely risk-off.

GazzaBloom

Cus said:

Sorry haven't read all the replies but if you have reached your number, then why would you want to risk the pot with high risk equities? Do you need more? 

How would you suggest the portfolio is restructured to keep up with inflation and provide through to age 95/100?

The way I see my portfolio, is this:

Cash - Short term - risk off covering a minimum of 3 years expenses if required (may extend to 5 years), will simply rebalance to a percentage f equities not dropped significantly in any one year, thereby increasing the amount of cash as a percentage. If equities crash 20%+ then I will not rebalance but draw from the cash only until equities start to recover. 

US & Global Equity funds - the meat of the portfolio to generate the total return growth to sustain retirement medium/long term, this capital needs to work hard and I expect the value to go up and down 10/20/30%+

Tech Fund - currently 18% or so, (will be less of portfolio percentage at point of commencing drawdown as the cash amount increases with contributions this year), this is in effect a legacy "bucket" that will never be touched (hopefully) and grow over the long term until death to pass on as inheritance. Expected to be very volatile and may drop 50%+ in the worst of scenarios but has hopefully 30+ years to do its thing.

For every year that goes by without a major market crash I step one year closer to state pensions and the 3-5 years worth of cash rolls forward a year. When our full SPs are in payment the drawdown from investment portfolio may drop to just 1%-2% of portfolio value. At that point we could switch portfolio around.

I don't fear market crashes, we've been through 2008, Covid and the 2022 inflation grind since I have been accumulating, I don't like them or enjoy them but am able to hold firm and not panic. Especially with 3-5 years worth of cash on hand.

There is also the consideration that I may want to work part time if I feel inclined for a few more years.  

Sea_Shell

GazzaBloom said:

Cus said:

Sorry haven't read all the replies but if you have reached your number, then why would you want to risk the pot with high risk equities? Do you need more? 

How would you suggest the portfolio is restructured to keep up with inflation and provide through to age 95/100?

The way I see my portfolio, is this:

Cash - Short term - risk off covering a minimum of 3 years expenses if required (may extend to 5 years), will simply rebalance to a percentage f equities not dropped significantly in any one year, thereby increasing the amount of cash as a percentage. If equities crash 20%+ then I will not rebalance but draw from the cash only until equities start to recover. 

US & Global Equity funds - the meat of the portfolio to generate the total return growth to sustain retirement medium/long term, this capital needs to work hard and I expect the value to go up and down 10/20/30%+

Tech Fund - currently 18% or so, (will be less of portfolio percentage at point of commencing drawdown as the cash amount increases with contributions this year), this is in effect a legacy "bucket" that will never be touched (hopefully) and grow over the long term until death to pass on as inheritance. Expected to be very volatile and may drop 50%+ in the worst of scenarios but has hopefully 30+ years to do its thing.

For every year that goes by without a major market crash I step one year closer to state pensions and the 3-5 years worth of cash rolls forward a year. When our full SPs are in payment the drawdown from investment portfolio may drop to just 1%-2% of portfolio value. At that point we could switch portfolio around.

I don't fear market crashes, we've been through 2008, Covid and the 2022 inflation grind since I have been accumulating, I don't like them or enjoy them but am able to hold firm and not panic. Especially with 3-5 years worth of cash on hand.

There is also the consideration that I may want to work part time if I feel inclined for a few more years.  

Tell me about it.    I retired in July 2019...we all know what happened next!!!     Great timing...not. 

At the time we had £100k of cash out of a total pot of £536k.   

We weathered that storm, without taking on water, and we're now exactly £100k better off*, on paper, than we were then.    Even after spending for those 5 years since.    Crazy, when you think about it.  




* before anyone says it....ah, but...inflation!     

cfw1994

GazzaBloom said:

cfw1994 said:

GazzaBloom said:

Pat38493 said:

It will be interesting to compare notes in future years regarding the bonds topic, as I am taking a different view on that.

I had virtually nothing in bonds during the last year or so, but I am now starting to build up bond holdings again.  I am trying not to suffer from recency bias there - it's easy to think that bonds are no good after we have had higher bonds volatility for a couple of years, and higher cash returns than bonds, but I think that historically these times are very rare.  Normally bonds will reduce the volatility and provide a different returns pattern to equities whilst at least matching or slightly exceeding inflation.

Therefore I am taking the view that I will use bonds for some of my holdings in the longer term, and rightly or wrongly I have already started switching some of my fund into bonds.  If I'm lucky this will be a good time as bond fund valuations should increase when interest rates start to come down which seems likely in the next 6 months.

It might be worthwhile to keep bonds under advisement rather than exluding them permanently from your thinking.

I have just triggered the crystallisation of my 450K II pension and I will probably invest some of the 25% TFC in ISAs (myself and spouse) in bonds rather than cash, but whatever I can't get into ISAs will stay in cash.  I am doing that partly because we are planning some big capital spends in the first year or two, and my planning to stop work is fluid - not sure yet exactly which month I will stop and whether I will go part time for a while.  

My red line is April 2026 - by that time I will definitely stop working completely.  However I could go as early as August this year if the work annoys me enough!  After August this year I will effectively filling in the last few % of the worst case scenarios which are very unlikely to fully materialise.

I agree on bonds, with cash paying 5% it's easy to hold cash. It's a good suggestion to keep these under review as the next couple of years unfolds.

I hope we don't hit a bad SOR in the next few years but with US debt at all time highs (among other countries) and high S&P500 valuations for the top stocks (the bulk of the index isn't so loftily valued) we'll see. I'm not going to panic and change course though, I'm going to stick to the plan but may nudge the cash percentage up over time if we get a good run. I can then pounce on low priced stocks or buy into bonds with some cash at some point down the road.

I would be dismayed if I had to carry on working in this job until April 2026. Having handed my notice in giving a year's notice it already feels like time has slowed to a crawl..!

Is there a reason you have given a years notice?

I got on very well with my boss (& his boss), and gave them about 6 months notice - I knew if we had redundancies I would not have been considered, but most people generally advise giving as little as possible to either get a chance of redundancy or to avoid the 💩 jobs being lobbed to them 🤷‍♂️

Does give you a long countdown clock, mind….I planned the detail of my LEJoG during those 6 months 🤣👍

I gave a year as I've been here 21 years and get on very well with my boss who started around the same time as me. My job is quite unique and no-one else does this job where I work so getting a replacement in and training them up will take time, we're at the end of May already and still not got a replacement in. 

It was also a stick in the sand and gives certainty to my decision.

Ahh, nobody is unique and irreplaceable 🤷‍♂️

I was something of a specialist in my role, but I was VERY aware that if I fell under a bus the next day, work would somehow continue 🤪

You also say “ I'm not ruling out working again completely but it wont be in high stress Management with a 35 mile commute each way as it is now!”

Sorry to be the bearer of bad news, but nobody in Management is irreplaceable 👀

”For every year that goes by without a major market crash I step one year closer to state pensions and the 3-5 years worth of cash rolls forward a year. When our full SPs are in payment the drawdown from investment portfolio may drop to just 1%-2% of portfolio value. At that point we could switch portfolio around.”

For every year that goes by, you have one less year to take complete control of your own time and manage that instead of feckless people/processes/machinery…..& if your SPs will meet almost all of your needs, then look how best to use your investments whilst you still have health on your side.  

We all know people in our peers who suffer ailments, illness or worse - passing away 😔

Make the most of your time here, volunteer to do some good along the way for your fellow humans and live your best life🎉