My retirement portfolio...11 months from drawdown

Exodi

You're obviously aware but it's a very high US (and techn weighting) - nearly 82% of your overall portfolio.

Of course the US has performed extremely well for a long time (and long may it continue) but having all of your eggs in one basket could expose you to some pretty violent swings (but then, I think we'd all be suffering if Apple, Microsoft, Google, Amazon, etc dropped)!

GazzaBloom

cfw1994 said:

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🎉

I'm not sure I get the tone of your reply, I think you are misconstruing some of my points.

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

I didn't say I was irreplaceable, and you are not the bearer of any type of news at all, not to me anyway, that's a quite condescending comment to make.

I gave a years notice, as I have worked with my boss for 21 years and we are good friends, it also takes this company forever to get recruitment approved and then arrange interviews etc. I have been supporting my boss with the the interviews for my replacement and once they are appointed and trained up I can start reducing hours to part time as agreed with my boss, to give a nice ramp down to retirement at the end of the year.

When I talk about years going by without a major crash, I mean once in retirement, it's another year that my portfolio edges closer to the SPs going into payment and another year the cash rolls forward without having been deployed. 

I'm well aware of the fragility of our time here, a close colleague died at age 66 part way through a project we were working on and my cousin's husband passed at 56, both sudden and unexpected. This has has a major bearing on my decision to get out at age 57.

cfw1994

It wasn’t intended to be condescending, so apologies if that is how it read.
Simply pointing out that our retirement years have an absolute limit, & none of us know what that time is.

I do appreciate the time it takes to replace a person in work, although in my experience it is rare that such handovers ever really get expedited until close to the leaving date 🤷‍♂️

Good luck with your plans 👍

GazzaBloom

cfw1994 said:

It wasn’t intended to be condescending, so apologies if that is how it read.
Simply pointing out that our retirement years have an absolute limit, & none of us know what that time is.

I do appreciate the time it takes to replace a person in work, although in my experience it is rare that such handovers ever really get expedited until close to the leaving date 🤷‍♂️

Good luck with your plans 👍

Understood and thanks - I agree that the big unknown in retirement planning is how long you have left be it longer or shorter than you were expecting.

GazzaBloom

Exodi said:

You're obviously aware but it's a very high US (and techn weighting) - nearly 82% of your overall portfolio.

Of course the US has performed extremely well for a long time (and long may it continue) but having all of your eggs in one basket could expose you to some pretty violent swings (but then, I think we'd all be suffering if Apple, Microsoft, Google, Amazon, etc dropped)!

Yeah, US heavy, intentional and I am aware of the risks of being so heavily swayed that way.

I may lower the exposure in time but I do not fear investing in the US, even at current valuations, like some seem to.

 The HSBC Islamic Equity Index fund is heavily US as that is how the 100 largest companies that meet the fund criteria pan out, if the US fades over time and the largest cap companies emerge from another country that fund will adjust accordingly. Without changing anything that could see the US weighting reduce in this portfolio.

Pat38493

GazzaBloom said:

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.

After rading all the ERN SWR blogs, the takeaway for me seemed to be that an 80/20 portfolio throughout a longer retirement (40 years or more) would be the optimal if you are just keeping the same % throughout.  Stocks/bonds.  He actually concluded that a cash bucket is just as likely to harm you as help you, and he doesn't even keep an emergency fund - he said his emergency fund is credit cards and assets that can be liquidated on relatively short notice (within a week or two).

However, he also seemed to find that going down to 70/30 at retirement and then having a glidepath back up to 80/20 during the first 10 years gave a marginal improvement in overall SWR (but I think all his research is based on entirely DC pots so if you have other income and uneven withdrawals it's not clear that the results would be the same, and the differences are pretty marginal).

From what I remember you can't really simulate that in tools like Timline because you can't make a timed change to your investment mix in the future (or at least I don't remember that you can).  You might be able to fudge it by having a 70/30 fund and sequencing that one first I guess.  

OldScientist

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? 

Congratulations on getting to the homeward stretch! Retirement is definitely a lovely a great place to be (over 4 years for me)...

Two comments:

Comment 1
Noting that from what you've said your total expenditure is £33k consisting of a 'core' expenditure of about £21k and your 'discretionary' about £12k.

Guaranteed income.
You'll have £6k now (assuming you take the Db pension immediately, while 50% is capped at 5% CPI, is the other 50% fully index linked?)
9 years after retirement you will have in real terms £11.5k+£6k=£17.5k (assuming the CPI cap is not triggered and state pension continues to rise by inflation)
12 years after retirement you will have in real terms £11.5k+£11.5k+6k=£29k

In other words, after 12 years all your core expenditure will be covered (so the portfolio will only be needed for part of your discretionary expenditure).
From 9-12 years, you have just over 80% of your core expenditure covered and just over 50% of your total expenditure.
In the first 9 years, you have about 30% of your core expenditure covered and just under 20% of your total.

It is those first 9 years where the portfolio will need to supply at least 21k-6k=15k+discretionary where there is considerable market risk. For example, in the event of a 50% drop in portfolio value that then persists (i.e. something not quite as bad as the 'Japan scenario') would leave you drawing at least 6% of your portfolio balance for those 9 years. I also note that under the Japan scenario, GK would drop your portfolio income by 5% each year (plus whatever foregoing inflation adjustment when the portfolio first dropped), i.e., potentially by 45% over 9 years assuming the portfolio was not exhausted (I note that backtesting in Timeline and FIcalc will not test this scenario since it hasn't, yet(?) occurred in quite that way in the US, UK, or with an international portfolio). 

Two potential solutions:
1) Notwithstanding your aversion to bonds (I assume more to bond funds rather than bonds held to maturity) construction of an inflation linked gilt ladder to provide £10k per year for 9 years starting in a year's time would currently cost about £90k (https://lategenxer.streamlit.app/Gilt_Ladder ) with an 11% payout rate.

2) A term annuity to cover the same period (preferably RPI protected). You'd have to find out what payout rates are available.


Comment 2
Not pleasant to think about, but have you modelled the outcomes if one of you dies early (you'll lose at least one state pension and, potentially, the DB pension, but core expenditure will be more than half)?

GazzaBloom

OldScientist 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? 

Congratulations on getting to the homeward stretch! Retirement is definitely a lovely a great place to be (over 4 years for me)...

Two comments:

Comment 1
Noting that from what you've said your total expenditure is £33k consisting of a 'core' expenditure of about £21k and your 'discretionary' about £12k.

Guaranteed income.
You'll have £6k now (assuming you take the Db pension immediately, while 50% is capped at 5% CPI, is the other 50% fully index linked?)
9 years after retirement you will have in real terms £11.5k+£6k=£17.5k (assuming the CPI cap is not triggered and state pension continues to rise by inflation)
12 years after retirement you will have in real terms £11.5k+£11.5k+6k=£29k

In other words, after 12 years all your core expenditure will be covered (so the portfolio will only be needed for part of your discretionary expenditure).
From 9-12 years, you have just over 80% of your core expenditure covered and just over 50% of your total expenditure.
In the first 9 years, you have about 30% of your core expenditure covered and just under 20% of your total.

It is those first 9 years where the portfolio will need to supply at least 21k-6k=15k+discretionary where there is considerable market risk. For example, in the event of a 50% drop in portfolio value that then persists (i.e. something not quite as bad as the 'Japan scenario') would leave you drawing at least 6% of your portfolio balance for those 9 years. I also note that under the Japan scenario, GK would drop your portfolio income by 5% each year (plus whatever foregoing inflation adjustment when the portfolio first dropped), i.e., potentially by 45% over 9 years assuming the portfolio was not exhausted (I note that backtesting in Timeline and FIcalc will not test this scenario since it hasn't, yet(?) occurred in quite that way in the US, UK, or with an international portfolio). 

Two potential solutions:
1) Notwithstanding your aversion to bonds (I assume more to bond funds rather than bonds held to maturity) construction of an inflation linked gilt ladder to provide £10k per year for 9 years starting in a year's time would currently cost about £90k (https://lategenxer.streamlit.app/Gilt_Ladder ) with an 11% payout rate.

2) A term annuity to cover the same period (preferably RPI protected). You'd have to find out what payout rates are available.


Comment 2
Not pleasant to think about, but have you modelled the outcomes if one of you dies early (you'll lose at least one state pension and, potentially, the DB pension, but core expenditure will be more than half)?

Some great points there and a few things to consider. thanks. What's the real likelihood of a 50% drop in year 1 that persists for a decade? That's pretty doomsday...but still a possibility.

50% on my DB pension is payable to spouse  but yes, losing that 2nd SP is something to mull over, one of us going before the other early doors isn't a nice thing to think about.

GazzaBloom

@Pat38493 I see Timeline have released an update and made some updates to the Clients page. In doing so they appear to have removed the ability to delete plans from a client. I use a Test plan to model alternative scenarios/portfolios but it looks like we can keep adding new ones or rename existing but not delete them anymore.

I have reported it as a bug, unless you can see where plans can be deleted?

MK62

GazzaBloom said:

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.

.....and in the accumulation years market crashes are more of an opportunity than something to be feared. However, the decumulation phase is a different beast.......your cash buffer will help there if a such a crash occurs......your main issue right now is likely to be how to get to 3-5 years in cash......what to sell.....and when to sell it.