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zagfles said:Bostonerimus1 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Linton said:Bostonerimus1 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
On the calculators for GK, you can state a minimum allowed withdrawal, which, so long as the scenario analysis is 100% success and you accept that it's possible that the future could be outside the extremes of the past 120 years of data, then that's as good as an equivalent to a separate DB, annuity etc you could get.0
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zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.1 -
Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Bostonerimus1 said:Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.
Other people will have different situations and different priorities, but for those lucky enough to have more than their basic needs, I do think a multiple pot approach can be a lot easier to get your head around than trying to think of it as a single asset allocation and planning for how to change that over time.0 -
Triumph13 said:Bostonerimus1 said:Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.
Other people will have different situations and different priorities, but for those lucky enough to have more than their basic needs, I do think a multiple pot approach can be a lot easier to get your head around than trying to think of it as a single asset allocation and planning for how to change that over time.And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Bostonerimus1 said:Triumph13 said:Bostonerimus1 said:Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.
Other people will have different situations and different priorities, but for those lucky enough to have more than their basic needs, I do think a multiple pot approach can be a lot easier to get your head around than trying to think of it as a single asset allocation and planning for how to change that over time.0 -
Bostonerimus1 said:Triumph13 said:Bostonerimus1 said:Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.
Other people will have different situations and different priorities, but for those lucky enough to have more than their basic needs, I do think a multiple pot approach can be a lot easier to get your head around than trying to think of it as a single asset allocation and planning for how to change that over time.
Of course, there are many ways to use cash in a portfolio, and so it's rather difficult to simulate them all......
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MK62 said:Bostonerimus1 said:Triumph13 said:Bostonerimus1 said:Triumph13 said:zagfles said:Triumph13 said:I'm a big fan of a cash buffer myself, but not when used for market timing. When coupled with a fixed withdrawal percentage, I believe (though I admit I haven't run the simulations) that it should have a lot of power to lessen the pain of spending reductions in downturns. My plan has always been to use it to mitigate 50% of any income reduction - so if markets fall 50% my income taken only falls 25%. A one year cash buffer would get you through four years of such a 50% drop, which seems like a reasonable reward for the cost of holding it.
More generally though, I suspect most retirees would be best to buy annuities to cover most or all of their baseline spending, making them much better placed to withstand any fluctuations in income from drawdown portfolios. That would mean that, rather than going for a single 'default portfolio', lots of people should actually be looking to split their funds between two or more different portfolios - a traditional 'lifestyling' one for annuity purchase and an ongoing one for drawdown. Plus a 'lifestyle to cash' one if they are planning to use the TFLS to pay off their mortgage or bridge a short gap to SP. You really need to have gone through that thought process before you have any chance of making a sensible decision on which 'default' option to pick, and I worry about the ability of people to get through it without guidance.
Or are you saying your withdrawals are a percentage of the current pot value rather a percentage of the initial pot value? That is a very strange way of doing drawdown. If markets rose 50% would you draw 50% more?
If equities were up 50%, I would indeed draw 50% more than planned (or at least convert equities to cash within the wrapper) , all things being equal, on the grounds that if equities were fairly valued I'd have more than enough, if they were overvalued then I'd be better with cash. I'd then use the excess to increase the cash buffer and potentially spread it over multiple years of increased spending.
Full disclosure, one of the reasons I can accept such high volatility is that SPs and some little DBs will eventually provide about half our income and are covered by cash in the meantime.
Other people will have different situations and different priorities, but for those lucky enough to have more than their basic needs, I do think a multiple pot approach can be a lot easier to get your head around than trying to think of it as a single asset allocation and planning for how to change that over time.
Of course, there are many ways to use cash in a portfolio, and so it's rather difficult to simulate them all......
https://bpb-us-w2.wpmucdn.com/sites.udel.edu/dist/a/855/files/2020/08/Sustainable-Withdrawal-Rates.pdf
Anyway, it's a matter of degree as everyone needs cash to spend and I do much the same as I've always done and keep a couple of years spending on hand for emergencies and liquidity.
As a larger point we are talking about managing DC pensions for income here and it's not obvious that people will have enough to support their income needs or the skills to sensibly manage their pension pot. In the US the DC pension model has been around for a couple of generations now and half of US retirees do not have enough to retire, even with the more generous US equivalent of the UK's State Pension. Many people over 65 just keep working, so maybe there needs to be more of a focus on how to use a pension pot for older people who are still working. The self directed DC pension model has failed for many US retirees because of a combination of poor implementation by government, employers and employees. The certain winners have been the financial industry.And so we beat on, boats against the current, borne back ceaselessly into the past.1
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