10 years retired - how come finances are so good?

green_man

Ok this isn’t supposed to be any sort of boast but how come stock markets are so positive at the moment. My retirement fund balance is the highest it’s ever been this despite seemingly (to me) plenty of reasons why company earnings might be negatively affected in the next few years  (tariff/trade wars; Ukraine war; unrest on Middle East; China making moves on Taiwan etc). 

In addition my 10 years of retirement has seen Covid.

So am I missing something?, am I overly pessimistic? My virtual no touch strategy with a large cash buffer has served me well so far, so any reason to adjust this philosophy?





Background.
I retired 10 years ago aged 49 with pot of around £1M.  I’ve taken around £30k/ year and pot is currently around £1.25M despite around £300k of pot being in cash most of this time.
I’m no trader and most of pot is in two multi asset funds (HSBC global strategy balanced-£300k, L&G provided multi asset pension fund £400k) then with £220k in a stocks ISA with about 15 funds in.

i am generally quite cautious and have been drawing down around 2.8% of the pot annually.  

Even when I retired I was thinking the stock markets over inflated - hence the £300k (now £200k) in cash. This will clearly have impacted my returns, but the piece of mind it provides is well worth the price IMO.

norsefox

You've taken out 2.8%-3% a year, which is below the safe withdrawal rate, and when markets have been on an absolute tear. 

> Am I overly pessimistic

Well, with hindsight, yes.  Absolutely.  But that's the beauty of retrospective analysis.

Have you done any scenario testing on your holdings?  I'd model your expected outgoings over the next 20 years, coupled with various market scenarios.

My sense is that with £1.25m and withdrawing 30k per year is well within low risk territory, and unless you want to significantly change your lifestyle or make any big gifts/purchases etc, I can't see any need to make any significant changes.

Choices and decisions are based on objectives and goals - as much as we have an insight into your risk tolerance, we have no idea of your health, family, dreams and plans.  I'm not asking for them, but it might be worth paying a fixed fee to review with an IFA if you do have some plans to do more with your money than simply live off a minimal income.

Secret2ndAccount

Here are 125 simulations of a retirement like yours:


You are in the middle of the mass of lines. So just average. Incidentally, 5.6% of these simulations ran out of money!  If stocks are at an unexpected high, and annuities are at an unexpected high, have you considered buying an annuity. Put 300k into an annuity, then go on with the million you started with.

Albermarle

My retirement fund balance is the highest it’s ever been this despite seemingly (to me) plenty of reasons why company earnings might be negatively affected in the next few years  (tariff/trade wars; Ukraine war; unrest on Middle East; China making moves on Taiwan etc). 

In addition my 10 years of retirement has seen Covid.

Although global news can affect share markets, there is a tendency to exaggerate this effect, and/or to think what is happening today is so much worse than things that have happened in the past. 
Things like US interest rates and company profits ( or projected future profits) is what really drives stock markets.
The Trump tariff dip, is already history, and even the recovery from Covid was pretty fast.
Of course nobody knows what the future brings.

Bostonerimus1

3% drawdown and maybe twice that in average annual returns will see your portfolio grow. Knowing why markets continue to grow in such troubled times is beyond my pay grade and I have also made sure I have enough cash to last out any serious reversals...with Trump's renewed tariff fetish I think we'll see another pull back, but I have no idea how long it will last.

green_man

Secret2ndAccount said:

!  If stocks are at an unexpected high, and annuities are at an unexpected high, have you considered buying an annuity. Put 300k into an annuity, then go on with the million you started with.

This is an interesting option, that yes, I have considered. When I retired the combination of young age and low interest rates meant annuities were not an option.  I’m now 10 years older (though still young for an annuity)  and annuity rates are probably still near their peak so it’s a viable option.  

However the question is,  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

Secret2ndAccount

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

300k would buy you about 14k of RPI linked income. Add that to the State Pension and you are almost there for required annual income. So need 100k to bridge from now to State Pension age. Keep that in something not too risky, but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. Personally I will always have 40k in 'savings' - cash, or something I can turn in to cash in a hurry should the need arise.

Shimrod

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

kempiejon

Shimrod said:

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

I had to reread that to check the sense. I'd think if the basics are covered by an index linked annuity then one could take more risk with the rest of the portfolio. I have a couple of year's expenses in fixed interest on rolling maturities and about a year in cash as I'm heavy in equities for all my income with no other sources until state pension and that's a long way hence like the OP. If my basic costs were covered I'd not need that much FI/cash buffer which is there to ride out stock market fluctuations.

My current idea of asset allocation would reduce the cash/FI %age if an IL annuity/DB pension were in the mix.

Secret2ndAccount

Shimrod's thinking: "I need 30k. I have 30k. Protect, preserve, maintain 30k"

kempiejohn & Secret2ndAccount: "I need 30k. I have 30k. But 40k would be better!"

tigerspill

Shimrod said:

Secret2ndAccount said:

green_man said:

...  if I went with an annuity of say £300k this would not fulfil my income requirements so would I need an additional cash buffer to mitigate stock market volitilty?

 but you can now afford to take more risk with the rest of the pot since you don't depend on it for food. 

Often see this quoted on the board when someone has excess cash, but given this money is not required for day-to-day living, then they can afford to take less risk with it. There's no need for the money to work hard so why not move it to safer investments?

I sort of do a half way house.  7 years need in deposit accounts (accepting inflationary risk that may come along) and most of the rest in global stock tracker funds.