10 years retired - how come finances are so good?

Bostonerimus1

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?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with a equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

green_man

Bostonerimus1 said:

QShimrod 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?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with an equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

Yes indeed this really is my thinking in general.  My investments cover my income needs, so I have the luxury of being able to afford a large cash buffer. The buffer as much as anything is phycological and provides much piece  of mind.  No hint of panic through Covid or Energy bubble of a couple of years back. 

michaels

green_man said:

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.

Your 1m in 2015 was actually 1.38m in today's money to compare with the 1.25m you have so your pot is down by about 9.5% - not bad at all but well within historical norms given a 2.8%pa drawdown.

Not sure why people look at their pots in current money terms but it seems to be a popular delusion.

green_man

michaels said:

green_man said:

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.

Your 1m in 2015 was actually 1.38m in today's money to compare with the 1.25m you have so your pot is down by about 9.5% - not bad at all but well within historical norms given a 2.8%pa drawdown.

Not sure why people look at their pots in current money terms but it seems to be a popular delusion.

You are absolutely right.  20 years of inflation in the 2% range tends to lure you into this mistake.  I need to allow for the couple of years of 10% inflation.  Of course that pot has had around £300k withdrawn from it in that period so overall it’s up….but yes the purchasing power of my current pot is reduced compared to when I started..but then I’m 10 years nearer death so probably fair enough.

Bostonerimus1

green_man said:

Bostonerimus1 said:

QShimrod 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?

In the OP's situation it doesn't really matter what they do. They have more than enough of a nest egg to produce the income they need whether they take reversals in the markets or decide to go for safer financial products with lower predicted returns. This is my definition of "Financial Independence". I would probably just stick with an equity and bond portfolio and some cash and just spend the dividends and interest and top up from cash or capital gains if necessary.

Yes indeed this really is my thinking in general.  My investments cover my income needs, so I have the luxury of being able to afford a large cash buffer. The buffer as much as anything is phycological and provides much piece  of mind.  No hint of panic through Covid or Energy bubble of a couple of years back. 

The most enviable part of being in your situation is being able to sit back and enjoy your retirement without having to worry about money. Now that DC pensions have largely replaced DB pensions it's an increasingly uncommon position as people simply don't save and invest enough and often manage their money very poorly.

Linton

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

Shimrod

Secret2ndAccount said:

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!"

Or another view....

I need to cross this ravine - I can either try and walk the tightrope and risk falling off, or I can take that nice safe bridge over there.

Why take the risk when you don't need to? 

Bostonerimus1

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I like this tactic with the proviso that the estate outside of pensions is kept below the IHT threshold.

Bostonerimus1

Ibrahim5 said:

How do you keep your estate below the IHT threshold? I suppose if I employed an IFA all the fees may take me there.

Just be aware of the amounts you have outside of the pensions. It's a balancing act, but any heirs will be thankful for the amounts in the pensions that avoid IHT.

Fermion

Linton said:

I am in a similar position after being retired for 20 years where, at least in £ terms, my investments are higher than they have ever been. 

One aspect to be considered - you will never be able to access much of your money without paying higher rate tax.  So it makes sense to use all your basic rate band to extract pension money now and put it in an S&S ISA, perhaps invested in the same way as it was in your pension pot.

I take the view that it makes no difference to me whether the main pot goes up or down within reasonable limits, so one may as well invest it at 100% equity.

I too am in a similar position after 9 years of retirement. I originally planned to only take the natural yield and leave my pension pot to our 2 children outside my estate but Rachel Reeves has scuppered that plan. Like Linton, I'm now drawing down as much as I can without paying higher tax but that's still only about 4.2%/annum.  What we do plan is to take more from my wife's pot (about 6.5% per annum) and try to drain that over a number of years to reduce IHT as she is below the Higher Rate tax limit. She has a Teachers DB pension as well.
We both have large S&S ISAs which have also gone up dramatically - again we have been drawing out all of the income, but we are now reducing these over time by gifting annual large sums into our children's S&S ISAs