Cash buffer dilemma

Mick70

https://forums.moneysavingexpert.com/discussion/comment/81993304#Comment_81993304

it my sound weird, but it has worked for us and we have been together for 35 years as met when very young.. we have always had separate bank accounts, but as i was the higher earner i paid all the bills , we never had a joint account and it worked for us, so initial logic was to have separate pension pots but again as my pension will be higher I would pick up the bills still .

However as she has too much cash (over £100k) and i have Nil cash in my portfolio, it may need a re-think and to start thinking about it as a combined portfolio, rather than try build up a separate cash buffer for myself over the next two year.

Thanks for your comments guys, it does help a lot of folk like myself

Mick

Mick70

https://forums.moneysavingexpert.com/discussion/comment/81994051#Comment_81994051

my DB pension was triggered at 50 (long story) and I already received the lump sum then, at time I opted for the smaller lump sum and bigger annual pension, there was no option not to have a lump sum.

Almost_Retired_2026

https://forums.moneysavingexpert.com/discussion/comment/81991471#Comment_81991471

when you say a gilt ladder I’m assuming you mean the first couple of years projected spending is covered by the total value of the gilts ….. is that right?

Can I ask, are the gilts in the form of a fu d that could be traded like any other fund or are you actually buying gilts and waiting till the coupon matures? If a fund, what sort of returns are you getting.
thanks for any help you can offer 👍🏻

QrizB

when you say a gilt ladder I’m assuming you mean the first couple of years projected spending is covered by the total value of the gilts ….. is that right?

Yes. My plan is that my first five years of retirement (2027-2031 inclusive) are funded by UFPLS withdrawals from my DC pension, and I have funds for that period held as gilts.

Can I ask, are the gilts in the form of a fu d that could be traded like any other fund or are you actually buying gilts and waiting till the coupon matures?

I've bought individual gilts (which are themselves tradeable) and am intending to hold to maturity.

If a fund, what sort of returns are you getting.

Not a fund, as above. Individual gilt yields are published in various places.

There's an indicative yield curve here;

https://giltsyield.com/curve/gilt/

Linton

My strategy….

- the primary role of a cash buffer is to guarantee you can pay all your known but uncovered expenses for the next, say, 5 years, no matter what happens to the markets in the short/medium term. So it is as large as it needs to be. The "cash" is anything that will support that guarantee. It could for example be cash, PBs, or gilts.

- all income goes into the buffer and all expenditure is taken from it. This means that one never has to decide whether to switch income streams. Since over the longer term it make sense to plan for income to at least match expenditure the size of the buffer will naturally tend to rise over time, making large one-off expenses easier to finance.

- to support this strategy one needs a range of income streams of varying risk. For practical purposes at zero risk there are DB pensions, SP, annuities and interest from safe bonds or cash savings. Somewhere in the middle are corporate and higher risk givernment bonds, property, infrastructure, and equity dividends.

Finally, the most risky source of income is selling growth equity. Its advantages are that it provides the best very long term returns and that large amounts of cash can be realised quickly. For this reason the selling of growth equity is only undertaken strategically, it should under normal circumstances never be time-critical.

LHW99

https://forums.moneysavingexpert.com/discussion/comment/81994057#Comment_81994057

I don't think the factor of separate or joint bank accounts is necessarily important in terms of joint planning.

What matters after retirement IMO is that a) there is enough income, and additional funds for emergencies, income supplement to see you both through retirement and b) whoever is left will also have enough, and can access that when one goes. Even if the funds are there, having to wait for probate and the estate to settle before the survivor can access any income would cause issues, not just for them, but possibly the family that has to step in and support.

DT2001

https://forums.moneysavingexpert.com/discussion/comment/81994110#Comment_81994110

I agree as we only have one joint account which was set up to facilitate larger transfers between our accounts when we had a property project on the go.

I look at our joint exposure to the equity markets rather than individually but have tried to ensure that each of our investment pots are similarly set up. Regarding cash/nr cash I work around what pot will be accessed soon - so if OP is looking to draw from his pot in the short term then funds ideally need to be allocated (although OP could sell equities to generate cash and OH could use some of the cash to buy equities therefore no timing the market issues).

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81994097#Comment_81994097

Pretty much my strategy also. Is your cash buffer your current account - given income goes in and expenditure is taken from it?

MK62

https://forums.moneysavingexpert.com/discussion/comment/81993959#Comment_81993959

.....yes, but that's with a cash buffer.....try modelling drawdown from a high equity portfolio with no cash buffer where you get a period of poor/negative returns coupled with high inflation in the first few years of retirement.....

Nobody is saying that will happen......nobody knows......I hope it doesn't, but I want to have some wiggle room in case it does. Each must decide their own path based on their attitude to risk.......but many people overestimate their risk tolerance in drawdown, perhaps due to the double edged effects of market setbacks experienced during accumulation.

In my view, in drawdown, the higher the proportion of volatile assets in your portfolio, the more a cash buffer is desirable, at least from an income stability viewpoint, though those who are happy to accept a much higher degree of income variation might view a cash buffer as potentially lost opportunity.....

For the record, personally I would not go into drawdown with a 100% equity portfolio, but others obviously see things differently........that's fine though, there's no way to know today which will turn out to have been the optimal way......

dunstonh

Nobody is saying that will happen......nobody knows...

It did happen.. Just look at those who started around 2000. I refer you back to the chart posted on page two of this thread.