Cash buffer dilemma

Mick70

https://forums.moneysavingexpert.com/discussion/comment/81994824#Comment_81994824

is it not in fidelity interest to promote greater investment in equities though ?

Mick70

https://forums.moneysavingexpert.com/discussion/comment/81994545#Comment_81994545

thats a very interesting link by morningstar as it questions the most common 60:40 most folk hold when enter retirement - in fact we both hold 60:40 , makes me consider selling some to 40% equity , so than have a mix within the portfolio

i gues it also ties in somewhat with the lifestyle pensions which have come under a lot of criticism

MK62

https://forums.moneysavingexpert.com/discussion/comment/81995404#Comment_81995404

Be aware though that their research appears to be based on a 30yr average inflation of 2.15%........market expectation for the next 30yrs is around 3.5%, which would make a material difference (there is, however, no way to know today which will turn out to be the closer estimate, but personally, I wouldn't base my own retirement plan modelling on inflation averaging 2.15% over the next 30 years - it's not just the average rate you need to consider either, the sequence is key).

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82004009#Comment_82004009

I think you were referring to the morningstar research rather than the links I provided.

The assumptions made in the morningstar paper are inflation 2.15% (as you said) together with arithmetic mean nominal returns of (roughly) 8% for equities, 5% for bonds, and 3.5% for cash, i.e., arithmetic mean real returns of roughly 5.9%, 2.9%, and 1.4% for equities, bonds, and cash, respectively. I think the bond and cash values are about 0.5 to 1 percentage point higher than the long-term historical averages, so it is perhaps not surprising that the optimal asset allocation tends towards holding more bonds and cash than historical results suggest (at least those for the UK and US). The section in the paper on adjusting success rates is interesting since it is well established that Monte Carlo simulations tend to have worse outcomes (longer tails) than historical modelling.

MK62

https://forums.moneysavingexpert.com/discussion/comment/82004045#Comment_82004045

Sorry, on a phone on a train and didnt realise I'd quoted OldScientist rather than Mick70.....

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82002944#Comment_82002944

Remember it is just one way of analysing the date. Others may differ.

You are right though in that many Lifestyle pension funds aimed at Drawdown, tend to enter retirement with the equity level no more than 40%, and reducing to 30% quite quickly. So less than we normally talk about on here.

I think it depends on whether you are ultra cautious about running out ( then 30% equities), or you are more interested to hopefully leave a big pot/increase spending at some point ( then high equities), or something inbetween ( 50% equities?)

Mick70

https://forums.moneysavingexpert.com/discussion/comment/82004408#Comment_82004408

thanks for the input, as always

and all other posters contributing

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81994545#Comment_81994545

finally read this. yes thats one summary from their article. but looking at the table, a 60/40 portfolio for a 30 year retirement supports a 3.9% SWR vs 4.1% for 30% equities. I think I’d consider the upside potential for higher equities and flexible spending if needed.