The Lemon Fool

How do people go about actually doing the practical work of managing their retirement income with selling down, maintaining their SWR etc.?

I'd rather not pay thousands to adviser for the rest of my life, but what's the alternative? Am I facing having to wrangle spreadsheets, monitor the CPI and record my portfolio performance throughout my dotage to keep to a SWR?

A brief google brings up not much (unless I'm googling wrong). I thought pension freedom rules would mean there'd be loads of services available by now. List your investments etc, give them your outgoings, get instructions on what to sell down each month? Seems like ideal robo-adviser territory to me...

Your first step should be to read this thread and buy the book. I have, it’s been very helpful providing a calm level headed approach to the whole thing.
viewtopic.php?f=30&t=20647

Like all services-they are there-IFAs-but they cost!
Reduce you investments to an Equity Fund and a Bond Fund+ a Cash fund for day to day expenses-that is all you need
Sell what you need every year in one or two transactions-keeping your Asset Allocation intact
Don’t take more than 3-3.5%
That’s it
Get as near to that as you can
xxd09

Gilgongo wrote:How do people go about actually doing the practical work of managing their retirement income with selling down, maintaining their SWR etc.?

I'd rather not pay thousands to adviser for the rest of my life, but what's the alternative? Am I facing having to wrangle spreadsheets, monitor the CPI and record my portfolio performance throughout my dotage to keep to a SWR?

A brief google brings up not much (unless I'm googling wrong). I thought pension freedom rules would mean there'd be loads of services available by now. List your investments etc, give them your outgoings, get instructions on what to sell down each month? Seems like ideal robo-adviser territory to me...

Another day another TLA.

I assume that SWR does not mean South West Railways or Standing Wave Ratio so what does it stand for?

‘Safe withdrawal rate’

OK - I'm a bit confused by the responses so far on this so I'll try again. Apologies for not making myself clear.

Given that Pension Freedom rules are a recent development, and annuity rates are ridiculously bad value, there is (or at last should be!) a lot of interest in retirement income strategies to guard against sequence risk, market volatility, your own longevity, and various other things that might leave you with not much (or any) money to live on. In fact the book I've just read ("Beyond the 4% Rule") goes so far to say that retirement income planning needs to be seen as a separate discipline in its own right now.

Therefore, and for the first time in modern British history, millions of poor sods like me are facing the real chance of literally starving to death in 40 years time if they even slightly mis-manage their portfolio during the withdrawal phase (unless you think the state pension is going to be anything).

That's scary, obviously. But there are a number of well-researched approaches out there (and I'm reading up on them). So I'm surprised there aren't services that automate the otherwise pretty labour-intensive (and somewhat mathematically involved) process of implementing those approaches while you are alive.

Right now, it seems that if (for example) I decide to use the Guyton-Klinger strategy, I'll need to construct some way of recording the performance of my portfolio and run simulations perhaps monthly, checking the CPI, and then using a formula to determine which assets to sell down by how much (assets which might number, say, 8-10 or more if I have a HYP as part of my portfolio). Oh and then actually do the selling (log in, fill out form, transfer proceeds, record that in a log in case I get confused, etc.)

All that seems rather a lot of faff. But is that really what others are doing? How do you find enough time for jet-skiing?

Gilgongo wrote:But is that really what others are doing?

If you are well off enough to be able to leave a substantial estate, just hold highish income investments and only spend the dividend income. It's only if the dividend income isn't enough to live on that there's a potential problem. You can get 4.5% on a FTSE 100 Tracker, higher than that if you skew the investments towards higher dividend yields.

Safe Withdrawal Rate assumes you start with a fixed withdrawal and then increase that by inflation every year. It makes no allowance for the reality that most people would adjust their spending if they thought their capital was shrinking too fast. It also doesn't make allowances should the capital increase faster than inflation.

Rather than try to micro-manage a perfect SWR, I have a portfolio of dividend yielding shares whose income I split 3:1. £3 goes to me as a salary replacement and £1 goes either into my cash reserves or gets reinvested into more shares. The cash buffer exists to smooth out any period of dividend cuts, so would protect my income until dividends recovered, when it would itself be replenished. The re-investment of the 25% of dividends received generates a 1% increase in dividends each year, whilst the dividends themselves tend to rise at the same rate as inflation (but not smoothly), so this model generates an inflation plus one percent annual payrise. Crucially, it requires no selling of capital to generate income, which suits my level of investment sophistication. The only thing I have to worry about is whether any particular holding needs to be trimmed or topped up so as to keep a diversified portfolio - but that is something that requires minimal attention.

As to the SWR services you are looking for, I suspect that they fall into two camps: the IFA route, with associated costs, so not for everybody, and the robo-advisers, which I suspect most people simply wouldn't trust with their life savings. Whether you could offer a robo-adviser that promised to manage a SWR is another question; what would be the risk of being sued should the market not cooperate?

In your OP you painted a picture of monthly calculation and balancing. Even if you were to apply a SWR approach, I suspect you would want a cash buffer in place and as such, your rebalancing and withdrawal activities would be better suited to an annual appraisal, rather than monthly, if only to reduce transaction fees. Keeping a buffer between you and the need to take action, no matter the state of the market, not only gives you flexibility but also helps you sleep at night!

VRD

@Alaric - This was my thoughts as well. Hold high income investments, such as a FTSE100 tracker, and drawdown the dividend, and leave the principal untouched.

I think in practice people work out how much they need to live off, and drawdown that. If early retirement as a mixture of dividends and interest and maybe some capital or DC pensions. In retirement a mix of state pension, workplace pensions and dividends.

I am not pessimistic on state pension as we have one of the lowest in the developed world and the triple lock to increase it with the higher of inflation or earnings. Politically it would be difficult to means test.

Alaric wrote:If you are well off enough to be able to leave a substantial estate, just hold highish income investments and only spend the dividend income. It's only if the dividend income isn't enough to live on that there's a potential problem. You can get 4.5% on a FTSE 100 Tracker, higher than that if you skew the investments towards higher dividend yields.

Fair enough, but let's just say I'm not that rich: https://finalytiq.co.uk/natural-yield-totally-bonkers-retirement-income-strategy.

vrdiver wrote:Rather than try to micro-manage a perfect SWR, I have a portfolio of dividend yielding shares whose income I split 3:1.

I assume from this that you don't see the variously researched and discussed strategies (Gyton-Klinger, Hebeler Autopilot, VPW, Variable CAPE etc.) as being worth bothering with. So I hope you don't mind me asking: how you know you won't end up broke?

vrdiver wrote:what would be the risk of being sued should the market not cooperate

Same as the risk of a human IFA, accountant, lawyer, doctor or other professional I would imagine? Unforeseeable events and best endeavours. Caveat emptor.

Gilgongo wrote:

vrdiver wrote:Rather than try to micro-manage a perfect SWR, I have a portfolio of dividend yielding shares whose income I split 3:1.

I assume from this that you don't see the variously researched and discussed strategies (Gyton-Klinger, Hebeler Autopilot, VPW, Variable CAPE etc.) as being worth bothering with. So I hope you don't mind me asking: how you know you won't end up broke?

No-one, no matter what strategy they use, can cover every eventuality.

Life isn't like that, and the best laid plans can be thrown into disarray by external events or life events such as health issues.

The best one can hope for is to say that the strong likelihood is that one will not run out of money, and a strategies such as those suggested by alaric and vrdiver are in that category.

My cynical view is that most of these fancy named strategies are a smokescreen for the fact that no-one can predict the future, and they aim to blind the gullible with science (this comes from someone who has never heard of most of them though...)

Is it possible you might re-evaluate the value provided by annuities? They are really the only low risk option (other than a ladder of gilts perhaps, a roll-your-own version).
Yes, drawdown strategies are risky and difficult, unless you are wealthy enough to have plenty of fat in your budget. I would suggest it’s the inherent uncertainties that mean it’s hard to find companies rushing to offer low cost or robo services for drawdown - it exposes them to risks, and they’d rather leave you to deal with that. Obviously an IFA is an option.
Taking away that risk is what you are purchasing with an annuity - it’s longevity insurance.
There’s something to be said for ensuring your essential spending is covered by secured income (state pension and/or annuities), and only taking risk with, well, assets you can risk.

From the thread I gain the impression (rightly or wrongly) that you have only considered funding without considering a life-style change. I have been retired for 9 years now and started really investigating the idea of retirement around 20 years ago. I had just begun a new job after a prolonged period of unemployment and hoped I would hold that post until I retired. I just managed it.
If you are only considering funding, you have missed the fundamental basis of retirement. Start with "are you living where you want to live when you retire?" and then decide what you want to do with your retirement and where you want to do it. When you have decided those crucial issues, then is the time to consider funding.
Why do you want help to manage your SWR? Remember the KISS principle and have an annual review and critique. Expecting others to do this for you is not realistic. Self-reliance in retirement is key.

Thanks all for the replies on this - which have largely veered off into a discussion about which retirement income strategy is best, whether I should reconsider draw down itself, and then off into the realms of conspiracy theory! Didn't expect that, but I guess that's what the Internet is like...

Be that as it may, I think somewhat tangentially I have some kind of an answer.

I'm not sure what kind of answer you are looking for, and suspect it probably doesn't exist.

I don't worry about SWR, I live off the total returns of my investment portfolio, and don't expect to ever go broke, but can't rule that out. A potential 50 odd years is a long time! If I find this isn't sufficient, or I need more, I guess I will find some form of paid employment to top it up, or adjust my spending.

In short it really isn't something I worry about. If it was something that gave me any concern I guess I wouldn't have thought I had reached the point where I could "retire".

Doubt that helps but is an honest answer to your question I guess.

Gilgongo wrote:How do people go about actually doing the practical work of managing their retirement income with selling down, maintaining their SWR etc.?

I'd rather not pay thousands to adviser for the rest of my life, but what's the alternative? Am I facing having to wrangle spreadsheets, monitor the CPI and record my portfolio performance throughout my dotage to keep to a SWR?

A brief google brings up not much (unless I'm googling wrong). I thought pension freedom rules would mean there'd be loads of services available by now. List your investments etc, give them your outgoings, get instructions on what to sell down each month? Seems like ideal robo-adviser territory to me...

Ok I’ll bite. Let’s try this. I’m thinking of creating the service you’re looking for. I setup a simple website. You enter your portfolio details when you setup your membership, give me your target asset allocation and one date per year when you want make your annual withdrawal. One week before your target withdrawal date I send you a spreadsheet back by email which shows you the trades to make to both rebalance your portfolio, withdraw the cash you need and I also give you an update on your safe withdrawal rate. I find a way to call this financial guidance as opposed to financial advice so I don’t need to be regulated, I don’t need to pay the FSCS levy and I don’t need professional indemnity insurance.

How much are you willing to pay per year for the service? Does it meet your needs as outlined? What would I need to add to make it worth paying for and then how much more per year would you be willing to pay? How long would you subscribe for initially to be part of the beta test membership and possibly member number one? 3 years? 5 years?

If I offered you alternate withdrawal strategies as opposed to a simple SWR + CPI strategy then how much extra would you be willing to pay?

Degsy

Degsy67 wrote:Ok I’ll bite. Let’s try this. I’m thinking of creating the service you’re looking for. I setup a simple website. You enter your portfolio details when you setup your membership, give me your target asset allocation and one date per year when you want make your annual withdrawal.

NOW WE'RE TALKING!

Degsy67 wrote:One week before your target withdrawal date I send you a spreadsheet back by email which shows you the trades to make to both rebalance your portfolio, withdraw the cash you need and I also give you an update on your safe withdrawal rate. I find a way to call this financial guidance as opposed to financial advice so I don’t need to be regulated, I don’t need to pay the FSCS levy and I don’t need professional indemnity insurance.

As an initial concept, I see no significant problems with that. The only thing I'd say is that I'd also like to see some basic working for the guidance given, if only to enable me to sanity check if I wanted.

As to how much I'd be willing to pay: the labour-saving aspect is the main thing, followed by the reliability. It also feels a bit like an insurance policy against bankruptcy too. I think it might need to be more than a simple SWR + CPI strategy though. I'm thinking maybe an inflation-adjustment and guardrails instead perhaps. But then I’ve not done much research on strategies other than buying the aforementioned “Beyond the 4% Rule” and reading a few online articles.

So with sufficient confidence in the strategy (and reliability), I’d be willing to pay maybe £300 a year or thereabouts. And as a beta test it feels right for maybe 3-5 years to give it a good shake.

Gilgongo wrote:As an initial concept, I see no significant problems with that. The only thing I'd say is that I'd also like to see some basic working for the guidance given, if only to enable me to sanity check if I wanted.

As to how much I'd be willing to pay: the labour-saving aspect is the main thing, followed by the reliability. It also feels a bit like an insurance policy against bankruptcy too. I think it might need to be more than a simple SWR + CPI strategy though. I'm thinking maybe an inflation-adjustment and guardrails instead perhaps. But then I’ve not done much research on strategies other than buying the aforementioned “Beyond the 4% Rule” and reading a few online articles.

So with sufficient confidence in the strategy (and reliability), I’d be willing to pay maybe £300 a year or thereabouts. And as a beta test it feels right for maybe 3-5 years to give it a good shake.

Basic working for the guidance given? No problem. I’m sending you a spreadsheet by email so you can check all the working. By the way, the email has a major caveat clause which says I’m not responsible for any errors or omissions and the spreadsheet is for guidance only so actually you’re obliged to check my workings and you can’t place any reliance on the spreadsheet at all. I don’t want the members of my advisory service suing me after all! I’m just some bloke on the Internet!

Reliability? Ummmmm not sure about that. See my caveat above. Insurance policy against bankruptcy? Nope. See the small print. The value of your investments can go down as well as down further. Following the guidance provided in the spreadsheet should not be misconstrued as financial advice and does not provide any guarantee that you won’t end up destitute in your dotage. If in doubt, seek advice from a regulated financial advisor. This is great! You’re already helping me draft my small print!

Ok so that’s one member signed up for £300 in year one. At £10 per hour that buys 30 hours to knock it together. Oh, minus the domain name registration fee, company registration, fees to setup a business bank account, transaction fees for taking the payment, website hosting fees, advertising fees to get the concept out to member number two etc etc. Not enough money on this really to ensure that I put top notch security in place and comply fully with GDPR. Never mind, I look trustworthy enough for a random bloke on the Internet. I’m sure there’ll be loads of other people who want to sign up and pay me £1000 up front for this. Oh sorry, didn’t I explain. As a beta tester you get 5 years for £1000 but you have to pay up front... before I’ve actually built and tested the service. Still in?

Now, I only need about 50 more people at £1000 each and I’ve cracked it. I can FIRE a year earlier than I planned! Who’s next?

Degsy

I agree with the caveats and disclaimers (and beta tests are what they are too) - I was just thinking aloud so as to come up with a figure I'd be willing to pay. It's a bit like paying for organic veg deliveries: I'd need to believe organic is better for me. Might not be of course, but you pays your money you takes your choice. This makes me think that you might want to offer a variety of strategies and let people pick according to which they think is best for them.

Judging from the reactions to my initial post here, I doubt you'll get many other takers though, so this may need some fishing in another pond