Views sought - Retired but wanting to continue to accumulate

[Festerarl]

Corrected....

Many people just retired seem to go down the cautious, wealth preservation route, but I've agreed with Him upstairs that I've got another 30 years on this planet so whilst I do need some protection, I'm more interested in staying in the accumulation phase for at least another 10 years.

What to do and is anyone else in the same boat and of a similar mindset?

My detailed situation below.
(In essence, 90% of our outgoings are covered, with my state pension to come in about 7 years).
Haven't included wife's money as that's 'hers'. No problem with that.

60, retired, married, 1 grown up daughter, own house no mortgage.
DB scheme pays me £30k per year.
Pension drawdown held by SJP with penalties for leaving before 65 (from £130k pot) pays £4k per year
£100k cash to invest (moving into ISA at £40k/yr)
£50k cash as emergency fund
£85k in SJP ISA, but will take control of that once I have proved to myself I can get better returns. (I know - big mistake being with them for this and the pension).
£50k on AJ Bell platform in a combination of V/g pasives/Lifestrategy, plus F/s Equity, Keystone IT, and JPM Asia Growth

Outgoings required £43k per year. - so about £9k pa short

Read lots about finance and listen to podcasts at every chance.
Keep reminding myself to KISS.

I know if I invest myself I'll probably be low on bonds because from the little I know, I dont see much value, and in todays climate I am sceptical that they are a real hedge for equities.

Potentially looking to go for a core and satellite approach.
Core - something like CGAR/ CGT, a multi asset fund and global tracker
Satellites - approx 5.

I'd like to get returns of inflation + a bit so even after withdrawing the shortfall I need (£9k pa) my money will still grow in real terms.
Is that too aggressive?

Thoughts?
Thanks

[EthicsGradient]

So I make that £235k to invest, before you turn 65. £9k income from that is 3.8%; that's a reasonable withdrawal rate, though I wouldn't say you'd be in an 'accumulation' phase. If things go well, your wealth will still increase a bit, but it might not. You don't have to maintain that indefinitely, because you can take control of the SJP pension at 65 (which is providing income at 3.1% at the moment), and you get the state pension at 67. So you should be OK; if you're thinking of high risk stuff in the 'satellite' investments, then you've got to be willing to find you've burnt through that part by age 67, and maybe trim a little of your spending if you're unlucky.

One question: is the DB pension index-linked? If not, you'll need to look at what happens in a higher inflation scenario.

[xxd09]

A couple of “ facts” from a 74 retired 17 years
£1000000 in a 60/40 portfolio buys you £3000 pa
A 100% equities portfolio is dangerous -a downturn occurring for 2 or 3 years at retirement could so reduce your portfolio that it might never recover
xxd09

[Joe45]

Both CGT and CGAR comprise in excess of 40% bonds.

All of the ready-made pension friendly investment funds that I’ve looked at include bonds to a greater or lesser degree. Have a look at the in-house offerings from the likes of HL and Fidelity as examples.

I have created my own synthetic equivalent using low-cost trackers, thereby saving myself 1% a year.

[forrado]

In terms of age and years retired, xxd09 and I are both singing off the same hymn sheet. By all means retain exposure to equities, but while it's one thing convincing yourself that you can tolerate the additional risks that comes with holding a higher percentage of equities within a retirement portfolio, it's a different emotional scenario experiencing falling markets in real-time. I think xxd09 and I would both agree that it's better not to put such a high percentage of one's retirement assets in that position to begin with.

[JohnB]

Ask yourself how you felt as the market fell in March-April this year. If you were sanguine, 100% equities could be fine. £43k for half a couple suggest you could handle plenty of belt-tightening if need-be. The more you hedge risk the more your top side reduces, so a lot depends how much you value those luxuries.

[tjh290633]

Have a look at viewtopic.php?p=390422#p390422 where I have posted a table, comparing my own portfolio unitised as both income and accumulation units, plus the income from a unit, with the FT30, FTSE100 and the RPI, all brought to a common starting value.

My portfolio is run as an HYP, and if you search diligently you should find details on the HYp-Practical board.

TJH

[JohnW]

You're confusing me a bit as 'accumulation' to me means 'I keep adding personal exertion earnings to my investments', but you're talking about the retirement or withdrawal phase. Full retirement, sensible investing combined with sensible withdrawing will have seen investments growing in value over the past 20 years - if you want to call that 'accumulation'.
There are some well described paths for you.
One is the 'liability matching portfolio' approach. You need £9k/year, so you invest in safe assets that will provide that for 30 years (or more), and any left over money goes into a high risk portfolio (could be all equities) that tries to shoot the lights out - and no harm if it doesn't. W Bernstein writes about it, and others. The LMP approach is not inexpensive now, with interest rates low, but options include inflation protected annuities and inflation protected bond ladders.
The other approach is the probabilistic approach: what's the probability of withdrawing 3.8% of an initial portfolio, every year (inflation adjusted) and not run out of money in 30 years. Read up on the '4% rule', and minor variations thereof, and you'll get a fair degree of confidence that a sensible, moderate risk (60% equities, 40% bonds) portfolio sensibly managed will do it for you.
Imagine you choose the 'probabilistic' approach (the LMP one is just too foreign). A 'core' of CGT, and 5 satellites? That really does make it more complex and less KISS than it needs to be.
You need an equities fund (for the risky part offering the best returns); and you need a 'safe' asset that will tame the volatility of the equities' fund so that you don't wake up in a cold sweat when a 100% equity holding drops 50% in a few months and takes 4 years to recover, prompting you to do something rash like selling at the bottom and now moving to safer bonds (at just the wrong time). And you mix those two funds in the proportion of the amount of courage you have to take on equity risk volatility - it's called risk tolerance. You don't need something supposedly safe like a CGT, mixed with a few outlier satellites like an Asian ex-Japan something or other. They'll all cost more than a simple, broadly diversified equity tracker and a safe government bond fund or just a cash holding if you prefer. Job done.
Then, if you want to ensure you don't die too rich having limited yourself to £9k/year, read up on variable percentage withdrawal strategies. Try the portfoliovisualiser site, and portfoliocharts site to get a feel for what different portfolio have done in the past under your circumstances.

[jackdaww]

i have been attempting to increase my investment pot all my life.

if i need cash or decide to spend , i sell some investments .

i intend to continue this indefinitely .

i do not think in terms of build or drawdown phases.

[xxd09]

That is absolutely true as far as it goes
The ability to retrieve a financial loss however is not available once one can no longer work
Portfolios tend therefore to increase % of bonds as one ages in order to preserve the capital
If however you have made a large pile and/or live like church mouse 100% equities is OK as would 100% bonds
This option is not available to most investors so we have to act accordingly
xxd09

[JohnB]

If you picture investment as a amateur rocket launch, you have boost from the motor, the ability to deploy a parachute, better aerodynamics etc etc.

If the O/P clearly things his investments should should be still on an upward trend (as you should at 50, but less so at 60), he should focus on his cost structure (aerodynamics), aggressive investment choices or salary (boost) and how his spending (air density) will change. If he buys bonds (a parachute) too early his flight time will be too short.

Not sure what stock-market crashes might in this analogy, hitting a black swan perhaps?

[TUK020]

That is absolutely true as far as it goes
The ability to retrieve a financial loss however is not available once one can no longer work
Portfolios tend therefore to increase % of bonds as one ages in order to preserve the capital
If however you have made a large pile and/or live like church mouse 100% equities is OK as would 100% bonds
This option is not available to most investors so we have to act accordingly
xxd09

I am within a year or so of retiring, and have moved out of all bonds (sold my last bond ETF position about 6 months ago).
There are three strands to this thinking:
- Perception that yields are so low, the likelihood of long term rewards on offer from bonds are horribly outweighed by the risks of rising inflation.
- I am in a fortunate position of having a DB pension, which can be regarded as a significant bond position, allowing me to orient my portfolio to equities, which are likely to deliver better long term returns, albeit with more volatility.
- The problem with equities is the volatility and the sequence of returns risk (selling during market 'downs'). Luni wrote eloquently about 'risk reduction' strategies of holding a cash buffer, to ride out market crashes and dips in dividend income, while leaving the principal untouched. I have built a cash buffer of over a year's expenditure, and will focus on increasing this.

This last point I think is an alternative way of achieving the same effect as a significant % of portfolio allocated to bonds, without the current market risk of long term bonds.
My portfolio is some 65% single shares, 30% collectives (mostly I.T.s) and about 5% gold. I mentally account the cash buffer separately

[Darka]

I have built a cash buffer of over a year's expenditure, and will focus on increasing this.

This last point I think is an alternative way of achieving the same effect as a significant % of portfolio allocated to bonds, without the current market risk of long term bonds.
My portfolio is some 65% single shares, 30% collectives (mostly I.T.s) and about 5% gold. I mentally account the cash buffer separately

This is my approach too, but I do include it as part of my portfolio, I aim to have:

- Float - 1 Year of income by end of December this year, divide by 12 to get our monthly income for next year, refill during the year from dividends.
- Reserve - 1 Year of spending by end of September this year, held as near cash (premium bonds, etc).

So, around 2 years of cash at any time.

This will amount to around 7-10% of my final portfolio value, everything else is in IT's and individual shares but only investing in IT's at the moment.

I'm aiming to retire at the end of this year... hopefully.

[dealtn]

A 100% equities portfolio is dangerous -a downturn occurring for 2 or 3 years at retirement could so reduce your portfolio that it might never recover

A 100% bonds portfolio is dangerous -a downturn occurring for 2 or 3 years at retirement could so reduce your portfolio that it might never recover

[xxd09]

Bonds usually -I say usually -do not collapse like shares
Might be different this time but I doubt it
xxd09

[dealtn]

Bonds usually -I say usually -do not collapse like shares
Might be different this time but I doubt it
xxd09

Some of the more volatile assets are bonds, even government issued ones. Maybe you should be open to doubt?

Regardless a large proportion of bonds are trading above par, their "collapse" is almost assured.

I would want to understand any asset before I invested in them regardless of the percentage they made up of my portfolio. It appears many don't and rely on a simplistic, and seemingly obvious, bonds are less risky "rule of law".

[Chrysalis]

I’m confused.
You have £30k secured income and require £43k (net)
That is a shortfall of £13k not £9k. And the shortfall will fall to £4K in seven years, assuming you have full SP.
You have £415k in investable assets.
7x13k is £91k. So (ignoring inflation for simplicity) you need £4K indefinitely from a pot of about £325k, or about 1.2% withdrawal rate. I imagine that IF you stick to that spending level, your accumulation aspirations will look after themselves (once you have got out of SJP clutches). Even if you don’t go for the 100% equities rollercoaster...(but I think that would be fine, with your chunky DB pension and SP providing what most people would consider a comfortable income, you can afford to let rip with the invested assets.)

[Festerarl]

Thanks guys and guyesses.
There's a lot to ponder over.

Perhaps 'my' definition of accumulation may have been a little misleading.
Arguably I should have said 'investment growth'.
Basically I want my investments to grow at a decent amount without the need to cut expenditure. (Expenditure includes foreign hols etc that are all factored in to the £43k).
Yes, I can cut expenditure but that's less than ideal when you've had your nose to the grindstone all the years.

As it stands my annual income is about £9k short of what I'd like.
So ignoring the SJP pension for the moment, I do have £235k for investments.
Obviously the state pension (about £8k) will be useful when it comes along in 7 years time.
So I do note that any 'shortfall' is just for 7 years (as posters have said).
DB pension is 50% index linked.

Ideally I'd like to get a minimum of 3.8%+inflation from the £235k.

Regarding risk, I wasn't worried by the 'Covid dip' and actually invested a small amount at the bottom which has obviously done well.
I do take the point that a 'long drawn out' recession would be more difficult to manage though - although I'd be unlikely to panic and cash out (more likely just wait, and whilst my head wouldn't be in the sand, my fingers would be).

Sounds like a combination of multi asset funds and passive global equity index trackers would be a good starting point.

[Chrysalis]

Everyone wants/needs their investment portfolio to grow after they retire, otherwise they wouldn’t be able to withdraw from it sustainably...
Your growth aspirations seem reasonable for moderate risk portfolio (I assume that is before withdrawals, not an absolute level of growth). No guarantees of course.
I’m still not sure why you treat the SJP portfolio as a fixed income stream rather than as part of your investable assets. If it’s in a drawdown arrangement, I assume it’s invested, you should be able to change the income you take from it and even request the investments are changed if you want. Or maybe even stop taking income from it and take from your unsheltered cash for a while. The point about invested pensions is they are supposed to be flexible, and you should check that the arrangement you have is the most appropriate rather than just assume you have to take what might be an unsustainable withdrawal from a tax sheltered account.

[Festerarl]

Thanks Chrysalis

I can take more from my SJP pension, but need to be careful not to take too much and trigger their 'excess withdrawal' tax. Currently that's 5% (decreases by 1% per year).

To be honest though I'm more concerned with getting the cash I have working for me such that it beats SJP performance.
If I can do that over a new of years then my thinking is that I'll be in a good position (and have the confidence) to manage the pension money currently held by SJP (transfer into a SIPP).

Hence this thread is giving me some useful pointers - hence the idea of multi-asset funds and global equity passive trackers.

The defensive element is the concerning bit to be honest as in many cases the bond exposure does not look like it's the right way to go, albeit there are some funds that look decent in that arena - hence my thinking of CGT/CGAR (albeit a couple of posters on here dont seem to be too enamoured with that choice), but I'll check the other suggestions out too.

Cheers