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Darka's Income Portfolio and AZN

General discussions about equity high-yield income strategies
Darka
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Darka's Income Portfolio and AZN

#227749

Postby Darka » June 7th, 2019, 12:22 pm

As I get older, I've been aiming to reduce the complexity of my investments, somewhat in preparation for retirement (not quite there) but also to aid my wife should something happen to me.

She has very little interest in investments and wouldn't be able to cope with both what ever happend to me, and also an investment portfolio which at the moment requires more work than I would like.

I've therefore been consolidating some accounts so that I can reduce the number of ISA's for example and restructuring the portfolio.

I have a HYP but with an increasing Investment Trust aspect which will only become larger going forwards - I'm happy to sacrifice higher yields (but more risk), for a slighly lower yield and hopefully much less risk and significantly better diversification.

And yes, I'm aware of the overlap between some of the IT's and the HYP shares.

My Portfolio Split:

The "Pension Funds" are a company (defined contribution) pension and once I retire will be all allocated to the IT portfolio.

Image

So, with all of this in mind, and also with my concerns about Astraszenica's cash flow, I sold the remainder of my holding this morning - I sold the majority of AZN a few months ago.

To help build my IT portfolio, I've been selling out of shares that were doing badly, e.g. Carillion and also started to sell some lower yielders (not all of them).

My HYP portfolio:
                                                                                Value    Div   Fcst 
Share Epic Sector %Total %Total Yield

BAE Systems BA Aerospace & Defence 5.1% 4.1% 5.0%
BHP Group BHP Mining 7.6% 9.9% 8.1%
BP BP Oil & Gas Producers 6.0% 5.6% 5.8%
British American Tobacco BATS Tobacco 5.5% 6.2% 7.1%
British Land Company BLND Retail REITs 4.7% 4.5% 6.0%
G4S GFS Support Services 4.1% 3.1% 4.8%
GlaxoSmithKline GSK Pharmaceuticals & Biotechnology 5.6% 4.7% 5.2%
Greene King GNK Travel & Leisure 4.3% 3.5% 5.1%
HSBC Holdings HSBA Banks 5.2% 5.1% 6.1%
Imperial Brands IMB Tobacco 4.7% 7.6% 10.0%
Legal and General Group LGEN Life Insurance 6.8% 7.2% 6.6%
Lloyds Banking Group LLOY Banks 4.6% 4.4% 6.0%
National Grid NG Multiutilities 5.5% 5.2% 6.0%
Pennon Group PNN Gas, Water & Multiutilities 3.1% 2.9% 5.9%
Rio Tinto RIO Mining 7.8% 7.3% 5.8%
Royal Dutch Shell 'B' RDSB Oil & Gas Producers 6.0% 5.5% 5.7%
Standard Life Aberdeen plc SLA Life Insurance 4.0% 5.2% 8.1%
Unilever ULVR Food Producers 6.3% 3.0% 3.0%
Vodafone Group VOD Mobile Telecommunications 3.3% 5.2% 10.0%

Portfolio Running Yield = 6.25%


Value Div
Sector %Total %Total

Aerospace & Defence 5.1% 4.1%
Mining 15.4% 17.1%
Oil & Gas Producers 12.0% 11.0%
Tobacco 10.2% 13.8%
Retail REITs 4.7% 4.5%
Support Services 4.1% 3.1%
Pharmaceuticals & Biotechnology 5.6% 4.7%
Travel & Leisure 4.3% 3.5%
Banks 9.8% 9.5%
Life Insurance 10.8% 12.3%
Multiutilities 5.5% 5.2%
Gas, Water & Multiutilities 3.1% 2.9%
Food Producers 6.3% 3.0%
Mobile Telecommunications 3.3% 5.2%
Total 100.0% 100.0%


My IT Portfolio (which includes some growth IT's for the long term):
                                                                                Value    Div   Fcst 
Share Epic Sector %Total %Total Yield

BlackRock North America Trust BRNA Equity Investment Instruments 5.1% 5.2% 4.5%
City of London Inv Trust CTY Equity Investment Instruments 28.3% 27.8% 4.3%
Henderson Far East Income Ltd. HFEL Equity Investment Instruments 17.4% 24.6% 6.2%
Merchants Trust MRCH Equity Investment Instruments 18.4% 22.6% 5.4%
Murray International Trust MYI Equity Investment Instruments 17.3% 17.8% 4.5%
Smithson Investment Trust SSON Equity Investment Instruments 7.0% 0.0% 0.0%
Finsbury Growth and Income Tru FGT Equity Investment Instruments 4.1% 1.6% 1.7%
Scottish Mortgage Inv Trust SMT Equity Investment Instruments 2.4% 0.3% 0.6%

Portfolio Running Yield = 4.38%


Value Div
Sector %Total %Total

Equity Investment Instruments 100.0% 100.0%
Total 100.0% 100.0%


Income
The portfolio and it's Income have grown well over the last few years and covers almost all of my expendature, still got a few more years to work before I can retire so able to put additional funds in for now, to build the portfolio and a good safety margin.

Image

I don't unitise, I'm only interested in whether the income is sufficient and covers our needs.

This image shows how financially independent we are (as of today), in terms of dividends received (excluding specials) and how many months of expenses that covers - from that I calculate a "Financial Independence Day" which currently shows that my dividends cover all expenses up to and including the 19th June (5.57 months), which is 27 days extra compared to 2018.

Image

My investment goals are a growing income, with capital growth being a nice to have and significant capital loses being avoided (where possible).

Comments are welcome,

regards,
Darka

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Re: Darka's Income Portfolio and AZN

#227766

Postby Charlottesquare » June 7th, 2019, 1:33 pm

The catch is evaluating financial independence, there is a core part re food/accommodation/utilities etc but then a somewhat subjective bit re clothes/entertainment/holidays/car replacements etc. Then there are other broad assumptions, so financial independence is not straightforward to define.

At one point I set mine as £35,000 p.a. equally split between us and then deducted two State pensions to see what the investments/pensions needed to generate, it was not that enormous and we were just about there,but then of course I noticed that when one of us dies one state pension goes and if it is my wife I only get 50% of her defined benefit pension (she will get 100% of my defined contribution one- somewhat unfair)

So I am now working on a model where we need £40,000 p.a. less one state pension less 50% of my spouses DB pension and that is the shortfall to be met from investments and my SIPP.

I think the approach is useful but more and more I have viewed it as very subjective as there are a lot of variables re the income required.

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Re: Darka's Income Portfolio and AZN

#227769

Postby TUK020 » June 7th, 2019, 1:50 pm

Darka,
amazed at the similarities:
I have roughly similar balance ITs to HYP
I have all bar 4 of your HYP shares, but a longer tail of small positions of industrial companies
I have the same top 4 ITs, in roughly the same proportions.
Same strategy of gradual shift towards ITs in my SIPP (to try and get less volatility in income)
So, big danger of group think here.

Trying to concentrate on the differences:
- approx 4% of the total portfolio in physical gold ETF (PHAU) as an insurance policy
- replacing your smaller IT holdings, I have a L&G GLobal 100 ETF
- as mentioned above, I have a collection of half holdings in general industrials
- position in asset managers (I have a sizeable holding in SDRC)
- my real estate is LAND & SEGRO - less retail focused, more industrial/distribution which I think is a bit safer

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Re: Darka's Income Portfolio and AZN

#227779

Postby Darka » June 7th, 2019, 2:03 pm

Charlottesquare wrote:I think the approach is useful but more and more I have viewed it as very subjective as there are a lot of variables re the income required.


Very true, there are a lot of variables and one can never be 100% confident.

I'm in a similar position of my wife having a DB pension, not huge but important to our plans and both on track for full state pensions - so have to take a similar approch to yourself in taking into account a drop due to a loss of 50% her DB pension and 1 x state pension if she goes first.

Darka
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Re: Darka's Income Portfolio and AZN

#227780

Postby Darka » June 7th, 2019, 2:08 pm

TUK020 wrote:amazed at the similarities:


Just goes to show how great minds think alike ;)

Seriously though, quite a few of us seem to be moving towards IT's as we get older, nothing wrong with the HYP of course but I like an insurance policy and believe that IT's are the way to go now.

I do wonder about BLND (British Land) sometimes and will be reshaping my portfolio over time before I need to draw upon it to live.

I think the moment of swapping from investor, to spender (retiree) will be pretty scary as we have limited ability to fix things after that... but can't work forever, however I would feel more confident doing so with some IT's supporting the portfolio, rather than just a limited number of single company shares.

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Re: Darka's Income Portfolio and AZN

#227782

Postby OLTB » June 7th, 2019, 2:20 pm

Darka wrote:I would feel more confident doing so with some IT's supporting the portfolio, rather than just a limited number of single company shares.


Ditto - I am about 14/15 years away from drawing on my portfolio (I think) when I'll be in my mid-60s and I believe that a 'portfolio of portfolios' approach fits well with my nervousness. I have a HYP, IT, and passive portfolio so hopefully all three wont all go wrong at the same time!

Cheers, OLTB.

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Re: Darka's Income Portfolio and AZN

#227817

Postby TUK020 » June 7th, 2019, 5:09 pm

Darka wrote:
Seriously though, quite a few of us seem to be moving towards IT's as we get older, nothing wrong with the HYP of course but I like an insurance policy and believe that IT's are the way to go now.
.


Darka,
Have you been through the exercise of trying to define for each of your single company shares the price at which you would unload them? (Or yield if you prefer)
tuk020

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Re: Darka's Income Portfolio and AZN

#227825

Postby Darka » June 7th, 2019, 5:50 pm

TUK020 wrote:Have you been through the exercise of trying to define for each of your single company shares the price at which you would unload them? (Or yield if you prefer)
tuk020


Only for AZN at the moment, but it's something I'll probably do for the rest of the HYP at some point - although I don't intend selling the whole thing yet.

I sold out of Carillion when it became obvious to me that there was more risk in holding, then selling and at least saving some of my capital.

Have you done gone through that process yourself?

Some of my shares have done very well, AZN included - but stagnant dividend growth and a concern over their cash flow coupled with a low yield meant I could gain more income and diversification by selling AZN - I also don't like the massive increase in debt and can see them having to rebase the dividend (to focus on growth, pay off debt) at some point in the future.

With the proceeds, I bought some CTY (City of London) and with some dividend cash I had lying around also added to my growth IT's, Smithson (SSON) in this case.

regards,
Darka

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Re: Darka's Income Portfolio and AZN

#227841

Postby 77ss » June 7th, 2019, 6:45 pm

Darka wrote:....
Seriously though, quite a few of us seem to be moving towards IT's as we get older, nothing wrong with the HYP of course but I like an insurance policy and believe that IT's are the way to go now.

I do wonder about BLND (British Land) sometimes and will be reshaping my portfolio over time before I need to draw upon it to live.

I think the moment of swapping from investor, to spender (retiree) will be pretty scary as we have limited ability to fix things after that... but can't work forever, however I would feel more confident doing so with some IT's supporting the portfolio, rather than just a limited number of single company shares.


I feel that BLND is a long term dog. Yes, you get income, but you also lose capital. You can be a very long time retired, so if you can sacrifice a little immediate income there are surely better places to be. Segro, as mentioned by others, has been a spendid perforner and I have also done quite well with Hansteen - in the same property sub-sector. I started a gradual move into ITs some 8 years ago (now about 30%) and nowadays, my major property holding is in a broad based IT -TR Property. Modest yield at 3.3%, but it works for me, giving some capital growth as well. Lots of other possibiities of course.

Good luck!

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Re: Darka's Income Portfolio and AZN

#227844

Postby Darka » June 7th, 2019, 7:09 pm

77ss wrote:I feel that BLND is a long term dog.


I'm thinking the same thing and may dispose of them soon.

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Re: Darka's Income Portfolio and AZN

#227890

Postby Charlottesquare » June 8th, 2019, 1:21 am

I have pretty much gone down the IT path, I still hold Shell and Unilever and have a very small holding in Begbie's Traynor (not for income but because I think they could do well in an economic meltdown). Other than these I do have Berkshire Hathaway but I treat that as a proxy IT with no dividends (US Growth)

I have circa 5-7 years I expect until retirement.

The following are not all for income, so not really all relevant for High Yield, some pay little or no dividends though I expect a few will get sold/reinvested closer to retirement to more income focussed Trusts, target yield overall will be 4%-5% overall

Not all holdings are equal, the emerging/frontiers /enterprise holdings tend to be circa 1/3rd -1/2 the sums in the more general funds.

AAIF Aberdeen Asian Income Fund
ALAI Aberdeen Latin American Income Fund
ATY Athelney Trust
BEG Begbies Traynor Group
BRKB Berkshire Hathaway Inc
BRFI BlackRock Frontiers Investment Trust
BRWM BlackRock World Mining Trust
CTY City Of London Investment Trust
DNE Dunedin Enterprise Investment Trust Ordinary 25p *2
EAT European Assets Trust GBP0.10 *1
FCSS Fidelity China Special Situations PLC Ordinary Shares 1p *1
HFEL Henderson Far East Income Ltd Ordinary NPV *1
JMC JPMorgan Chinese Investment Trust plc Ordinary 25p *1
JMG JPMorgan Emerging Markets IT plc Ordinary 25p *1
JII JPMorgan Indian Investment Trust Ordinary 25p *1
MRC Mercantile Investment Trust Plc Ordinary 2.5p Shares *1
MRCH Merchants Trust plc Ordinary 25p *1
MCT Middlefield Canadian Inc - GBP PC Part Pref Shs Npv *2
MYI Murray International Trust plc Ordinary 25p Shares *1
RDSB Royal Dutch Shell Plc B Shares EUR0.07 *1
SLI Standard Life Investment Property Income Trust Ord 1P *1
ULVR Unilever plc Ord 3.11p *1
UEM Utilico Emerging Markets Trust plc Ordinary GBP 0.01 *1

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Re: Darka's Income Portfolio and AZN

#227902

Postby TUK020 » June 8th, 2019, 8:36 am

Darka wrote:
TUK020 wrote:Have you been through the exercise of trying to define for each of your single company shares the price at which you would unload them? (Or yield if you prefer)
tuk020


Only for AZN at the moment, but it's something I'll probably do for the rest of the HYP at some point - although I don't intend selling the whole thing yet.

I sold out of Carillion when it became obvious to me that there was more risk in holding, then selling and at least saving some of my capital.

Have you done gone through that process yourself?

Some of my shares have done very well, AZN included - but stagnant dividend growth and a concern over their cash flow coupled with a low yield meant I could gain more income and diversification by selling AZN - I also don't like the massive increase in debt and can see them having to rebase the dividend (to focus on growth, pay off debt) at some point in the future.

With the proceeds, I bought some CTY (City of London) and with some dividend cash I had lying around also added to my growth IT's, Smithson (SSON) in this case.

regards,
Darka


for most of the portfolio I have got top slice triggers - relating to proportion of the total portfolio.

A couple of shares I am thinking about complete exit prices.
I hold BA. I had top sliced at 650, and now am underweight with the price below 500. If it goes back to 650, I shall probably unload the remainder of the holding.
If AZN touches 7000 again, I shall probably bale out.

Mostly, I am trying to follow TJH's system of top slicing and top up, as he seems to have had jolly good results. In my ISA (approx 40% of the portfolio) funds freed up goes back into share purchases. In my SIPP, funds go either into ITs, or soon will get held as cash (I may start drawing on the SIPP in a year or so, as a gap filler before touching my DB scheme)

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Re: Darka's Income Portfolio and AZN

#227919

Postby Itsallaguess » June 8th, 2019, 10:21 am

Darka wrote:
I think the moment of swapping from investor, to spender (retiree) will be pretty scary as we have limited ability to fix things after that... but can't work forever, however I would feel more confident doing so with some IT's supporting the portfolio, rather than just a limited number of single company shares.


Hi Darka,

Firstly, I want to say what a great 'sit-rep' review that is in your initial post - I particularly like your keen eye on your 'Financial Independence Day', which must continue to be a great way to focus your mind on the ultimate goal here.

With specific regard to your comment above, and the potential nerves around 'the switch', have you any real plans on just how you're likely to both decide 'when the time is right', and also how to actually transition from the buikding phase to the income-delivery phase?

I ask for two reasons really - one of which is because, as someone with a few years left in paid employment, I find it profoundly interesting and inspirational when I read of others much closer to that ultimate end-goal than me, and also because (mainly due to that first point...), I find myself quite often giving this particular subject quite a lot of thought myself, mostly during working hours as it happens, and I'm always keen to hear if I could modify my own plans if others who are closer to the transition have any good approaches themselves...

My own thoughts on 'the transition' tally closely with yours in terms of the potential for it to be 'quite scary', and I think I would qualify my own worries around two central themes -

1. The actual process of ending a lifetime of paid employment, and replacing it with 'something else'...

2. The concern that an error of judgement or a miscalculation has taken place, and I make 'the transition' too early for continued financial safety...

After giving this topic much thought over the years, my own approach tries to cover both of the above concerns....

The idea I continue to play with is to continue to monitor, as you are also clearly doing yourself, current and forecast dividend-income, and compare that with current regular expenses and expected (and unexpected!) future cash outflows. Obviously the first major hurdle that we must get over is to decide that the financial aspects are checked off in terms of replacing wages with dividend-income, and presumably with some level of safety margin in that dividend-stream, and also an assumed level of cash, or near-cash, reserve that can be called upon during potential periods of market turbulence....

But even given the above, it's always seemed to me that no matter how many times I might, at some future point, go over those types of calculations, and potentially decide that one day those sums might actually conclude that 'the time has come' when the transition can potentially be made, I've always personally had the feeling that an even larger 'mental hurdle' is likely to still stand in the way of me actually making a decision to 'go live' with such a move, which is neatly summed up by your own view of it simple still being 'scary' to do so.....

With the above in mind then, the second phase of my plans for 'transition preparation' is likely to be delivered in two steps -

1. Decide when the finances 'look right', as above. Clearly the most crucial aspect of this whole decision.

2. Make a personal 'count-down' decision, but not informing work at this stage, to now start a 'final year' of paid employment....

Step 2 is, for me I think, the crucial missing piece of the puzzle that tries to cover most of the issues that I personally think I'll have after passing Step 1 -

a. It will allow a 12-month 'mental transition' period, where I can personally, and finally, get used to the idea of ending paid employment. Whilst I have no problem at all keeping myself busy when out of work, and see no downstream issues at all regarding it being a huge 'step change' to suddenly not have the regular drum-beat of a working-week, I do think it's likely to do me more good to have this 'personal phased transition' over a 12-month period than just suddenly deciding 'that's it', and being faced with much more of a cliff-edge period in my life...

b. It will allow me to stop touching any of my paid-employment wages in my bank account, and let me have a 'safe dry-run' of living off my dividend-income-stream, which is planned to give the dual-benefit of 'proving' my previous financial calculations that decided that it's time to implement this phase, and also, crucially, to allow my working-wages to build up an additional cash-buffer, ready for when the 'dry-run' 12-month period has come to an end. I particularly like this cash-buffer build-up benefit, as it means that I can forestall having to build up this section of my overall cash-buffer pot, until this final year of paid-employment...

c. Crucially, and because this 'final year of working' phase is a personal decision only at this point, with work not having been made aware, if anything comes to light during the final 12-month period that indicates a flaw in the initial financial calculations, then I can simply modify my plans accordingly, and continue in paid-employment.....

So that's it - the above are my plans on how I think I'll tackle the 'it's scary' issues, in ways that I think will really suit me personally when I'm much closer to the potential 'transition phase that we're all aiming for...

Some might suggest that if we get the initial financial calculations right, then another year of work really shouldn't be required, and I tip my hat to those that may have the confidence to take that approach, but I need to find a plan that I know might suit me, and I decided long ago that I'd need some sort of additional 'confidence-boosting' approach to those calculations, and the above plan is something I know will deliver that for me, and with it being delivered in a way that I think I'll actually enjoy carrying out....

The above has turned into a much longer ramble than initially planned, but it's done me good to get my thoughts mapped out, and I hope the above may be of some interest to others.

I'd of course love to hear how anyone else has either planned to deal with these tricky questions, or if anyone has already been over these hurdles themselves and can offer any thoughts on how they phased into their own income-drawing phase...

Cheers,

Itsallaguess

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Re: Darka's Income Portfolio and AZN

#227934

Postby tjh290633 » June 8th, 2019, 11:21 am

Itsallaguess, my approach was to keep my eye on the income flow. I originally thought that I would move into fixed interest when I needed more income, that being when interest rates were at a sensible level. However it turned out that I had little need to draw income, and interest rates fell, so I just carried on investing in equities with an eye on increasing the flow of dividends.

I am approaching the stage where a switch to ITs might be advisable, and that could start with the lower yielding shares. I might formulate a plan of campaign before long. I don't think that I need more than about 10 ITs, and have a fair idea which I will choose.

TJH

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Re: Darka's Income Portfolio and AZN

#227952

Postby Julian » June 8th, 2019, 12:26 pm

Itsallaguess wrote:
Darka wrote:
I think the moment of swapping from investor, to spender (retiree) will be pretty scary as we have limited ability to fix things after that... but can't work forever, however I would feel more confident doing so with some IT's supporting the portfolio, rather than just a limited number of single company shares.


Hi Darka,

Firstly, I want to say what a great 'sit-rep' review that is in your initial post - I particularly like your keen eye on your 'Financial Independence Day', which must continue to be a great way to focus your mind on the ultimate goal here.
...
The above has turned into a much longer ramble than initially planned, but it's done me good to get my thoughts mapped out, and I hope the above may be of some interest to others.

I'd of course love to hear how anyone else has either planned to deal with these tricky questions, or if anyone has already been over these hurdles themselves and can offer any thoughts on how they phased into their own income-drawing phase...

Cheers,

Itsallaguess

I echo Itsallaguess's commendation re your original post Darka. Extremely interesting and insightful stuff. Nice graphics too! As so often happens with threads here it has also prompted some extremely interesting replies including the excellent one from Itsallaguess just now.

Itsallaguess - in answer to your final request here is my input.

I am 59 (for a few more days!). My first venture into making any sort of investments(*) was in 2001 with about £40K to start off an HYP, all invested 3 trading days before 9/11 - that was a rocky start!

Since 2011 I have lived entirely off my investments. My fundamental principle in setting things up for my transition was to set things up such that, viewed from the perspective of my Natwest current account that I opened in 1976 and is still my main account to this day, the situation post-transition should, ignoring the fact that the actual numbers would be different, in essence look exactly the same as it did pre-transition. By that I mean that pre-transition I got a monthly salary credited into my current account each month by whatever employer I was working for at the time and post-transition I still wanted to see a "salary" deposited into my account each month. The only real difference would be the actual sum deposited (more on that later) and the fact that since I was faking the salary each month via a standing order I had set up myself from a separate account that collected all my dividend income it meant that I had control of the amount so it was always (and still is) a suspiciously round number.

Before describing the thing that I did for my transition that I found extremely useful I need to set some context by saying something about safety margins, a topic much discussed amongst HYP-ers. In my mind I split safety mechanisms (I'm deliberately not calling them all "margins" at this point) into 4 conceptual types...

1 - An "income reserve". If living off dividends, even IT ones, one is likely to need a "float" to smooth out the flow of income in order to implement my "looks like a salary" scheme. Many investors go beyond having just enough cash for a float though and have maybe a year or even more of expected spending. That is what I refer to as an "income reserve" rather than a safety margin.

2 - A "hard safety margin". In my world this is where the annual dividend income from one's portfolio is more than the annual income drawn hence there is a surplus each year that is re-invested to increase the holdings in the portfolio. It is this re-investment of all surplus income that makes this a "hard" safety margin in my characterisation.

3 - A "soft safety margin". As above, except that the investor might not diligently re-invest all surpluses, they spend most or all of the income that their portfolio generates each year but know that they are actually generating more than they really need and could easily cut back.

4 - A "lifestyle safety margin". This one merges somewhat with the above and potentially kicks in when all of the above 3 approaches are exhausted. This is a last resort when an investor's portfolio income takes a sufficient hit such that the income is not able to maintain the lifestyle to which they had planned/intended to maintain. At this point supplementing income by selling off capital would be one approach but there is a danger that could become a vicious cycle and was an anathema to me at the time (less so now but that's a whole other story) hence my final line of defence that I had lined up would have been to pare-back my spending.

So finally on to what I did that really helped me feel comfortable about my transition. I actually did it in the 2 years or so after my transition but in retrospect it could easily have been done in the 2 years before transition. What I did was to explore the realities of ever having to implement stage 4 of my safety mechanisms, my "lifestyle safety margin". On the day of my transition I only set my "salary" (standing order) to be sufficient to fund what I characterised as a "reasonably affluent student" lifestyle e.g. I could go out to the pub a few nights but not every night, have the odd reasonably-priced meal out but anything high-end would be more like a save-up-for-months splurge, not exactly backpacking but an affordable holiday once a year, etc. I then lived on this level of income for somewhere between 6 and 9 months (I forget exactly) before adjusting my standing order up to the next step up ("young professional early-ish in career") level, lived on that for a while, then stepped up again. What this did for me was to give me the confidence that even at the "reasonably affluent student" level I could actually survive perfectly well. (I should mention that my perception of "reasonably affluent student" is from my time at university in the late 70s when we didn't have to pay tuition fees and even had maintenance grants!).

I actually found the experience of titrating up my income through the different levels to be strangely uplifting and I think it might even have actively contributed to the level of euphoria that I felt in the year or so immediately after my transition(**). There is the observation sometimes made that in old age one's situation (depending on health) often comes full-circle and one reverts back towards one's childhood in terms of one's lack of self-sufficiency and need for care. Looking at this slightly shorter self-imposed (and not fully symmetrical) arc within my life I found it to be a rather satisfying echo back to my past to, at the end of my working life, be re-living albeit at accelerated pace the financial stages I experienced at the very beginning of my working life. I also accept that being single I didn't have to persuade anyone else to accommodate the deprivations necessary in those earlier stages of my experiment although as mentioned I really didn't find them too troubling at all.

- Julian

(*) Ignoring cash savings and modest pension schemes into which my various employers had me enrolled, none of which were defined-benefits.

(**) Maybe I can no longer quite say "euphoria" but for the record 8 years later I am still extremely happy with my situation now.

TUK020
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Re: Darka's Income Portfolio and AZN

#227982

Postby TUK020 » June 8th, 2019, 1:41 pm

Itsallaguess wrote:
With specific regard to your comment above, and the potential nerves around 'the switch', have you any real plans on just how you're likely to both decide 'when the time is right', and also how to actually transition from the buikding phase to the income-delivery phase?

I ask for two reasons really - one of which is because, as someone with a few years left in paid employment, I find it profoundly interesting and inspirational when I read of others much closer to that ultimate end-goal than me, and also because (mainly due to that first point...), I find myself quite often giving this particular subject quite a lot of thought myself, mostly during working hours as it happens, and I'm always keen to hear if I could modify my own plans if others who are closer to the transition have any good approaches themselves...

My own thoughts on 'the transition' tally closely with yours in terms of the potential for it to be 'quite scary', and I think I would qualify my own worries around two central themes -

1. The actual process of ending a lifetime of paid employment, and replacing it with 'something else'...

2. The concern that an error of judgement or a miscalculation has taken place, and I make 'the transition' too early for continued financial safety...

After giving this topic much thought over the years, my own approach tries to cover both of the above concerns....


IAAG,
I am in that period where I am juggling with that decision....
I have just turned 58, have recently had a very nasty health scare (into flip a coin territory in terms of hospital mortality rates) which has underlined the realisation that I am not going to last for ever. My wife and I are supporting several kids at uni at the moment, but in a year's time this should be down to one. A very significant portion of our disposable income goes on supporting kids, running a large house that we could downsize, and most of the remainder into savings/pensions etc. Both my wife and I are in the fortunate position of having company DB pensions, as well as ISAs and SIPPs. I will almost certainly breach the LTA.

A number of thoughts, grouped into themes:

A. Income and expenditure planning
This needs to be viewed as a family thing, not an individual one. I am probably already at a point of being able to retire, and have sufficient to live on, but my wife isn't at that comfort point. She is younger than me, and her DB pension is not accessible without penalty until 65. Mine comes in a 60. Net result is that I am transferring money to her to top up her SIPP. I also view SIPPs as stop gaps to drawing DB as well as top ups.

B. Reserves/Buffer Margin.
I have 3 categories of reserve that I plan for:
i) Unplanned expenditure. This bucket covers a multitude of topics, but most important are house repairs, cars and medical. We need to get the house in a saleable condition - replacing bathrooms etc. We run 3 ancient Toyota diesels, the most recent of which is 13 years old. I need a replacement hip at some point. And that's the stuff I can see in advance. This is partly held in a deposit account, and partly as a Bond ETF (IS15) in a taxable account.
ii) Income reserve. I am about to stop re-investing dividend income in my SIPP, and let it build into a cash buffer of at least a year before drawing as income.
iii) future nursing home fees. My intent here is to never touch the capital in my ISA once I retire, but let this sit there as a future nursing home cushion.

C. Point of stopping work.
Not sure that I want to have a hard stop any time in the near future. I think I benefit from work in keeping my mind occupied. Recently spending a month in hospital, and then spending a month at home under nursing care made me think about this carefully. I was too ill in hospital to worry about this much, but I spent much of my convalescence working from home, because the boredom was driving me nuts.
My ideal would be to try and organise my work life so that I hand over the reins as boss, and then work a couple of days a week in a support capacity. My planning here might all go to the wall, as another company have expressed an interest in acquisition.
Need something to engage me in terms of intellectual challenge and drive going forwards.
Something that is really worth a read is the Harvard Business Review article by Peter Drucker called "Managing Oneself". Lots of nuggets of wisdom here, but the last quarter of the article is one later life, and how one should view this as a career change rather than 'stopping'.
reproduced here: https://www.ee.iitb.ac.in/course/~hshar ... manage.pdf
Seeing Financial independence as an opportunity to change what you are doing rather than stop, also adds margin/flexibility financially.

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Re: Darka's Income Portfolio and AZN

#227995

Postby Charlottesquare » June 8th, 2019, 2:27 pm

Re stopping work ( ignoring meantime money considerations) I have approached this by:-

1. Firstly going part time in my main employment- I am down to three days a week since 2017. I do need to plan much further ahead than most as legally I have a one year notice period and secondly I would not like to leave the individuals whose business I manage in the lurch, last time I gave a three year commitment until I was sixty (next year) and I suspect I will do so again next year to say age 63 or 64. It helped that the level of activity has reduced since the 2007/2008 debacle so I can actually do everything these days in three days.

2. I am this year winding up my private part time accountancy practice, MTD has been the spur for me to decide the reward is not worth the grief/ juggling, so apart from one larger client where I will stay on as an office bearer ( this new position is probably about 24 working days a year) the other clients will all be away to other firms by September.

3. Once the clients are all transitioned away I will maybe shop around for another similar PT Finance Director role with say up to 24 days a year maximum, but if the right one does not arise I will not be that concerned.

This should allow me to slowly get used to not "attending " at some office 5 days a week and gradually start taking life at a slightly slower pace, weekends will return to being mine, juggling client matters to go on holiday will no longer give me sleepless nights and if I do not need to come in every day possibly moving outwith the city to live (even if we keep a one bed flat in town) becomes more practical.(Timing partly predicated upon easing the children out of the family home)

I think for me going cold turkey on employment/self employment would be really difficult, I have always either had a job or been self employed since I was sixteen, including whilst still at school and right through university , so I think not transitioning would be slightly traumatic. Even my late father, who retired in his mid 50s and readily thereafter embraced being busy doing nothing, carried on as a consultant (solicitor) for 3-4 years after he ceased to be a partner.

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Re: Darka's Income Portfolio and AZN

#228005

Postby TUK020 » June 8th, 2019, 3:14 pm

Charlottesquare wrote:Timing partly predicated upon easing the children out of the family home.


Yup, that's the real challenge - getting the kids to fledge off

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Re: Darka's Income Portfolio and AZN

#228015

Postby seagles » June 8th, 2019, 3:58 pm

I am 90% certain that I will retire in the next 2 to 3 weeks. Only need a weeks notice. My route to this point started 16 years ago at 49. After nearly 30 years in the IT business, most in the hardware/software area before moving into consultancy and sales/running distributors. Was told my services were no longer required, decided enough was enough. Golden handshake was enough to not rush back to work and could take a DB pension at 50 anyway. At 50 took a cash lump sum and a reduced pension, brought a HYP in one go ( wished I had waited and learned more). Anyway went back to work but just to keep me ticking over, various diverse jobs before back in full time work as a bookie, convenient as 5 minutes walk from home and now needed a bit of money to pay the taxman for a failed business adventure. Once mortgage paid off at 54 I could have retired as pension and dividend income was sufficient to live on, but worked to be able to live a bit better and do some projects on house. I always had an idea that once I was no longer happy and challenged would give up. At 60 decided enough was enough in the bookies, did not like the FOBTs, we lost the old school punters. Wanted to keep busy and still had one more large building project to finish so part-time in a supermarket, worked well 4 days 16 hours. What has changed to make me decide to call it a day? Well state pension is more than I am earning and management here really sucks, am sure they really do not understand "business" and making a profit and looks like my 9th manger in just over 4 years.

The 10% is in case the current trainee manager stays as we get on well. Before my HYP at 50 I had some shares, mainly from companies I worked for, but they were purely "capital" growth shares. My hyp was up to 34 companies around 5 years ago, then decided, like a lot here, to start moving towards ITs. At this time moved all my pensions in a SIPP with HL and brought into 5 ITs. Since then have pruned my portfolio to 21 shares and raised my ITs to 7. With the ratio moving towards ITs. Have drawn down the divis from my trading account and ISA for just over a year, SIPP are reinvested in the ITs. I believe I can live, comfortably, on my 2 pensions, using divis from my trading account. Will reinvest divis in both tax exempt accounts. Have a "small" cash reserve. Will use my ISA divis if I need more.

My daughter at 33 seems to be comfortable financially. The only unknowns are when she gets married and grandchildren. Both I welcome and can always sell of capital... and of course my health, but 5 days a week pumping weights and spin helps.

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Re: Darka's Income Portfolio and AZN

#228026

Postby monabri » June 8th, 2019, 5:32 pm

Here's a link to a previous Lemon article relating to "planning ". It does rely on the use of a spreadsheet but only very basic stuff. I set up a spreadsheet many years ago basically taking into account

Annual incomes (from any source)
Annual expenditure (spending money, house costs, planned or possibly unplanned)
Taxation

This was done on an annual basis.

The idea of the spreadsheet was to see if family monabri could survive, have treats and not run out of money.

I draw your attention to the last para about retiring asapif (asap if feasible!)


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