1nvest wrote:TUK020 wrote:This is actually more conservative than it first appears.
You can count the occupational pension & state pension as income from bonds.
On this basis, the % in equity is actually pretty low
But you could also count home/house value as 'equity', house price change comparable to stock price change, plus imputed rent as the 'dividend'.
Another factor is would you hold all of drawdown cash in cash deposits/short dated gilts? Even such 'safe' holding have at times lost near 50% in real terms. States might do something weird such as print money to buy bonds and keep the yields suppressed whilst inflation (which might be considered a form of taxation) eats away at the purchase power.
Some go for inflation bonds, maybe a liability matched ladder of index linked gilts that each year mature with the amount of anticipated spending in that year. But there are insufficient ILG's to do that, and present real yields means you have to put in perhaps 12K to buy a 10K of years income in x years time.
Another alternative is to third each in
US stock, UK gilts, gold (that link is US data), three currencies (US$/£/global currency (gold)), three assets (stock/bond/commodity). Which expands the amount of overall stock exposure across the total portfolio. One of those assets will do well, another likely poorly, but collectively the good-un outweighs the bad-un and the collective volatility is relatively low whilst better covering drawdown (lower risk than all-bonds alone). A better prospect for not only covering x years of drawdown, but also potentially seeing sufficient growth to last longer/leave-more. 2000 was a bad year to start a SWR applied to all-stock, for
stock/cash/gold however with a 5% SWR In that case, a 2000 65 year old that had anticipated living 20 years and was drawing 5% SWR, from all stock or all cash deposits (TBills) that would have lasted out to 2018 whilst stock/cash/gold still had at that time over 50% of the inflation adjusted start date amount still intact/available.
Personally I think the approach of ... own a home so 'rent' is liability matched (you are both landlord and tenant and don't have to worry about rents soaring or collapsing) - that also serves as late life care insurance; Enough in 'safe' for drawdown, ideally alongside inflation adjusted state and occupational pensions, where 'safe' = 33.3% each US stock/gold/cash-deposits (or short dated gilts if substantial amounts, as they're fully protected rather than £85K/whatever deposit protection limited); The rest in stock/accumulation, for heirs and longevity 'risk' insurance.
Here's the same '
safe' with 5% SWR started in 1972, prior to raging inflation. Romped safely home.
However here's another '
safe' with 5% started in 1980, when gold had spiked very high, and stocks were deeply down, 1 ounce of gold bought a Dow stock index share compared to for instance in 1999 when it took 40 ounces per share. In that case cash would have been slightly better (stock/gold/cash exhausted in 2008), conceptually, but factor in high taxation rates that were applied to cash back in the 1970's and perhaps the gap might have narrowed/reversed. Also in the way of compensation the all-stock 'growth' portfolio would have performed well such that longevity was covered.