A.I.M. "In Depth" Q&A

[ls7550]

I probably just put myself in retirement also so will start to need an income stream. Any thoughts.

Own a home, so all 'gross rent' is in effect paid in advance. Roof over your head and the landlord is pleasant.

Enough in safe bonds to cater for 20 years or whatever of living expenses (drawdown).

Rest in growth (stocks) accumulation. Provided enough (typically same amount as initially deposited into bonds) then that's sustainable (longevity/heirs).

If no heirs and 20 years is more than you expect then home+bonds alone would suffice. Spend the bonds and the proceeds of the sale of the home might cover twilight life care.

For bonds I worked a ladder of present day living expenses for each of 20 years, discounting future pension income amounts in later years (as and when those come online) in order to identify a present day amount to be initially invested in bonds (assuming bonds are invested/deposited in a inflation pacing investment). For example if I started today at age 55 and led a $50,000/year living expense lifestyle, had a $15,000/year inflation linked occupational pension payable at age 60, and a $15,000/year state pension payable at age 67 then 5 years x $50,000 to see me through ages 55 to 59, $35,000/year to cover age 60 to 66, $20,000/year to cover age 67 to 74. Which in total $655,000 covers. If invested in safe inflation bonds then 20 years of income is reasonable assured/covered. If the same amount again is available and invested in stocks/accumulation then there's a reasonable chance that after 20 years that stock value might have doubled in real terms (3.5% annualised real) - so overall end 20 years with the same amount as at the start of the 20 years in inflation adjusted terms (longevity/heirs).

For stocks, a low cost tax efficient S&P500 accumulation fund is a simple but effective choice. Well suited to when you might become confused as to what day it is let alone how to manage a portfolio of many assets.

That all assumes you've 'won the game' and have enough (no need to take risk). If not then its a case of dividing what you do have by whatever rock-n-roll party-animal lifestyle you fancy.