A.I.M. Users Bulletin Board

[ls7550]

Hi Toofuzzy

During the years you were pulling cash out of your accounts to live on wasn't almost impossible to build up too much cash?

Unless you source income/spending otherwise.

I like liability matching. Own a home and you are both the landlord and renter/tenant ... gross rental yield benefit and you'll never struggle to have to find next months rent as the landlord is very kind and will always offer to defer, lend or discount the rent should the need arise :) . That can also be a insurance policy to cover late life care costs (sell/rent home to move into a care home).

25 years of spending in safe inflation matching for drawdown. Regular safe inflation linked 'wage' coming in. For that you can project forward and discount any Social/pension/etc benefits that you might receive in later years (you can use present day values for the figures as if the safe investment paces inflation and you use stock real (after inflation) gains, its all inflation adjusted).

Rest ... in stocks. Assuming stocks achieve the 4% annualised real figure as used by many as a suggested safe withdrawal rate, but where instead you're not withdrawing but accumulating, then over 25 years = 2.66 times after inflation growth factor.

If for instance you're initial drawdown safe pot is $500K, that when supplemented with current/later year pensions etc. covers you spending (after rent costs included as owning a home already has that covered), then solving

2.66A = 500 + A

subtract 1A from both sides

1.66A = 500

Dividing both sides by 1.66

A = 301K (call it 300K)

Initial 300K in stocks, 500K in safe, stocks left to accumulate, bonds drawn down over 25 years to zero, where that 300K stock value grows at 4% real/year annualised rate, will end the 25 years with 2.66 times more stock value in inflation adjusted terms = 798K, i.e. near-as the exact same as the combined 300K stock value and 500K bond value as at the start.

Instead of 100% stock for the growth pot, use AIM-HI (80/20) and likely you'll do just as well.

If you've no heirs or any desire to leave a inheritance, then stocks could be omitted altogether. Nice to have some however, as they can serve as a emergency/irregular type pot to dip into if/when required, as well as providing cover for longevity (pension savings for a target start date of drawing initially 25 years out).

Clive.