Key Post Retirement planning - My experience

Brendan Burgess

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I would have thought that the ideal plan should be to run out of money just as you die.

As that is not possible to plan, you should plan to run out of money about 5 years after you die.

Of course, if you have a surplus, that is great.

But if you have to make spending decisions or lifestyle decisions at age 50 or 60, you need to factor in living longer than 90 and also having a mortgage-free asset.

Brendan
 

Gordon Gekko

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I suppose I view capital and income separately, with the purpose of capital being to generate investment returns. The net result being that the capital endures.
 

Leper

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Five years from retirement I was concerned even worried about life after retirement. I hadn't made the best of investing losing a good few bob on Eircom shares and of course our leaking money holiday home in Spain. In a nutshell, I wasn't too happy and I knew we'd have to make some money related decisions. The cars were the obvious area where we could make cuts, i.e. downsize on both cars with view to reducing to one car in time. Our Spanish apartment had lost value and was a noose around our necks but selling at such a large loss was out of the question. It was just making some of it back when Covid-19 struck. Therefore, we're holding onto it for the next two years at least.

The most important sentence on this thread is (from non other than Brendan Burgess) "I would have thought that the ideal plan should be to run out of money just as you die." Save me from the guys who on retirement invest nearly everything they have to bequeath same or more to their offspring. You've lived this far and you deserve to spend what you've earned on yourselves.

The house will be there after us and our offspring can do with it whatever they please.

Anyway, I digress - you don't train to climb Mt Everest by climbing Mt Everest; you get yourself fit, train, focus, learn etc and then you can attempt Mt Everest. It's the same with retirement. You don't approach retirement at full speed and then suddenly press the brakes where you could find yourself fired through the windscreen. You may have many trying to run your life when you retire. "Why pay for childcare when mom and dad are there?" "Hey dad, if you gave us a few bob now you'd be relieved of the worry later."

Fortunately, when most retire they have already prepared the way somehow. You can live on less. You can enjoy yourself more. You have time for you. Nearing 68 I took my first swimming lessons which ceased because of the virus. But, asap I'll restart the swimming lessons. Do I look stupid in the pool? Probably, but I did much more stupid things in the past especially in my investing.
 

Gordon Gekko

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I do think we’re planning along those lines by aiming to transition to 4 day weeks and then 3 day weeks.

And by trying to build a capital base to then generate income/gains, it reduces the longevity risk. i.e. I’m less concerned at the check-out date
 

Wollie

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The whole point of the exercise is to have the income capital base to deliver what’s needed per reasonable estimates.
I don't have a clue what "income capital base" means. I doubt if anyone else does either. What seemed at the start like a good piece of analysis ended up as gobbledegook.

I would have thought that the ideal plan should be to run out of money just as you die.
As that is not possible to plan, you should plan to run out of money about 5 years after you die.
you need to factor in living longer than 90
Now that advice I can understand and agree with. A healthy, reasonably affluent 65-year old with access to good healthcare has a more than 50:50 chance of living beyond 93, so the plan should assume check-out at 100. It would be foolhardy to assume otherwise.
 

Gordon Gekko

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I don't have a clue what "income capital base" means. I doubt if anyone else does either. What seemed at the start like a good piece of analysis ended up as gobbledegook.



Now that advice I can understand and agree with. A healthy, reasonably affluent 65-year old with access to good healthcare has a more than 50:50 chance of living beyond 93, so the plan should assume check-out at 100. It would be foolhardy to assume otherwise.
There’s no need to be rude. It should have read “income / capital base”; it’s just a typo.

Income is income obviously and a capital base is just one’s total pool of assets which can then generate income or gains.

I think it’s the wrong approach to try and run out of money at any point. It should be sustainable regardless of the check-out date.
 

Leper

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There’s no need to be rude. It should have read “income / capital base”; it’s just a typo.

Income is income obviously and a capital base is just one’s total pool of assets which can then generate income or gains.

I think it’s the wrong approach to try and run out of money at any point. It should be sustainable regardless of the check-out date.
Woolie is not being rude. I remember back in the day when I had a very small part in the founding of a Credit Union. To be honest, we hadn't a clue and shortly found that we could not understand each other with words debits and credits, capital, etc. At an early meeting we decided " at least let us all understand what we are talking about." We returned to square 1 and decided that we should understand each other and abolish all jargon. It worked and that Credit Union is now one of the strongest in Ireland.
 

Sarenco

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There are so many uncertainties when it comes to retirement planning, there's a real danger of adopting a false level of precision in any projections.

For those of us that won't have the benefit of a DB pension, I think the simplest thing to do is to multiply your anticipated annual expenses by the number of years you expect to be retired.

So if your anticipated annual expenses are €25k, you need a pot of €750k to fund a 30 year retirement.

I think it's reasonable to assume that investment returns on a balanced portfolio, net of expenses, will keep up with inflation over that timeframe.

Hopefully some form of State (Contributory) pension will still exist in the future but I wouldn't count on it for planning purposes.
 

Gordon Gekko

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That makes sense, Sarenco. And simplicity is often best.

I think assumptions are okay though once they’re prudent.

e.g. assuming income stays the same when it’s highly likely to go up, assuming you won’t realise cash from downsizing, assuming you won’t inherit anything, assuming inflation will be 2% when it hasn’t been the smell of it, assuming equities will deliver close to half of their historic returns, etc
 

TheBig40

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e.g. assuming income stays the same when it’s highly likely to go up, assuming you won’t realise cash from downsizing, assuming you won’t inherit anything, assuming inflation will be 2% when it hasn’t been the smell of it, assuming equities will deliver close to half of their historic returns, etc
This is pretty much the method I’ve been using to work out my numbers, if nice to see I’m not totally off the wall with my logic.
 

SPC100

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I was asked to share my own experiences/thoughts which I’m happy enough to do. For the avoidance of doubt, none of it is rocket science so please don’t expect anything revolutionary.
Thanks for responding to my (and others?) request by sharing this - I appreciate it! And it helps refine my own thoughts and planning.

My findings were that we could switch to 4 day weeks at age 50 and 3 day weeks at age 55 with a view to then retiring at 60.
I suppose I view capital and income separately, with the purpose of capital being to generate investment returns. The net result being that the capital endures.
By trying to build a capital base to then generate income/gains, it reduces the longevity risk. i.e. I’m less concerned at the check-out date
AFAIK most of the software (and FIRE folks) doing this type of analysis, plan on drawing down 3-4% a year from their equity capital. 3-4% being the magic SWR (safe withdrawal rate) that is based on past analysis & simultaions, which predicts you can withdraw at this rate, and that if you do, you are unlikely to run out of capital before you die.

Are you saying you are not planning on touching your capital at all?

If you were willing to endure some risk, you can likley retire a lot earlier.
 

Gordon Gekko

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I guess my aim is to have the income sustained from the asset base.

But the biggest takeaway for me was how much less I need post debt and kids.

You’d think that’d be obvious but it was so stark I thought I’d made a mistake.
 

SPC100

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It sounds like you want to become financial independence (annual non wage income > annual expenditure)

But imagine for a moment if all your capital was invested in companies that don't pay dividends. Then you never make your goal. As you have no income.

Or vice versa, if you chase dividend paying investments you get there sooner.

I think you should model a percentage withdrawal from your capital. Which may or may not be greater than the income it produced in any year. And May or may not be greater than the capital appreciation.

Relying on income, is more than likely more prudent, bbutgiven all other things you mentioned it almost sounds like you are being too conservative.

That's not necessarily bad, but if your aim is early retirement id guess you are leaving 5-10 years on the table
 

Gordon Gekko

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It sounds like you want to become financial independence (annual non wage income > annual expenditure)

But imagine for a moment if all your capital was invested in companies that don't pay dividends. Then you never make your goal. As you have no income.

Or vice versa, if you chase dividend paying investments you get there sooner.

I think you should model a percentage withdrawal from your capital. Which may or may not be greater than the income it produced in any year. And May or may not be greater than the capital appreciation.

Relying on income, is more than likely more prudent, bbutgiven all other things you mentioned it almost sounds like you are being too conservative.

That's not necessarily bad, but if your aim is early retirement id guess you are leaving 5-10 years on the table
I never fall into the trap of chasing income/dividends only...total return is what’s relevant
 

SPC100

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I never fall into the trap of chasing income/dividends only...total return is what’s relevant
Right, but then shouldn't you be happy to eat some of the capital? It's paradoxical to optimize total return but only eat income.

To reframe, when predicting your future income, What percentage of your DC pension (if you have one) or percentage of your equity do you assume will be created as income each year? Are you planning 5p/3.c. growth and 5/3p.c. drawdown
 

SBarrett

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Interesting thread.

A lot of people trying to make a guess on how long they will live for. Be over optimistic with this. I use 100. My granny lived to be 100 and all of her 10 kids are still alive and healthy so I come from strong genes :)

Nursing home fees will always screw up your numbers. Don't expect to live for any longer than 5 years in a home. But you may never need to live in a home or need home care. Are you not going to do things in your 60's so you have money for a home when you are 90? In Ireland, we have the safety net of the Fair Deal. Yes, your kids may get less inheritance but if I am in my late 90's, my "kids" will be in their 60's. If they haven't provided for themselves at that stage, it's too late anyway.

This is a work in progress. Your interests and financial needs will change over the years. Plans to save money may turn into plans to spend money. You may change career too. Or you may simply lose interest in things that you had planned to do in retirement. It's not just about having X amount of euro at age 60, it's what you want to do with it...and the journey along the way.


Steven
www.bluewaterfp.ie
 

Gordon Gekko

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Right, but then shouldn't you be happy to eat some of the capital? It's paradoxical to optimize total return but only eat income.

To reframe, when predicting your future income, What percentage of your DC pension (if you have one) or percentage of your equity do you assume will be created as income each year? Are you planning 5p/3.c. growth and 5/3p.c. drawdown
I’m assuming the mandatory 4% income drawdown from my Approved Retirement Fund, increasing to 5% at age 71.

I’m assuming 5% on average from a 100% equity approach.
 

SPC100

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Well then you likely will be eating into your capital! Especially in lean/bad market years.

From what I understand 4 and 5 percent drawdowns from equity capital is not extremely safe and cause capital to go 0. (Caveat most studies cover US investors).
 

Gordon Gekko

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Well then you likely will be eating into your capital! Especially in lean/bad market years.

From what I understand 4 and 5 percent drawdowns from equity capital is not extremely safe and cause capital to go 0. (Caveat most studies cover US investors).
That isn’t correct.

Take a real-world example of someone starting with €1.65m in their Approved Retirement Fund (i.e. the effective maximum) who’s invested in global equities; I struggle to see how they’ll run out of money or their fund can/will go to zero.

The particular equity fund that I like and the provider that I like would manage such an ARF for 0.5% pa (no VAT) with minimal ancillary costs.

A person is mandated to take 4% per year from ages 61 to 70 and then 5% thereafter. It’s 6% if the value of the ARF reaches €2m at any age.

I’m all for looking at ‘sequencing of returns’ etc, but even with a poor start, I’d be keen to see how/why people think someone could run out of money. Even over a particularly dodgy observation period, e.g. circa 2000 to now with the dot.com crash, global financial crisis, and Covid-19), markets have done around 4% a year.
 
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