gadgetmind wrote:We'd like an income of £60kpa
pot at retirement will be worth about £1.6m
Looking at http://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3530
to pre-load a ladder of 10 years of £60K/year inflation adjusted income with recent negative real yields would require around £660K. Which would leave you around £940K after such 10 years of drawdown i.e. assuming £660K of £1.6M were allocated to such a 10 year ladder. With 10 years of inflation adjusted income pretty much secured, if the £940K remainder were invested in accumulation (stocks) that achieved 5.4% real annualised over those 10 years then that £940K would have grow in inflation adjusted terms to £1.6M i.e. you end the 10 years with the same amount in inflation adjusted terms as at the start.
Starting with 40% in bonds, 60% in stocks, ending with 0% bonds, 100% stocks, averages 80/20 stock/bonds over the decade, assuming you held as-is for the decade, less if you perhaps opted to review every few years and maybe top up the ladder with additional years tagged onto the end (sell some stock to add to bonds).
The S&P500 PE is recently around 25
= 4% real yield, as a broad general guide that indicates that the 5.4% real yield for growth that I used above is towards the ambitious side. Adjusting down to 4% real for 10 years on £940K = £1.4M (inflation adjusted) after 10 years. Suggesting 200K or 20K/year 'over-spend' (or acceptance of 12.5% drawdown over a decade long period, 1.4M end amount versus 1.6M start amount).
This isn't anything like as safe as I'd like
Looks relatively safe to me. If you've won the game there's no need to take risk (10 years of inflation bonds). Review as you go along and top up bonds when stocks are doing relatively well, and a very good chance that your money will easily outlive you. Enjoy your retirement whilst you physically (and mentally) can, as a sudden illness or condition can take all of that away in the blink of a eye, i.e. personally I would go with the 60K/year 12.5% potential 10 year pot decline rather than reducing to a 40K/year income, pot value potentially remaining level choice.
Whether you opt for bucket style ... a bond bucket that is drawn down, stock bucket for growth, or opt for a constant weighted, perhaps 70/30 stock bond that you periodically realign to, is just a question of personal preference. They both generally work out to much the same thing overall. The bucket choice can be the better when start date valuations are relatively high, which at present under very low interest rates/inflation they possibly are. However, including your £1M home value as part of the portfolio has your resources up at £2.6M, that with a 60K income requirement = 2.3% yield requirement. Yet another choice is something like the Talmud advocated third each in land (your home, where capital value and imputed rent benefit are both tax exempt (no capital gains on sale of your primary home)), merchandise (stocks) and reserves (gold ... where legal tender gold coins such as Britannia's/Sovereign's are CGT exempt). On 2.6M and 2.3% yield (income), and assuming you hold US stocks for geopolitical diversification alongside a UK home and (global) gold, for all 50 year periods over the last 120 years had a worst case outcome of having a third of the inflation adjusted value remaining after 50 years. Which includes some pretty bad times i.e. the worst case spanned the WW1 years and collapse of the British Empire. More likely (on average) the value grew in real terms 3.2 times over 50 years ... which equates to a additional 2.4%/year that could have been drawn on top of target spending rate (so on 2.6M = another 60K/year 'top-slicing' potential). And that assumes leaving a comparable amount in inflation adjusted terms as at the start for heirs. That excludes imputed rent benefit that historically averaged around 4.5% such that proportioned to a third = 1.5% 'yield'.
Under current valuations I'm personally fond of that Talmud choice. US stocks = large land mass/natural resources, strong military, capitalist tendencies and somewhat a island (friendly or less powerful land adjoining neighbours), a high density/demand home (UK), and global currency (gold), that is potentially tax efficient. Where income can be drawn from the yearly best performing asset, often that is up +20% (on average) over the year (a bit like ... gold is up this year and selling some will pay next years bills; Or stocks are up this year and selling some will pay next years bills). Of course a home value is illiquid which restricts 'rebalancing' however 'land' can include some REIT's which are more liquid/easily traded in addition to core home value.
Whatever you do decide, looks to me that you'll be just fine. My advice would be to go for retirement early and make the most of what you do have asap. I speak from a similar age, having retired over a decade ago and around similar wealth (but with the additional benefit of reasonable inflation linked pensions that will come online in another 5 years or so), but where my partner is no longer able to enjoy life due to health issues! It is of some comfort that we pulled the retirement trigger earlier rather than too late.