When to stop saving for retirement?

[Darka]

Yes, that's my understanding too. The state forecast could be clearer in this area IMO.

Agreed, it confused a lot of people, myself included initially.

[rhys]

I stopped working at the start of lockdown. Had a hectic few weeks trying to home educate my kids, in the absence of any direction from their school, and decided I wasn't interested in going back to work. I'd worked from engineering contract to contract since 1995, so it wasn't as if I had to resign from a permanent job.

My major worry is setting a bad example to my boys, from being home all the time. 'Work' has become trading the S&P500. Using an VUSA or IUSA, the spread is 0.06%, so it's very easy to make substantial money on a short term trend. Doing this in a SIPP avoids any paperwork.

I digress, I intended to contribute to this thread just to say I sometimes dream about being back at work, at least for the 'social' aspect of it. Fortunately I don't dream about work. I very rarely have uncomfortable dreams about a pending Maths A level, and haven't had a lesson in a year, or haven't completed the syllabus. Another one is that I'm starting university again. Always pleasing to awaken and know that it's behind me. Although I'm sure I'd make more effort to enjoy the social aspect all the more if I had the chance to repeat it!

[Shelford]

These are sensible questions, and you've had some good replies.

I'm also a relatively early retiree (albeit a bit older than you at 57). My wife however is a bit younger and happy to continue to work.

In terms of safety margin, it's partly down to risk appetite. I keep about two year's worth of actual spend in cash on average, though I don't fret unduly as the sum varies monthly based on one-off bills etc. The rest largely in equities/investment trusts. I'm not yet drawing down on my pension or ISA as I'm in part-time work and have some shares left from a previous employer which I plan to sell over the next five years in lieu of drawdown, keeping any capital gain on these within the CGT maximum.

Two years of spending in cash would cover most of the direst situations of past century, and would mean you wouldn't be forced to sell. Also, at 52, in extremis you are young enough to pick up some part-time work if forced to do so.

Shelford

[1nvest]

The object of the exercise is not to run out of income rather than maximise gains.

(I’m 15 years into retirement having stopped at 49)

Spending is somewhat sporadic but averages around 2 ½ % which roughly equates to the portfolio income at present.

Clearly a different portfolio could give a much higher income and I could have a significant income surplus or a different portfolio might produce an income below the spending level and an income deficit. ( it has in the past )

I ignore the income produced from the portfolio, virtually all is reinvested, I take spending from cash reserves , occasional sales etc.

If I invested in a series of Investment Trusts that produced 5% or 1% would that really change what I should spend ?

Might be interesting to know what Darka’s portfolio yields to know whether the income surplus is availed to be spent or would be prudent to reserve.

I imagine my spending is less than I could spend but spending more just for the sake doesn’t seem sensible.

However we have just spend the equivalent of a years income on a new car…. (As I said spending is sporadic !!! )

Thanks Hariseldon58,

Current yield is 4.85% (if I ignore any cash in the portfolio), otherwise if I include all cash (including reserves) then the yield is 4.53%.
That included my SIPP which I can't access yet.

I have a mixture of IT's (growth/income/growth+income) and some remaining individual shares which I'm gradually moving into IT's for a more stable (hopefully) income.

Yield is just part of total return. Yields can collapse. A simple SWR choice is more consistent. Set aside surplus capital today to spend at a later date and if you reach 33 times anticipated spending across a 30 year horizon then drawing 3.33% of the initial portfolio value, increasing that amount by inflation as the amount drawn at the start of subsequent years, and not only is that income stream consistent in real (after inflation) terms, but history indicates that a reasonably diversified portfolio has a high probability of success of sustaining such withdrawals for 30 years. More often at the end of the 30 year there is substantial amounts of the inflation adjusted start date portfolio value still intact, 3.33% x 30 years, 100% broad inflation pacing was a historic low/bad case outcome, more usually actual outcomes are much better.

Over time you may find that your original 3.33% SWR value amount has declined to being the equivalent of perhaps 2% of the ongoing portfolio value, flagging that you have surplus capacity and might draw out a modest/large amount perhaps for a new car/whatever.

More commonly use 4% SWR as their guideline, save up 25x yearly spending and then start drawing 4% SWR from that. As such 3.33% might be considered a conservative figure, but its nice to have that additional element of safety. 3.33% is more for those with longer than 30 year horizons and where state/other pensions kick-in in later decades. All very personal/subjective. For some, state + occupational pensions alone might be enough, such that they're only drawing from investments/savings in years following retiring and prior to state/occupational pensions starting.

[Darka]

Current yield is 4.85% (if I ignore any cash in the portfolio), otherwise if I include all cash (including reserves) then the yield is 4.53%.
That included my SIPP which I can't access yet.

I have a mixture of IT's (growth/income/growth+income) and some remaining individual shares which I'm gradually moving into IT's for a more stable (hopefully) income.

Yield is just part of total return. Yields can collapse. A simple SWR choice is more consistent. Set aside surplus capital today to spend at a later date and if you reach 33 times anticipated spending across a 30 year horizon then drawing 3.33% of the initial portfolio value, increasing that amount by inflation as the amount drawn at the start of subsequent years, and not only is that income stream consistent in real (after inflation) terms, but history indicates that a reasonably diversified portfolio has a high probability of success of sustaining such withdrawals for 30 years. More often at the end of the 30 year there is substantial amounts of the inflation adjusted start date portfolio value still intact, 3.33% x 30 years, 100% broad inflation pacing was a historic low/bad case outcome, more usually actual outcomes are much better.

Over time you may find that your original 3.33% SWR value amount has declined to being the equivalent of perhaps 2% of the ongoing portfolio value, flagging that you have surplus capacity and might draw out a modest/large amount perhaps for a new car/whatever.

More commonly use 4% SWR as their guideline, save up 25x yearly spending and then start drawing 4% SWR from that. As such 3.33% might be considered a conservative figure, but its nice to have that additional element of safety. 3.33% is more for those with longer than 30 year horizons and where state/other pensions kick-in in later decades. All very personal/subjective. For some, state + occupational pensions alone might be enough, such that they're only drawing from investments/savings in years following retiring and prior to state/occupational pensions starting.

I agree and am closer to 31 times annual spending, I would not have been happy at 25 - that's cutting things far too close.

Once my SIPP kicks in, my spending will go up but I will also be in a position to save/invest more, which will hopefully help against inflation, etc.
Living off natural yield at the moment, plus a small DB pension that my wife has which helps reduce our overall SWR to below 4%.

I do have some growth IT's and will be happy to reduce those in the future to provide income if needed, but current income is enough - aim to keep investing in my SIPP for at least the next 12 months to increase income from that in the future.

[tjh290633]

Yield is just part of total return.

To be more precise, dividends are part of total return. Dividends can stay constant or increase while yield may fall or rise.

Let's be more accurate. Total Return is made up of dividends received and capital changes.

TJH