Peak Fire?

[kempiejon]

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

But how is natural yield falsified? Investing for yield may be suboptimal and your study may show that - but what is optimal and how can one always invest optimally?

Not sure TR is an approach but a measure? The combination in wealth growth or not, combining capital appreciation and interst or other income thrown off by investment and accumulated into those invstments.
In deaccumulation natural yield will lead to fluctations in income one may have a way to mitigate that risk or smooth the flow - like excess income or a cash buffer ideally both.

[vand]

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

But how is natural yield falsified? Investing for yield may be suboptimal and your study may show that - but what is optimal and how can one always invest optimally?

Not sure TR is an approach but a measure? The combination in wealth growth or not, combining capital appreciation and interst or other income thrown off by investment and accumulated into those invstments.
In deaccumulation natural yield will lead to fluctations in income one may have a way to mitigate that risk or smooth the flow - like excess income or a cash buffer ideally both.

You can falsify something simply by providing one case study that refutes the thesis.

The observation of one black swan can falsify the claim that all swans are white.

In this case the the dismal performance of that natural yield strategy through the GFC has falsified the idea that all you need is to have a high dividend yield to protect you from capital depletion and premature portfolio failure.

[vand]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

What on earth is "orthodox FIRE"? That's not a concept I buy into.

As far as I am concerned this is a discussion between people with a shared interest in accumulating enough wealth to retire early by whatever means they consider appropriate.

Scott.

- Cap weighted global Index funds
- 4% rule

[JohnB]

Unless you are investing for your children, you will be spending capital at some point. You might as well invest for TR in ACC units and realise what you need by selling once a year. The exception is non sheltered investments when tax policy suggests that its better to be taxed on capital gain than dividends, and CGT calculations a pain. Even after the budget the allowances are bigger and rates smaller.

Its only the psychology of not wanting to sell, and the comfort of dividends appearing in your bank account that makes a dividend approach attractive

[Arborbridge]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

see ERN SWR series 29/30/31

https://earlyretirementnow.com/2019/02/ ... s-part-29/

Another tip sheet by chaps on the internet - What does that prove? And who defined "orthodox FIRE"? FIRE is just an expression - more a philosophy for life or a personal aim - it isn't a method of itself. There are many ways of achieving Financial Independence and Retiring Early - one of which is to inherit pots of gold! Would that be "orthodox" - to be born with a private income?

Seems like something one can make up as one so desires.


Arb.

[SalvorHardin]

If any of you guys are happy to reveal such a thing, are you living off dividends, selling off the capital, or a combination of both?

I expect that when I take early retirement, I'll be taking dividends and some capital from my SIPP up to the tax free threshold (plus tax free lump sums), and taking whatever extra I need from my ISAs. Probably my SIPP will be pretty depleted by my mid 60s (though it depends on the performance), when I'll be taking my state pension and a smallish DB pension, again topped up from the ISAs. Does this sound like a sensible strategy?

Currently my dividends are roughly twice my required income.

Next year they should be about four times my required income as a result of some major portfolio changes. Mostly because I have largely given up investing in the UK after seeing the NIMBYs and BANANAs response to Liz Truss' supply side reforms, putting the proceeds into a job lot of American REITs yielding about 8% as a group.

If I end up spending capital to live off, either something has gone spectacularly wrong or I have acquired an extremely expensive wife or girlfriend (the latter is about as likely as my being called up to the Welsh rugby team)

I should add that I am a big fan of people acquiring sufficient "sod off money" (there is an expletive deleted version). Enough money so that with your skills and lifestyle you can walk away from your current job and secure an alternative income fairly soon (or are wealthy enough to just walk away, as I did, several times).

[xxd09]

Just my penny’s worth
Been retired 18 years
Just 3 global equity and bond index funds only -all in accumulation mode inside SIPPs and ISAs
Just sell some units from the 3 funds once a year to top a 2 years living expenses high interest cash account that feeds the current bank account as required
Always sell to keep the asset allocation intact
That’s it
Worked so far
xxd09

[vand]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

see ERN SWR series 29/30/31

https://earlyretirementnow.com/2019/02/ ... s-part-29/

Another tip sheet by chaps on the internet - What does that prove? And who defined "orthodox FIRE"? FIRE is just an expression - more a philosophy for life or a personal aim - it isn't a method of itself. There are many ways of achieving Financial Independence and Retiring Early - one of which is to inherit pots of gold! Would that be "orthodox" - to be born with a private income?

Seems like something one can make up as one so desires.


Arb.

As, I suppose, all financial advice is, as I think we can all agree that there are a very wide range of plausible outcomes for the future.

[tjh290633]

I should add that I am a big fan of people acquiring sufficient "sod off money" (there is an expletive deleted version). Enough money so that with your skills and lifestyle you can walk away from your current job and secure an alternative income fairly soon (or are wealthy enough to just walk away, as I did, several times).

I have to agree 100% with that point of view. Being able to tell a company what they can do with their business is a great freedom. Fortunately never needed by me but I was always prepared.

TJH

[tjh290633]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

[vand]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

Sure, but what happens when your dividend income fails to keep up with living expenses? There is no guarantee that dividend growth will keep up with inflation or, even if it does over the long term, that it will do so right at the point where you need it to the most.

[1nvest]

Just my penny’s worth
Been retired 18 years
Just 3 global equity and bond index funds only -all in accumulation mode inside SIPPs and ISAs
Just sell some units from the 3 funds once a year to top a 2 years living expenses high interest cash account that feeds the current bank account as required
Always sell to keep the asset allocation intact
That’s it
Worked so far
xxd09

Just drawing from the most above weighting at the time broadly works as equally as well. Buy once, and other than dividends auto-reinvested, never buy again, just sales.

I don't feel the need to maintain 2 years in cash, and monthly proportioned sales work OK (with ii brokerage now giving you 1 "free" trade/month in exchange for the £10 monthly fee that I never used to have to pay under TD Waterhouse/Direct, might as well use that as the monthly 'wage' trade). I like to log in at least once/month just to check nothing untoward and if I wasn't actually doing something I'd be more inclined to not bother checking and it could be months before something amiss might be observed/flagged.

SWR approach, RPI based, so looking like a 14% increase in income this year.

[Dod101]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

Sure, but what happens when your dividend income fails to keep up with living expenses? There is no guarantee that dividend growth will keep up with inflation or, even if it does over the long term, that it will do so right at the point where you need it to the most.

You got this the wrong way round. Your living expenses should not exceed your income. I know very well that my expenses can be infinite but that is not what I am about. I live well within my means (and for me that means my dividend income) and so should everyone.

Dod

[DrFfybes]

You got this the wrong way round. Your living expenses should not exceed your income. I know very well that my expenses can be infinite but that is not what I am about. I live well within my means (and for me that means my dividend income) and so should everyone.

Dod

We have no intention of living within our means. As we operate a TR portfolio that would mean accumulating wealth, and as we only need 1.2% or so yield we intend to plough through it a fair bit, either spending it or gifting it.

No point in leaving it for the tax man.

Paul

[hiriskpaul]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

Sure, but what happens when your dividend income fails to keep up with living expenses? There is no guarantee that dividend growth will keep up with inflation or, even if it does over the long term, that it will do so right at the point where you need it to the most.

Depends what is meant by accumulating and decumulating. I would say that accumulating was the process of investing employment income, reinvesting any income generated along the way. Decumulation is taking money from the accumulated pile and spending it on everyday needs. Whether the value of the pile still grows or shrinks is I think neither here nor there. It would likely rise during some periods, fall in others. The same would be true during accumulation, but if the value of the pile went down, IMHO that would still be accumulating if I was still directing employment income at investments and not drawing from investments for everyday spending.

I really cannot see how taking a natural yield could be classed as not decumulating, same if money was just left in a bank and just the interest spent. But again, depends on the definition. Reinvesting all income, but not adding anything from elsewhere would, for me, not classify either as accumulating or decumulating. By my definition, I am decumulating as I have no employment income of any material value and spending from savings and investments.

[Dod101]

You got this the wrong way round. Your living expenses should not exceed your income. I know very well that my expenses can be infinite but that is not what I am about. I live well within my means (and for me that means my dividend income) and so should everyone.

Dod

We have no intention of living within our means. As we operate a TR portfolio that would mean accumulating wealth, and as we only need 1.2% or so yield we intend to plough through it a fair bit, either spending it or gifting it.

No point in leaving it for the tax man.

Paul

Were I in your position (as I understand it) I can well see your point. I have five grandchildren and am leaving the bulk of my estate to them so I do live within my means. I could not do otherwise anyway, because that is the way I have always operated. Never know what is around the corner!

Dod

[vand]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

Sure, but what happens when your dividend income fails to keep up with living expenses? There is no guarantee that dividend growth will keep up with inflation or, even if it does over the long term, that it will do so right at the point where you need it to the most.

Depends what is meant by accumulating and decumulating. I would say that accumulating was the process of investing employment income, reinvesting any income generated along the way. Decumulation is taking money from the accumulated pile and spending it on everyday needs. Whether the value of the pile still grows or shrinks is I think neither here nor there. It would likely rise during some periods, fall in others. The same would be true during accumulation, but if the value of the pile went down, IMHO that would still be accumulating if I was still directing employment income at investments and not drawing from investments for everyday spending.

I really cannot see how taking a natural yield could be classed as not decumulating, same if money was just left in a bank and just the interest spent. But again, depends on the definition. Reinvesting all income, but not adding anything from elsewhere would, for me, not classify either as accumulating or decumulating. By my definition, I am decumulating as I have no employment income of any material value and spending from savings and investments.

Yes, agree - from FIRE perspective accumulation/decumulation is clearly demarcated from going from earning income to help grow your wealth to living off the proceeds of your asset base.

Whatever form the earning stream is neither here nor there - dividends are just one way that the proceeds of a business are returned to the owner of that enterprise (others being: stock buyback, debt repayment, R&D & acquisitions).

Whether or not your wealth is still growing during decumulation is not really the point - indeed given the vagaries of the market and sequencing of returns, in most cases you can expect your wealth to continue to grow for a decade or more even as you live off it, and if that doesn't happen (as is the case for 2021 retirees) then you can expect a bumpy ride and to be in the bottom decile or so of distributed outcomes.

[DrFfybes]

We have no intention of living within our means. As we operate a TR portfolio that would mean accumulating wealth, and as we only need 1.2% or so yield we intend to plough through it a fair bit, either spending it or gifting it.

No point in leaving it for the tax man.

Paul

Were I in your position (as I understand it) I can well see your point. I have five grandchildren and am leaving the bulk of my estate to them so I do live within my means. I could not do otherwise anyway, because that is the way I have always operated. Never know what is around the corner!

Dod

.
Yes - that is the concern, we're bordering 60 so there could be a lot of corners to come.

And you are correct - LBYM is a lifestyle, a mindset, it IS difficult to change. Even yesterday I was in Morissons thinking "Do I NEED a large bag of carrots or should I save 20p?", but I did buy an overpriced choccy yule log But lot of stuff we didn't buy when we were saving we actually realise that now we can have it, we don't really want it. Going from saving it to spending it is also taking some getting unsed to.

With 10 great niece/nephews we're taking baby steps, monthly conributions to their JISAs, Xmas and birthday gifts, etc. but who knows, maybe 10% inflation will be here to stay, along with a 50% drop in equities. Then we'd regret giving it away.

Paul

[Dod101]

We have no intention of living within our means. As we operate a TR portfolio that would mean accumulating wealth, and as we only need 1.2% or so yield we intend to plough through it a fair bit, either spending it or gifting it.

No point in leaving it for the tax man.

Paul

Were I in your position (as I understand it) I can well see your point. I have five grandchildren and am leaving the bulk of my estate to them so I do live within my means. I could not do otherwise anyway, because that is the way I have always operated. Never know what is around the corner!

Dod

.
Yes - that is the concern, we're bordering 60 so there could be a lot of corners to come.

And you are correct - LBYM is a lifestyle, a mindset, it IS difficult to change. Even yesterday I was in Morissons thinking "Do I NEED a large bag of carrots or should I save 20p?", but I did buy an overpriced choccy yule log But lot of stuff we didn't buy when we were saving we actually realise that now we can have it, we don't really want it. Going from saving it to spending it is also taking some getting unsed to.

With 10 great niece/nephews we're taking baby steps, monthly conributions to their JISAs, Xmas and birthday gifts, etc. but who knows, maybe 10% inflation will be here to stay, along with a 50% drop in equities. Then we'd regret giving it away.

Paul

Actually although I live within my means, I do, in addition, give away quite a bit as well for birthdays , Christmas and so on plus give to charity from time to time. So I do not think I am miserly. That spending is though entirely discretionary and can be modified easily. That suits me and my mindset.

Dod

[vand]

While this may be true in 2022, orthodox FIRE does not condone a dividend heavy approach, but rather (correctly IMO) a total return one.

HYPers (of which I consider myself one) should be very aware that the natural yield approach has been falsified and proven not only sub optimal in terms of accumulation than a TR approach, but also more risky in decumulation.

Hold on a bit. If one is living off the natural yield, one is not decumulating. That implies withdrawing capital. Reinvesting the income is accumulating.

TJH

Sure, but what happens when your dividend income fails to keep up with living expenses? There is no guarantee that dividend growth will keep up with inflation or, even if it does over the long term, that it will do so right at the point where you need it to the most.

You got this the wrong way round. Your living expenses should not exceed your income. I know very well that my expenses can be infinite but that is not what I am about. I live well within my means (and for me that means my dividend income) and so should everyone.

Dod

No, I don't.
In order to maintain your standard of living you need to consume a certain level of goods and service, which requires a certain level of income.

Of course most people can cut their expenditure, but then why bother having a retirement framework at all - just work for a year and wing it for the next 50?