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Thread: Retiring and living off investments

  1. #1

    Retiring and living off investments

    I am in my mid fifties and considering - or more rightly, being forced to - retire from running my part owned business. I have built up assets including my main residential home, SIPP, ISAs and cash savings. I am planning to eventually downsize my residential home and move to a cheaper part of the country. In the meantime I would be living off the other investments, starting with the cash savings. Does using the cash savings first and leaving the investments untouched for as long as possible make sense?

    I have read the Morningstar paper from May 2016 on safe withdrawal rates for UK and European investors. I basically suggests that the 4% per annum rule is too high and a safer withdrawal rate of between 2.5 and 3.0% would put one at less risk of eventually running out of money.

    I would therefore look at withdrawing 2.75% a year from my total investment pot (excluding the house). I have not factored in state pension as this still seems too far off to think about for me.

    It would be interesting to hear how others in a similar position manage - especially regarding withdrawal rates and methods. For example, do you just draw off natural yields (dividends etc) or do you use a combination of yield and growth to draw on?

  2. #2
    You typically want to hold about a year to two year's worth of cash if you are living off investments. This is to avoid being a forced seller in a down market.

    So yes, you would want to use the cash first up to about that sort of limit, though you also want to take a big picture look at your asset allocation, it may be that you have too much in cash - if you had ten years' worth you would be open to the hazard of inflation, which needs balancing against the hazard of volatility

  3. #3
    I think a gross withdrawal rate of 4% is fine, after investment and platform costs, you are looking at a net 3%.

  4. #4
    I agree with you on the cash aspect. I wish I had invested my cash many years ago rather than holding on for that "rainy day". I have my reasons for this - mainly that as I run my own business, unlike my employees I am never guaranteed a wage at the end of the month. There have been periods in the past when I had to forego wages in order to keep the company going. I suppose I over compensated for this by over weighting cash.

    Now of course I would be loathe suddenly to plough say, several years of cash into equity / bonds in one go. I may be better putting a year's worth in per year, for example, until I reached a lower level as you suggest.

  5. #5
    I'll tell what I do as I am now in the position of being retired and living off investments.

    Mrs Boat has a pension which we draw.

    We have ISAs and take the natural yield.

    I have a SIPP where I draw the max to keep me from paying tax about 900 a month. The SIPP has a cash buffer of two years income.

    I have been doing this for two years, the ISAs and SIPP have increased in value even after taking the income.

    I can't advise you what to do other than to say think very hard before drawing all your cash.

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