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Retiring and living off investments
Micawber
Posted: 14 February 2017 10:35:30(UTC)
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King Lodos;43141 wrote:
...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


The clear message from Citywire's weekly Accumulator list and elsewhere is that if you were to invest in each and every asset class and sector, you would do better than the absolute return funds that (you would think) are doing something similar.

In my simplistic way I ascribe that to the high transaction, commission and other fees incurred by funds that make extensive use of derivatives, options and other highly expensive means of hedging and risk adjustment.
1 user thanked Micawber for this post.
Mickey on 19/02/2017(UTC)
andy mac
Posted: 14 February 2017 11:50:51(UTC)
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Jon

I am not sure where things are but when I raised the issue of flat rate pensions and not being £150 I was told by my MP that I was wrong and that I had misunderstood
He had a meeting with Steven Webb ( pensions minister at the time) and came back with yes I had misunderstood things and that DWP would give me a statement. I had already been told they couldnt until mid 2016, this all occurred summer 2014.

The gave me a verbal quote and it seemed they simply took 37 years NI and knocked off the number of years opted out

Needless to say when it all came to light the MP was no longer an MP and Mr Webb as well as writing for a newspaper is a consultant to a pension company

I hate to say I was right in my interpretation and if Webb had been a car salesman he would have been in court for misleading customers and making false claims

Will I get a state pension who knows?

1 user thanked andy mac for this post.
Jon Snow on 19/02/2017(UTC)
dd
Posted: 18 February 2017 23:47:26(UTC)
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I can see my state pension forecast online via the Government Gateway (£155.65 pw max providing that I contribute for 3 more years). SRA however is 5 years away*. The online statement does not have such a detailed explanation as was contained in the state pension forecast letter. That is where I saw an fuller explanation about contracting out of SERPs.

My NI contributions also appear online (as do the amounts which can be paid to make up RECENT years with a shortfall). It is good to be able to look up progress towards the number needed (41 in my case as I already have 38?)

*Regarding continuing payment of NI, it says: "If you’re working you may still need to pay National Insurance contributions (following the 3 required in my case) until (SRA) as they fund other state benefits and the NHS".
So that will be an extra 2 years, making 43.

A bit old now: http://www.thisismoney.c...s-available-online.html

Steve Webb has a very "broad brush" approach, I believe in his thinking and in his response to questions.
Jon Snow
Posted: 19 February 2017 01:30:52(UTC)
#48

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andy mac;43162 wrote:
Jon

I am not sure where things are but when I raised the issue of flat rate pensions and not being £150 I was told by my MP that I was wrong and that I had misunderstood
He had a meeting with Steven Webb ( pensions minister at the time) and came back with yes I had misunderstood things and that DWP would give me a statement. I had already been told they couldnt until mid 2016, this all occurred summer 2014.

The gave me a verbal quote and it seemed they simply took 37 years NI and knocked off the number of years opted out

Needless to say when it all came to light the MP was no longer an MP and Mr Webb as well as writing for a newspaper is a consultant to a pension company

I hate to say I was right in my interpretation and if Webb had been a car salesman he would have been in court for misleading customers and making false claims

Will I get a state pension who knows?



I assume it will be pathetic and plan accordingly.

Joe Soap
Posted: 19 February 2017 02:17:20(UTC)
#44

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Micawber;43156 wrote:
King Lodos;43141 wrote:
...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


The clear message from Citywire's weekly Accumulator list and elsewhere is that if you were to invest in each and every asset class and sector, you would do better than the absolute return funds that (you would think) are doing something similar.

In my simplistic way I ascribe that to the high transaction, commission and other fees incurred by funds that make extensive use of derivatives, options and other highly expensive means of hedging and risk adjustment.

Is there a true "whole of entire market" fund or ETF out there then?
King Lodos
Posted: 19 February 2017 03:02:26(UTC)
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Micawber;43156 wrote:
King Lodos;43141 wrote:
...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


The clear message from Citywire's weekly Accumulator list and elsewhere is that if you were to invest in each and every asset class and sector, you would do better than the absolute return funds that (you would think) are doing something similar.

In my simplistic way I ascribe that to the high transaction, commission and other fees incurred by funds that make extensive use of derivatives, options and other highly expensive means of hedging and risk adjustment.


That's *partly* because we're still in a bull market ... When everything goes up (stocks, bonds, property) it simply doesn't pay to hedge or employ complex strategies...

It's partly the myopia of time-scales ... Property's been a great low volatility investment since 2009, but funds like M&G Property have still only made about 4% over 10 years.. Hindsight would make investing easy.

Big funds like RIT Capital Partners (not to mention Yale and Princeton's endowments) have as much as 25% in Absolute Return ... Partly because property, corporate bonds and alternatives don't necessarily diversify you much ... But about the only Absolute Return fund we can easily access that college endowments would touch with a barge pole is Highbridge Multi-strategy Fund (HMSF) .. So I think RCP's a great way to get exposure to the 'big boy' Absolute Return sector .. But the sector is designed to control risk across a portfolio .. Whereas property and high yield bonds aren't.
King Lodos
Posted: 19 February 2017 03:10:04(UTC)
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Joe Soap;43426 wrote:
Micawber;43156 wrote:
King Lodos;43141 wrote:
...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


The clear message from Citywire's weekly Accumulator list and elsewhere is that if you were to invest in each and every asset class and sector, you would do better than the absolute return funds that (you would think) are doing something similar.

In my simplistic way I ascribe that to the high transaction, commission and other fees incurred by funds that make extensive use of derivatives, options and other highly expensive means of hedging and risk adjustment.

Is there a true "whole of entire market" fund or ETF out there then?


Amazingly, I don't think anyone's done one.

It would probably be called something like the Global Market Portfolio.

If you trust efficient markets and William Sharpe, it *should* be the most efficient portfolio you can hold .. Which would mean the most logical and efficient way to invest would be to hold the GMP and just use leverage to achieve whatever average return you want .. It would lag in markets like 2009-today, but would have done quite well over the century so far.
andy
Posted: 19 February 2017 14:52:52(UTC)
#42

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King Lodos;43427 wrote:
Micawber;43156 wrote:
[quote=King Lodos;43141]...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


Big funds like RIT Capital Partners (not to mention Yale and Princeton's endowments) have as much as 25% in Absolute Return ... Partly because property, corporate bonds and alternatives don't necessarily diversify you much ... But about the only Absolute Return fund we can easily access that college endowments would touch with a barge pole is Highbridge Multi-strategy Fund (HMSF) .. So I think RCP's a great way to get exposure to the 'big boy' Absolute Return sector .. But the sector is designed to control risk across a portfolio .. Whereas property and high yield bonds aren't.


Does anyone understand how HMSF works in depth? Ie. what trades / holdings it is using - and what the strategy is. I can see into RICA to a better extent - but then there are "illiquid assets" which all sounds a bit like a "don't look here". Its the same with all the absolute return / hedge funds - I have looked at things like Henderson UK absolute returns and so on - but when I seem comments about Odey and similar funds doing very poorly I wonder what has gone wrong and whether anyone outside of the "magic circle" does. For me - it seems a lot like "just trust me".

Andrew
Alan Selwood
Posted: 19 February 2017 15:13:46(UTC)
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Remember the saying:

"If you don't understand it, don't invest in it".

If you follow this principle, you will be on the same side of the fence as Terry Smith.
4 users thanked Alan Selwood for this post.
Mickey on 19/02/2017(UTC), Sara G on 19/02/2017(UTC), s webster on 19/02/2017(UTC), andy on 19/02/2017(UTC)
King Lodos
Posted: 19 February 2017 17:38:49(UTC)
#43

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andy;43440 wrote:
King Lodos;43427 wrote:
Micawber;43156 wrote:
[quote=King Lodos;43141]...right now you're lucky to get 5-6%, uncorrelated to the market, from absolute return funds – and certainly 'safe' bonds.


Big funds like RIT Capital Partners (not to mention Yale and Princeton's endowments) have as much as 25% in Absolute Return ... Partly because property, corporate bonds and alternatives don't necessarily diversify you much ... But about the only Absolute Return fund we can easily access that college endowments would touch with a barge pole is Highbridge Multi-strategy Fund (HMSF) .. So I think RCP's a great way to get exposure to the 'big boy' Absolute Return sector .. But the sector is designed to control risk across a portfolio .. Whereas property and high yield bonds aren't.


Does anyone understand how HMSF works in depth? Ie. what trades / holdings it is using - and what the strategy is. I can see into RICA to a better extent - but then there are "illiquid assets" which all sounds a bit like a "don't look here". Its the same with all the absolute return / hedge funds - I have looked at things like Henderson UK absolute returns and so on - but when I seem comments about Odey and similar funds doing very poorly I wonder what has gone wrong and whether anyone outside of the "magic circle" does. For me - it seems a lot like "just trust me".

Andrew


RICA's Illiquid Assets are a collection of (mostly European I think) hedge funds, that specialise in things like leveraged bridging loans.

So they're quite risky/specialised areas of the market, but well diversified and certainly run at a standard suitable for institutional investors (pension funds, college endowments, etc). Used as a way to reduce volatility and diversify.

HMFS is basically a collection of hedge funds (much like AllBlue before it) usually each run by different teams, covering a variety of uncorrelated, alpha-generating strategies.

If it's anything like AllBlue, there are tight risk controls on each strategy, and potentially each trader in each strategy .. In AllBlue, if a trader lost a certain amount (maybe 5%) they'd instantly have their positions cut in half – and the same again and they'd be out .. So the focus is on not losing money.

Arbitrage basically means they're exploiting some inefficiency in that market .. And with a fairly high profile hedge fund, you can at least be sure they're trying to get the best people (these funds often employ top academics, experts in artificial intelligence .. quite different from the Absolute Return sector).

http://i.imgur.com/3ktdOxp.png

If you see they've got 3% in Fundamental Macro .. Well, that *might* be somewhat analogous to Odey's Absolute Return fund – which is basically just a single strategy that makes big bets on the direction of certain things in the market.

HMSF should (in theory) be much better insulated against those kinds of mistakes .. You'd really need lots of very different things to go wrong to get a large drawdown.

Unless something happened in the banking system with the derivatives market. Then, who knows? But I may put 5% in HMSF at some point. It should be a true diversifier. I was very happy with AllBlue – although it proved overly cautious in recent years, it was a nice safety mat.

(You also see how complicated it is to make a 5% annual return that's not just 'beta' – i.e. likely to go up and down with the rest of the market.)
1 user thanked King Lodos for this post.
andy on 19/02/2017(UTC)
andy mac
Posted: 19 February 2017 23:10:30(UTC)
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are we worthy to be given this information noble one
Little gains make big differences your majesty

The old cut and paste works wonders
Money Spider
Posted: 19 February 2017 23:43:55(UTC)
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uhm
Apologies - I'm late to this thread. I'm a few years ahead of you, but not yet at State Retirement Age. I have been through this process (and it is an on-going process to an extent). My advice would to first:
1. Understand your costs/expectations so that you know what you need/are aiming for.
2. Understand and quantify the inputs (SIPPs, state pension forecast, equity released by house sale etc.)
3. Understand the tax regime (there was a discussion which include this around 25 Oct 2016 titled " Investing for Income" http://moneyforums.cityw...r-income.aspx#post38770
4. Build yourself a plan (spreadsheet) including all the above. You can then run the 'what-ifs' against different decisions/growth rates/timings etc.

My advice:
1. You don't need to crystallise 100% of your SIPP in one go, you can do it in tranches. Why take all the tax-free cash now, better to leave it growing free of tax (for now) in your SIPP - unless you have unused ISA allowance and no other cash.
2. Use personal tax allowance each year, as others have said. Otherwise you lose it, but will pay income tax on it in future years.
3. Maximise tax-free allowances if it fits with your investment strategy. You can receive £22,000 before tax this year (£33,100 if you include CGT allowance).
4. Check if you're near the SIPP LTA (Lifetime Allowance) tax threshold. Remember that it is tested EVERY time you crystallise part of your SIPP and AGAIN on your 75th birthday. Your can model this likelihood with your plan spreadsheet.
5. Optimise your income with your wife/partner/significant other to minimise tax. In your position I probably would continue to pay into a SIPP (unless you have elected for LTA protection). At the very least you'll get £720 tax relief p.a.in your SIPP. Ditto for wife/partner etc. and you can do so at least until you're 75. I don't think the HMRC position is a problem if you're contributing each each year and if your taxable investments yield at least the contribution. It might be an issue if you take, say, £100k tax-free from your SIPP and immediately make a one-off contribution of £40k.

In my spreadsheet (a column for each year) I also calculate the GAD Rate for Fixed Drawdown (even though I am not in Fixed Drawdown). This gives me a 'high water mark' for drawdown and I compare it to the amount I plan to drawdown. In practice I keep below the natural yield - generally about 3.5%-4% depending on actual pf make-up.

BTW, your plan will be a live spreadsheet - I have made thousands of changes to mine over the past 3-4 years as I've learned more, adjusted to tax changes, updated annual inflation rates, updated income out-turns, changed BCE (benefit crystallisation event) timings etc. etc.
It's a lot of fun! ;-)
2 users thanked Money Spider for this post.
Jon Snow on 20/02/2017(UTC), uhm on 20/02/2017(UTC)
sandid3
Posted: 20 February 2017 02:43:40(UTC)
#53

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In my view there is no such thing as 'income'. If you receive a dividend, say, and put the cash in the bank then that is a reallocation of capital investment; it is still capital.

What matters is not income but liquidity - your ability to pay the bills on time. A sudden large expense such as a medical bill doesn't need actual cash, just the ability to liquidate some of your capital quickly.

The main liquidity difference is between shares/funds which can be cashed within days and property which may take months to liquidate.

So long as you have adequate liquidity available for all contingencies then you can take the long view. Will your capital grow in value at or above the rate at which you liquidate your capital for living expenses or will you need to run down your capital over time?
3 users thanked sandid3 for this post.
Sara G on 20/02/2017(UTC), uhm on 20/02/2017(UTC), King Lodos on 20/02/2017(UTC)
uhm
Posted: 20 February 2017 14:01:35(UTC)
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Money Spider - your spreadsheet sounds like a useful tool.
Did you make it up yourself or is there a template one can start working from?

I have spreadsheets to keep track of dividend income, one for overall valuations and another to track share / bond proportions. As I don't withdraw anything from SIPPs ISAs etc I just leave it at that.

I can see that if and when I start relying on these investments a spreadsheet like yours would be very helpful.
Money Spider
Posted: 20 February 2017 15:14:43(UTC)
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uhm,
My spreadsheet is invaluable to me and drives my thinking and strategy re. Drawdown. I started it shortly before choosing to stop working a small number of years ago. I've developed it all myself and the process of doing so is highly valuable and has greatly increased my understanding of the opportunities and constraints. It has nothing to do with WHERE I invest - that's in separate spreadsheets.

I cannot give you a copy (too much personal info), but I'll describe some key elements to help you if you decide to follow this route. It's all done using a MS Excel Workbook. On each sheet, one column/year L to R ascending from when I started to the year of my demise ;-). The most important bit is current to 75th birthday (last time LTA is tested).
Sheet 1: Master SIPP sections in rows (delineated by the '/') are:
SIPP Capital Fund(uncrystallized): Opening Value/Xfer to Drawdown Fund/Forecast Growth/Closing Value (Opening-Transfer+Growth)/Current Value/Actual Growth

SIPP Drawdown Fund: Tax-free cash/Opening Value/Forecast Growth/Pension Drawdown/Closing Value (Opening + Growth - Pension Drawdown)/ Pension Drawdown as % of Drawdown SIPP/Current Value/Actual Growth

Various Metrics: Cuml. tax-free cash/Cuml. funds transferred to Drawdown/Cuml. Funds taken into Drawdown SIPP/Excess Funds in Drawdown SIPP(funds taken in minus current value)/ LTA used in ££ (i.e. total value to date)/LTA used in %/ Drawdown % of combined funds(Capital and Drawdown)/GAD Drawdown %

Income (self): State Pension/SIPP Drawdown/Investment Income/Gross Income

Income (Mrs MS): as above

Tax (self): Personal Allowance/BRT/HRT/Dividend Tax/Dividend Higher Rate Tax/ Total Tax/Net Income/Tax % of Gross Income

Tax (Mrs MS): as above.

Minimum desired Net Income (increases with 20 year inflation each year)

Last section gives each Tax allowance and rates for each year (real or forecast) and State pension forecast.

It might sound complicated, but like all spreadsheets, each column is essentially the same as, and driven by, the previous one. You decide in which years to crystallise extra funds from the SIPP Capital Fund. This way you can maximise income, minimise tax in whatever way you choose. It's just like a basic revenue/cost/margin plan that I'm sure you will have used in your business.

Other sheets cover: Mrs MS's SIPP, Investments (Tax-free cash/Taxable Cash/Share ISAs/ Taxable investments), Various metrics, graphs etc. 'net income to age 75' (to manage LTA implications).

You can start simple (like I did) and develop as you wish. I would also advise not to ignore LTA - like IHT, I think a lot of people will have to pay it in the future (they just haven't realised yet).

Good Luck.
2 users thanked Money Spider for this post.
uhm on 20/02/2017(UTC), S Dobbo on 25/02/2017(UTC)
Jon Snow
Posted: 26 February 2017 23:29:09(UTC)
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Here's a link to a very informative review/update/dissection of the current state pension, qualifying years, NICs, the top up/no top issue and other options.

Interestingly even this guy can't nail how to calculate reductions to the state pension for the years someone is contracted out (usually in a DB scheme).

It also shows how you can't trust the government to deliver their part of the bargain you thought you struck a long time ago -

http://the7circles.uk/st...voluntary-class-3-nics/

1 user thanked Jon Snow for this post.
uhm on 01/03/2017(UTC)
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