Saturday 20 July 2019

Sobering retirement income drawdown demonstrations – 12.5 years in

Another year has passed for our UK early retiree.  A year ago I wrote that in the worlds biggest economy, the United States, Donald Trump was starting trade wars and the S&P500 cyclically adjusted price earnings (CAPE) ratio was sitting at 32.0 against a long run average of 16.9.  A year on it’s almost déjà vu with the trade war with China still rumbling along and the S&P500 still on a high 30.4.  Closer to home I wrote that we had a Brexit shambles playing out in slow motion that might just ruin the economy for a long time.  A year on and the whole Brexit situation has moved on to become a joke with politicians continuing to promise unicorns while the FTSE100 has fallen 2.8% in nominal terms.  Of course dividends continued to be paid which will have dampened that fall.

Against this environment it’s unlikely a UK early retiree who has opted for a higher withdrawal rate will be dancing for joy but let’s take a look.

This update of the drawdown demonstrations now has our retiree some 12.5 years in to retirement.  It assumes our retiree is not one of the lucky ones sitting on a defined benefit pension (although it’s likely they’d need some other income source in the early years if they’re going to FIRE), isn’t intending to buy an annuity (again, not likely for the early years of FIRE) and isn’t planning on living off the State Pension (although 12.5 years in to retirement our UK retiree might just be starting to get to an age where there might be some predictability in what they might receive here so they might want to start baking a portion into their models).

We are now fast approaching the half way mark that the 4% rule is based upon and this simulation assumes retirement was taken on the 31 December 2006.  If this date sounds convenient then you’re right.  The date was deliberately chosen as it is the year prior to the commencement of the global financial crisis and so hopefully represents a modern worst case.  Someday it may even go down in history as one of the time periods which saw a poor sequence of returns however of course that will only become clear when we are firmly looking in the rear view mirror many years hence.

Sunday 14 July 2019


Personal Finance is a major hobby of mine.  I’ve now been absorbing everything I can about saving, investing and financial independence since late 2007.  In November this year I will have also been blogging about it for 10 years!  When I go on holidays I’m also the one reading Wall Street Revalued  and not that latest John Grisham novel

In my last post I mentioned the Ikigai model and if I apply that to personal finance I get the following...

Click to enlarge, Source

What you LOVE:
  • Sad I know, but I never have to force myself to read a personal finance book, read the latest post from great blogs like Monevator or fire up Excel on my steam driven laptop.  In fact it’s the opposite for me.  I gravitate to this stuff so yes I’d say I love it.
  • If I think about my previous (and even current to some extent) work/job I also used to love enabling others with training, coaching, process improvement and then with light touch sitting back watching them succeed.  I always took little satisfaction out of my own success but I took a huge amount of satisfaction out of watching my team succeed over and over.  I think this is why I’ve also stayed blogging for so long.

What you are GOOD AT:
  • I am reasonably good at maths and now have more than 10 years of personal finance knowledge under my belt.  Sure, I’ve made mistakes and I’m sure will continue to do so but on the whole I think I’ve managed to get more things right than wrong.  I don’t think I would have achieved financial independence in 8.7 years if that wasn’t the case.  So yes, I’d say I’m good at it.
  • In my previous day job I was also pretty good at teaching and developing others to succeed.  In some of my later roles it would have been impossible for me to do my job well if that wasn’t the case.
  • While not being a fantastic motivational speaker I am pretty confident in smaller training / workshop environments where on many occasions I’ve been successful in getting the message across.