As we draw to the close of 2021 and continue learning, for another year, how to live with the pandemic, an interesting and perhaps unintended consequence, has been the Great Retirement.
What is the Great Retirement?
There has been increasing evidence of older workers leaving the workforce and then deciding that they will not return to work as different parts of the economy have reopened.
Even before news of this Great Retirement, we had already committed to further researching the subject of “how much can I really spend from my savings and investments if I stop work”?
On the face of it, seemingly a very simple question and couldn’t we just use some time-tested rules of thumb which suggest that withdrawing between 3% and 4% from your investments and pensions per annum, ought to be sustainable over the longer term?
Just to clarify, we’re not suggesting you look for and simply invest in Assets that can produce a “natural income” (dividend yield, interest, rent etc..) of between 3% and 4% per annum. That leads to a horribly skewed investment strategy that focusses too much on shares that pay larger dividends and excludes vast swathes of the investment universe, and we all know what happens when companies, as they do, cut or stop dividends…
We need to recognise and acknowledge that for the majority, lifestyle spending, once you are no longer working full-time is unlikely to increase in a nice linear fashion from your late 50’s to your late 70’s.
For many, there is a desire to spend and do more in their 60’s and early 70’s, with the likelihood that spending will decrease or flatten from mid-70’s onwards.
We believe the adoption of dynamic spending strategies could result in far greater spending potential if implemented with the most appropriate investment strategy.
Dynamic spending strategies – the good news
In brief, applying some very simple rules about how much you spend each year and whether you should or shouldn’t increase those payments each year.
With a well-diversified investment portfolio which includes an appropriate mix of shares and safer assets, we believe there is now sufficient evidence to suggest spending rates can be over 5% per annum if the appropriate checks and balances are put in place to review both spending and investment performance annually.
In our next blog articles we’ll be sharing more detail and justification of why we believe this approach to be justifiable, but if you are part of the Great Retirement group or you’re simply questioning “do I have sufficient to make work optional now?”, please don’t fall back on some of the old rules of thumb and start the next phase of your life by potentially, limiting your lifestyle unnecessarily.
If you have any questions about this article or your portfolio, please call on 01825 76 33 66 or send us a message via the form below.
