[EDIT – apologies, got some emails and realised that comments had been turned off by accident! Should be right now, I will copy and paste the emails]
I wondered what would happen if I asked ChatGPT to write a blog as me:
Calm haha! 😀
For the AI draft post, scroll to the bottom but in the meantime, the following is written by the real me!
Decumulation!
Since I announced that I plan on FIRE’ing in 2027, a decumulation plan has been shuffled up my to-do list, if you can imagine my list as a crammed post-it note with scribbles on!
Sadly, due to a combination of procrastination, brain fog and exhaustion, I’ve not been giving this much head-space.
I first mentioned my thoughts on decumulation four years ago, and not really thought much on it since.
Anyway, it’s time to think about it.
So, in the latter part of 2027, my aim is to pull the trigger on full time corporate work and skip gleefully towards the FIRE sunset, where I will metamorphose from a saver to a spender.
Already, I feel a little anxiety (but also some excitement) about having to sell down my investments for income, but it’s something I will have to get used to doing.
The broad visualisation of how my retirement will be funded has been updated as follows:
In simple terms:
- My Future Fund (FF) will provide my income from when I FIRE up to age 65
- From age 65, my income will be from my FF and my DB pension
- From age 67, my income will be from my state pension, DB pension and my FF
My aimed income is £30k-£31k, which is pretty much the income cited as being required by a single person living a moderate retirement, according to Retirement Living Standards.
The State Pension
Yes, the state pension is part of my plan. If it becomes means tested in the future, I’ll cross that bridge when/if it comes.
However, by the time I am state pension age, I will have probably spent most of my Future Fund/wealth (the dividend income part of it should still be untouched), so I reckon I would likely skirt under any kind of means tested threshold, assuming that it will apply only to them millionaire pensioners, right? But who knows?
The state pension and my DB pension should provide me with a minimum income floor, which is the minimum amount I think I can live on fairly comfortably, with all my basic costs covered.
What’s left of the FF will provide me with a more comfortable retirement.
Yes, I’ve kept the age of 100 in the illustration – that’s just the number I’ve used in my spreadsheets, not a prediction of how long I will live!
Derisking!
The markets have been on a mission to the moon this year but rather than be happy that my FF is growing, I’ve been looking over my shoulder at what could go wrong. AI bubble? Property bubble? Some other bubble? These can and will burst at any time, leaving retirement plans in tatters.
In July, I updated my aimed allocations to broadly 75% equities / 25% bonds & gold.
At the time of that update, my allocation was 84/16.
Today, my actual current allocation is 72/28 as I have been making small adjustments and will continue to do so.
Will it ultimately end up as being 60/40? I’m not sure yet.
New capital has been used to buy bonds/money market funds or gold.
But there have also been sales:
Finally taking some profits
Some of the proceeds were diverted to bonds and gold.
Some of it was used to switch to VanEck Developed Markets Dividend Leaders ETF (TDGB), which is a global ETF but not massively exposed to the Mag 7 stocks or AI, so I hope to continue bagging some gains while/should they continue. Across my entire portfolio, VWRL/VWRP is still my largest global ETF holding, but TDGB is fast catching up and I may switch some more over.
And finally, some of the proceeds is still sitting as cash in my broker accounts, with the hope that I’ll find the courage to dive back into the market when it tanks. I haven’t done this before so no idea how I will feel or react.
The above screenshot is just from my Freetrade account – my other accounts with AJ Bell and HL have been similarly adjusted.
I haven’t finished with the switching and adjustments yet and will continue to tweak my portfolios. I have to say I feel a little less fearful now that I’ve started.
My default action in investing has always been to do nothing and that’s usually worked out for me in the past, but I think in this case, I needed to do something.
Whether the ‘something’ ends up being enough, well we’ll have to wait and see.
And Finally – the AI/ChatGPT draft blog post
Below is the full copy and paste, my comments in [red]. It’s not bad, quite incredible considering the short prompt/instruction that was given. However, I think it sounds a bit clichéd. Or do I really sound like that?! Oh dear, haha!
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Retiring Early in 2027: Starting to Think About Decumulation
I have been working toward early retirement for several years now, and until recently, the focus has mostly been on accumulation. Put money in. Invest regularly. Keep costs low. Avoid lifestyle creep. Repeat. It has always felt like a long-term project. Something that lived somewhere comfortably in a distant future.
The “future” part has started to shrink.
If all goes to plan, I want to stop full-time work in 2027. That is just over two years away. Suddenly this idea, which once felt theoretical, has become something with dates attached to it. I can almost see myself handing in my notice. It is exciting, but it has also made me realize how much I need to start thinking about the next phase: decumulation and de-risking.
The Numbers So Far:
At the moment, my investments are sitting around £X across a mix of:
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S&S ISA (global equity trackers mostly)
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SIPP (target-date default fund [this is wrong] and some global equities)
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Cash savings for emergencies
I am still contributing regularly, and I do not plan to stop until I actually leave work. However, the risk profile of my portfolio has been set for accumulation. Almost everything is in equities. That has served me well during the last several years, but I am aware it may not be the right setup for drawing an income.
Decumulation Feels Mentally Hard
Saving always had a simple direction: forward. Spending down feels different. I know the maths [yes, maths not math!] says a sensible withdrawal rate, diversified portfolio, and keeping enough in cash or bonds to cover near-term spending should be fine. Even so, watching the total number reduce will feel strange.
It may take practice. I think I will need to rehearse it, possibly by:
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Setting up a hypothetical annual withdrawal and tracking how it would have played out [good idea!]
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Or carving off a portion of my investments into a “living expenses pot” and seeing how I feel
The emotional side of decumulation is not discussed enough. [I’ve mentioned on several occasions that I will struggle to sell my investments]
De-risking without Going Too Far
I am not planning a dramatic shift into bonds overnight. [correct!] I know that I still need growth, especially if I am retiring early and expecting my investments to support me for several decades. However, I am considering gradually increasing the allocation to bonds and gilts over the next two years, so that when I step away from work, I have:
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2 to 3 years of spending in lower-volatility assets
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The rest continuing to stay largely in global equity trackers
This should limit the impact of a market downturn just as I begin withdrawing.
I do not want to become ultra-cautious and lock in lower returns for the long term. I just want to avoid a scenario where the market dips heavily in the first year of retirement. Sequence-of-returns risk is something I would rather plan for now than regret later.
Next Steps
Over the next few months, I want to:
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Define my expected annual spending in retirement more clearly. [done]
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Decide on a target asset allocation for 2027. [getting there]
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Test a drawdown strategy using my existing figures. [to do]
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Continue contributions as normal, since I am not there yet. [doing]
Retirement used to feel like a distant concept. Now I find myself imagining normal weekdays that belong entirely to me. I like that idea. I want to enter that stage prepared, calm, and not worried about the markets every time I make a withdrawal. [sadly, I think I will always worry a little!]
So I suppose this is the beginning of Phase Two.
More thinking ahead. Less sprinting. Still moving forward.
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I need to really look at step 3, which will take some time, a new spreadsheet or two, but need an easy to follow plan for me to implement. With various portfolios and moving parts, it was never going to be simple but it needs to be a strategy I can stick to.
I’m unlikely to document monthly progress of this drawdown simulation, might consider a six month update (quarterly if I feel like it), once I’ve got some months’ worth of data.
I’m not sure I will be able to get this in place by the end of the year – I have some days holiday I need to use up and I could use this time constructively and proactively, but this will take a lot of thinking time.
How go your decumulation plans?
From Martin T:
Hi Weenie, I’ve been looking forward to this post for some time, so thank you, and well done for getting something on paper – I think prevarication in the face of the bewildering range of possibilities is all too easy! I’m sure you will have seen that Monevator has last week produced the first in a very timely series of posts on de-risking your p/f in the lead up to fire.
One aspect I’m jealous of is the fact that (if the graphic is accurate!) your DB plus SP will provide a guaranteed income floor comprising most of your target figure (c. £25k?), meaning your FF has only to bridge the gap, and then provide a top up. I’m guessing that means you can afford to take more risk with it?
I’m in a rather different situation – everything apart from SP (when it arrives) will have to come from SIPPs/ISAs, leaving me with a conundrum – safer investments with lower returns, or riskier, with the potential for both higher returns or greater failure. Decisions, decisions….
Hi Martin
Sorry, I hadn’t noticed that comments had been turned off that post – I will post your email there and also my reply.
Indeed, there’s still so much to think about in terms of decumulation and I feel like I have scraped the surface but it’s a start! I am behind on my blog reading so need to read the Monevator post on de-risking.
Yes, my DB and SP will pretty much guarantee an income floor of around £25k and my intention has always been to use my FF to bridge the gap. I feel that I have taken some risk with it, hence pondering if I should make it a 60/40 allocation or something with more equity?
All the best with your decision making!
From Seanos:
Great to see you are getting nearer to FIRE. With respect to your DB pension, have you done the numbers on taking it earlier? In theory it’s normally cost neutral if you live to an average age. If you die early you ‘win’ financially, if you die later you ‘lose’. You have a personal tax allowance of £12.5k and deciding on the mix of DB, SIPP and ISA withdrawals could potentially save you a lot of money. Also a DB pension is worth nothing if you die if you have no spouse/dependents, whereas a SIPP can be passed on.
Hi Seanos
I haven’t looked at taking the DB earlier but unless something has changed, it was quite a punishing deduction, something like 8% a year! I may request a quote, just to see what it would drop to, if I took it say a year or two earlier.
Yes, I hope to minimise my tax burdens by juggling the various SIPPs, ISAs and DB; once SP is claimed, there’s no escaping paying tax but before then, I will be trying to pay as little as possible.
Agree, I can’t spend money when I’m dead – when I’m gone, it’s gone!
From Martin:
Hi Weenie,
Thanks for this thought provoking post. I feel I am on a similar trajectory (timeline) to you.
Thanks to your monthly update and discipline of recording the figures it made me focus on my total fund value etc. thus checking it is on track. I don’t think it will be retire early as in my 50s etc but certainly a few years before the state pension kicks in. Why now? A TUPE process that I am going through now means major change I.e cultural and IT etc. So I think April 27 looks like the date to finish.
Many thoughts come to mind. Am I ready, what will my purpose be if I stop working and wow how have I got to this point already. Have I been habituated into the life of work!
So, my personal plan will involve 3 sources of income. There is no DB pension and so currently the only guaranteed income will be the state pension at 67. There is some flexibility in my plan and this will allow for issues like Trump creating havoc in 2026 via his tariffs etc. So I intend to generate 60% of my income from dividends generated in the ISAs and then cash in a small pension each year. The goal is to avoid paying unnecessary taxes. It seems that at 67 the state pension will utilise most if not all of the personal allowance. I also have a larger DC pension of which I intend to turn into an annuity. But, when to do that is my main consideration now. Hopefully I have thought of all the possible scenarios but it is a leap of faith.
Investing has been a hobby for many years. Not always successful but always interesting. Generating an income rather than investing is a concern but we shall see. Financial goals will mainly be to carry on travelling (hopefully longer trips). I need to work on my list of hobbies now…
I look forward to following your future posts.
Martin
Hi Martin
Getting our future finances in shape means that when something major happens at work, you are in control and in a position to do something about it.
Your plan seems sound – I wish a larger portion of my portfolio generated income but will have to make do with what I will get. Yes, avoiding unnecessary taxes is key, although Rachel seems intent on trying to grab more of our money!
I’ve been thinking more about what I will be doing when I’m not working, but am reluctant to make any concrete plans as I want to take time to initially decompress, do nothing really. However, like you, one of my ‘hobbies’ is investing so I think that will keep me busy too, although I hope I won’t be tempted to tinker too much!
I think I will do a post on hobbies and interests however.
Thanks for sharing and all the best for April 2027!
Hi Weenie,
It has been really interesting reading your blog over the past few years. Many congratulations on doing so well with your investments that you are getting close to Financial Independence.
I retired just over a year ago and de-risked before this to about a 60/40 split. I was keen to protect my lump sum withdrawal (I was nervous about potential changes in the previous budget). I am now in the process of gradually increasing risk.
In the run up (and after) to retirement, I used a website http://www.guiide.co.uk which I found very useful in modelling future expenditure and growth. It was helpful in incorporating all future sources of income and accounting for inflation. I DOB have a y link to the site, i just found it suoer helpful and free. Like you, my FF needs to bridge a gap, 1st to age 60 and then to age 67. I have found myself returning to some contracting work, which keeps my brain working and provides a good source of money for some travel. I wish you all the very best. Retiring early is fantastic, but it was a change in mindset, moving to spending accumulated assets rather than continuing to build it.
Good luck with everything that you do.
Hi Richard
Interesting to read that you derisked your portfolio to 60/40 and are now in the process or increasing risk.
I will check out that website, thanks for linking.
Even though I am really aware of it, the change from accumulating to spending is going to be a big one that I’m going to have to get used to!
Thanks for reading, all the best with your early retirement!
Hi weenie,
In case you missed it, this Monevator article should be useful…
https://monevator.com/when-to-derisk-before-retirement/
The only other thing I would suggest is to take a look at the capital preservation trusts such as Personal Assets (PNL) and Capital Gearing (CGT). It;s some time since I started to derisk my portfolio but these did the job for me very well. However, in the past year or so I have moved to safer havens and now the investments have moved entirely to cash (80%) and government bonds for the rest.
Good luck, it can be a big hurdle moving from building to taking the fruits of all your hard work.
Hi John
Yes, I have read that Monevator post and it’s very interesting.
A few years back, when bonds were hitting negative yields, I switched over to defensive ITs such as PNL and CGT. However, they didn’t behave as I thought they would, ie not very defensive at all, so I sold out.
Have to say I haven’t looked at them again since, didn’t consider them when I recently started to derisk my portfolio. I may take another look at them, not sure.
Very interesting post Weenie – thank you. Love the schematic showing sources of income up to age 100 (!), which is very clear.
My initial reaction is you are running too much risk. Am I missing something?
1) Aiming to spend almost all your FF (except the ISA bit, unless I missed something) before 65/67.
2) You have it in 60/40 or 75%/25% equities. This runs a significant risk it drops 20%+ in the next 2 years. At which point aren’t you skint?
3) By aged 67 you have very little FF left, except the (shrinking) dividend income (and the ISAs?). So you are very dependent on your DB pension and state pension and what happens on inflation (and means testing, as you highlight).
To RE in 2027, I would have expected
– shift allocation largely away from equities. Short term bonds would be helpful now
– to see a bit bigger FF – i.e. a higher cushion – so that you get to age 67 and still have, say, £100k of FF left. Ideally in such a way that all the FF income is not required and can be reinvested. Then you would have a very decent cushion/buffer
– in the absence of above, Just One More Year would make quite a big difference – it would shrink the number of years you need to decumulate the FF, and add one year’s returns to the FF
You will have thought this through more than me so I’d love to know where I’m misjudging things?
Some really good points FvL and hopefully they will lead to a tweak or two for the de-risking plans.
Hi FvL
You are correct on all three points and put that way, I agree, I am probably running too much risk.
Since I wrote that post, I have continued to derisk and my portfolio is pretty much at 60/40 already.
How to balance relative safety with the need for it to continue to grow?
I was recently going through Monevator’s archives and came across mention of ‘Harry Markowitz’s ‘In Real Life’ Portfolio, which was 50% in global equity, 50% in bonds.
So simple yet, I’m not sure I can bring myself to make such a drastic change to my portfolio. However, I’m sure I could regret not making a change when I’ve got the opportunity to do so. Something to ponder on in any case.
Thanks for stopping by and providing valuable insights and for making me think further on this!
Hey Weenie,
I’m late to this, but it’s never too late to reply as this is an ongoing (until you’re at least 100!) situation. As ever your retirement is exactly the same as mine. Live off “other income” until 65, then DB Pension + other income 65-67, then 67 onwards DB + State Pension + other income (i.e. DC pension drawdown). My income floor in todays money, is around 15pa DB pension, 12k state pension, then top up with DC drawdown of around 6kpa = 33k (before tax). I will have a side pot of 150k for big ticket items, house repairs etc. I’ve decided I’m living to 96 haha! It’s enough, but I really worry about inflation. Actually I generally worry too much about most things!
Im not doing as well as you with the Future Fund, because I’m not as sophisticated with my investments and I’m piling into either work shares (practically free money) or my DC pension to avoid 40% tax. The cost of housing in the south east has eaten a big chunk or what I could have invested too. Consequently I’m starting down the barrel of 3 years, 11 months sadly and I wish I’d done as well as you to be out of corporate by 2027. It’s exhausting isn’t it.
It really gives me confidence to see my plan is almost identical to yours in terms of strategy and income. Happy New Year!
Hey Starla
I love that our plans are so similar!
However my DB is not quite so generous as yours, closer to £13k at the last quote I got.
My side pot is also a lot smaller, which I am still building up but some of that is wrapped up in my BTL, which once finally sold and family loan paid off, will leave me with some equity for big ticket items.
Living to 96 is not unusual these days, so we all may as well plan for it, right haha!
Well my plan is to be out of corporate by 2027, but I’m not there yet – will need to see really where things stand the summer of 2027! And yes, it is exhausting – a nice boss and pleasant colleagues make things easier, but when they introduce new training, new systems, new bs goals, I’m starting to feel that I just can’t be bothered with it all, yet need to show enthusiasm!
HNY and all the best with your plans!
I hear you. I have nice bosses, excellent colleagues, great benefits etc, but I cannot cope with learning new systems, and retaining information about things I no longer (never did) care about!
Anyway, Happy New Year too, and I’ll check out your new post I’ve just seen!