Dividend income versus total return is an endless debate but if you have weighed up the arguments and decided to invest all or part of your portfolio with the aim of producing an inflation-beating income then it would be unwise to ignore the strengths of Income Investment Trusts. Previous posts examined the pros and cons of dividend investing in general and the advantages of Investment Trusts in providing inflation-beating retirement income:- A Better Retirement Income Portfolio - 8 Investment Trusts to Provide Secure Growing Income Retiring on Dividends - Crazy Idea? 6 Reasons For and Ag ..read more

Whilst a good rule of thumb the 4% Withdrawal Rule will fail to maximise the income of retirees.   Many will die leaving large legacies when they could have enjoyed a far higher income during retirement.  Many retirees will also through fear of running out of money withdraw far less from their retirement portfolio than the safe maximum. Variable Withdrawal strategies tackle the deficiencies of the 4% Rule by providing a set of rules to indicate how much money the retiree can safely withdraw. This post looks at one variable drawdown strategy which would have allowed a UK retiree t ..read more

Supplementing pension drawdown with a proportion of level annuity income can provide the retiree with an income boost during his highest spending first 10 years of retirement, permit a lower level of initial income drawdown so minimising sequence risk and even with relatively high inflation can result in his total income being greater during at least the first 20 years of retirement. The Annuity Puzzle Economists and finance academics often describe the lack of popularity of pension annuities as "the annuity puzzle".  It is a puzzle because there is no other financial product that offe ..read more

Whilst periodic portfolio rebalancing with fixed equity and bond ratios is accepted custom there are many alternative strategies promoted that can increase the drawdown income from a retirement portfolio.  Periodic Portfolio Rebalancing  The generally accepted wisdom is that portfolios should be periodically rebalanced to bring each asset class back to its original target percentages.  There are three reasons why this is considered important:- Risk Management:   Portfolios are designed to maximize growth subject to a defined risk.  The risk is usually defined in ..read more

Even a 5% gold holding in a pension drawdown portfolio can reduce its volatility more effectively than government bonds and increase the Safe Withdrawal Rate by up to 0.5% for every 5% of gold held in the portfolio.  A typical UK portfolio of 60% equities and 40% gilts had a historical 3.4% Safe Withdrawal Rate (SWR) after charges. Substituting 5% of the gilt holdings for 5% gold increases the SWR by a full percentage point to 4.4%% and this increases to 5.6% with 20% gold. This post looks at the potential role of gold for retiree investors in more depth. Gold is the Marmite of Asset Cl ..read more

In preparation for two future posts, I´ve been taking a look at variable withdrawal rates (SWRs) and techniques to maximise safe withdrawal rates (sometimes called Income Harvesting). In order to make some detailed comparisons with conventional inflation-based income withdrawal and annual portfolio balancing, I´ve put together a data set for the UK gilt, stock market, and inflation rates covering the hundred years from 1920 to 2020.   For the majority of this period, the data looks at 15+ year gilt rates and an approximation to the FTSE All-share index. This is a far longer period that ..read more

There can be few potential or actual retirees who are not aware of Bengen´s 4% rule that says you can withdraw an initial 4% from a retirement portfolio and increase this annually by the rate of inflation with negligible risk of running out of money over a 30-year retirement. Within the FIRE financial freedom community, this rule is often expressed differently (maybe optimistically!) by stating that financial freedom is achieved when you have savings greater than 25 times your annual expenses. Whilst many drawdown retirees worry about running out of money research from  Michael Kitces sh ..read more

I´ve just completed my annual review of the Investment Trust Income portfolio and was pleased that income held up well in 2020 with no reduction in payouts, but unsurprisingly a decline in the portfolio value of around 11%. Out of pure interest, I did an analysis of the performance over 5 years of the IT Income portfolio compared with drawing down an identical income from Vanguard´s 60% Equity LifeStrategy Accumulation fund. In view of the UK bias of the IT portfolio and the relatively poor performance of Income Investment Trusts I was very surprised to discover that the Investment Trust Reti ..read more

The strategy of retiring on dividends is, for many, an attractive proposition - live off the dividends without touching the capital - however, it suffers significant criticism from much of the financial community.  Here are six reasons why for some retirees it might be a good strategy followed by six reasons why it might not be ideal for everyone.  6  Six Reasons Why Retiring on Dividends Might Work For You 1.     You Want to Leave a Significant Inheritance and Don´t Need the Maximum Retirement Income The concept of Retiring on Dividends is that you live on ..read more

Pension Drawdown -  Starting drawdown poses some of the most difficult decisions a retiree must take:- How long a retirement should I plan for?  How much income can I withdraw?   What is the minimum income that I can accept even during poor markets? Should a fixed inflation linked income be the target or a flexible drawdown strategy used to both protect the portfolio and to allow a higher income when the portfolio balance exceeds expectation? Is leaving a significant portfolio balance on death an objective or do I need to withdraw the maximum feasible during retirement? Do I ..read more