Gordon Gekko
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Are your investments held in a PRSA or similar Irish pension account? If so, don't forget that the PRSA provider will have an annual fee as well. The lowest that I'm aware of is 0.75%.
My spreadsheet assumes an average real return of 4.5% per annum after fees. Is that reasonable? My thinking is 7% from equities, 2% inflation, and the 0.5% fee.
Is the above reasonable or naive?
The rest endures, and if it's of sufficient quality and diversified, it will recover.
Well, I personally think that 6 years out from retirement is far too late to start de-risking a retirement portfolio.
Say the retiree in your example started (very) gradually de-risking his portfolio 20 years out from his targeted retirement date. 2008 rolls around and, with one year left to retirement, 33% of his portfolio is now in bonds, with the balance in equities. The bond allocation then jumps to 55% of his portfolio following the stock market crash and the retiree now has ample "dry powder" to buy back into the stock market at hugely reduced prices to gradually rebalance his portfolio back to its original 66/33 stock/bond allocation.
There is actually a good argument for allowing the equity allocation to gradually drift higher post-retirement as the sequence of returns risk starts to recede.
Sure the bonds can be expected to be a drag on the performance of the portfolio prior to the stock market crash but they help to smooth the sequence of returns - particularly when it matters most.
Also, don't discount the emotional impact of seeing 50%+ of the value of your life savings simply vanish the year before you are due to retire and having no idea when your portfolio will recover. It's only with the benefit of hindsight that we now know that equities recovered as quickly as they did following the 2008/09 crash.
What if equities took 20 years to recover and you were effectively forced to crystallise losses by drawing from your equity portfolio throughout those 20 years?
Hi GordonWhat would you think of the following as a strategy?
Take a €3m ARF. €180k a year has to be withdrawn per the rules. The income yield is (say) 2%. Stick €650k aside in cash. That plus the dividends will cover the mandatory distribution for a period of five years.
I recall doing the sums on this some time ago, and concluding that it made no sense not to take the draw-down: you're taxed as if you have taken it. I'm not a tax expert, so I could be wrong.
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