The Slow & Steady portfolio has hit an new all-time high! Yes, our model passive portfolio has finally surpassed its previous peak, reached on New Year’s Eve 2021. Almost two years later we’ve put 2022’s bond crash behind us – in nominal terms anyway – as the portfolio grew for the fourth quarter in succession.
And for once that growth wasn’t driven by our US-dominated Developed world fund. Here are the numbers, in Allswell-o-vision™:
The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,264 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.
The big winner this quarter was global property. It soared over 10% in the three months – having spent much of the year sinking into the mud like a cheap tower block.
In fact even after its recent spurt, global property has managed less than 5% growth year-to-date. That lags the double-digit returns from Emerging Markets, UK equities, and the Developed World.
I need to do a deeper dive into the diversification potential of a REITs index tracker (which is what any passive property fund is) because I am far from convinced that owning this type of real estate makes much difference at the portfolio level.
Bond of bothers
What news of the irradiated bond asset classes?
The recovery looks healthy on the longer one-year view – in terms of what you can hope for from bonds, anyway – but 2024 itself has been a poor year so far.
Here’s how this year’s bond weakness pings out in red in the fund view in Morningstar’s Portfolio Manager:
I’ve circled the two bond funds’ one-year performances in green, and their year-to-date returns in red.
Note the table shows nominal returns. Both funds are actually down in real terms this year, once you factor in August’s 3.1% CPIH inflation figure.
I’ve also circled the 10-year annualised returns in cyan – because we’re all about the long-term here at Monevator!
You can see the long-term growth engine of our portfolio has been its Developed World fund. Indeed if we unpack the Matryoshka dolls of causation, then really it’s the US S&P 500 – and inside that a handful of tech firms.
See our last update for a chart showing how well we could have done if we’d gone all-in on tech when we launched our model portfolio in 2011.
Which we might have done if we could predict the future. Which we can’t.
(And incidentally neither can you).
Choose wisely
A portfolio choice can only be meaningfully compared with an alternative you might have reasonably made ex-ante.1
The Slow & Steady was conceived as a DIY passive portfolio. Our choices were aligned with best practice on managing your own investments.
The model portfolio’s ‘competitor’ then is not a wise-after-the-fact YOLO punt on a tech ETF, but rather something like a Vanguard’s LifeStrategy multi-asset fund. An off-the-peg investing ready meal that enables you to invest in a nutritious portfolio with minimal work. (Sounds awful, I know.)
So has all my DIY dosey-doe added one scintilla of value compared to picking this magi-mix investing alternative?
I think you can see where this is going…
Chart attack
Firstly, because I’ve taken the trouble to painstakingly unitise the portfolio for this comparison, I’ll treat you to the exclusive unveiling of the Slow & Steady’s performance chart. (A happy byproduct of the exercise):
Our model portfolio was launched to world acclaim global indifference on 31 December 2010.
From there, the little portfolio that sorta could has grown 161%. You can see that its value has just reached a new high as it hits the wall on the right.
This 161% gain amounts to a time-weighted return of 7.24% annualised since purchase. (A time-weighted return strips out the impact of cashflows upon a portfolio, and is how comparisons between investments are usually made.)
Meanwhile, the portfolio’s money-weighted annualised return is 6.97%. (The money-weighted return is more realistic in my view. That’s because the periods when you have more invested make a greater contribution than if, say, your portfolio doubled when you put in your first fifty quid.)
Oh really? Note you can subtract approximately 3% to reflect average inflation to get the real return. A 4% annualised real return is what you might expect a 60/40 portfolio to deliver, based on long-term historical datasets.
More ups and downs
As average as all that sounds, the numbers show the Slow & Steady hasn’t so much as taken a bear market beating during its adventures to-date.
That’s encouraging!
Our worst slide was -15% during 2022’s bond crash. Covid amounted to a -11% plunge before we were rescued by the authorities’ big bazookas.
In comparison to the worst investing can throw at us, the portfolio’s performance looks more like riding a vintage merry-go-round horse than a rollercoaster.
I’ve even made the journey look choppier by using a linear chart above. A linear investing chart exaggerates the scale of later events relative to earlier ones.
Here’s a more realistic logarithmic view:
Essentially, the portfolio has gently wafted higher over the course of its 14-years, with just the occasional stomach-tickling lurch due to turbulence.
I think my first chart feels like the voice of anxiety in our heads yelling: “AAAARGH! Everything is incredibly important and sometimes quite scary because it’s happening to me right NOW!”
While the second chart is closer to objective investing reality, as experienced by a 60/40 passive investor in recent times.
Multi-asset face-off
Now, about that Slow & Steady vs LifeStrategy Thrilla in Vanilla I’ve been dawdling towards.
Here’s Morningstar’s chart for the LifeStrategy 80 and LifeStrategy 60 funds. It’s set to the longest comparison period I can make with my Slow & Steady returns:
LifeStrategy funds only launched in the UK on 23 June 2011.
My nearest Slow & Steady datapoint dates from 1 July 2011, so that’s the starting line for this foot race.
But why is this a three-cornered contest, with two Vanguard funds in the chart?
Because the Slow & Steady portfolio was originally an 80/20 portfolio.
To reflect its fictitious owner aging, we rebalanced into a 60/40 over the course of its first ten years. This saw 2% of the equity allocation transmuted into bonds every year for a decade.
Hence we’d expect the Slow & Steady to perform somewhere between the LifeStrategy 80 and 60, which stick rigidly to their asset allocation lanes.
Out-take – I know, if I had any gumption, I’d gather 14-years’ worth of price data for the Vanguard twosome, combine them into a portfolio, and plot an equivalent declining glidepath. Perhaps one wet weekend I will. If I really want to drive Mrs Accumulator into serving those divorce papers.
Show me the money
This is the best comparison I can do for now. And I think it’s very telling:
| Portfolio | Cumulative (%) | Annualised (%) |
| Vanguard LifeStrategy 80 | 191.47 | 8.41 |
| Slow & Steady | 158.97 | 7.45 |
| Vanguard LifeStrategy 60 | 143.07 | 6.93 |
Nominal returns, 1 July 2011 to 27 Sep 2024.
Over this timeframe, the LifeStrategy 80/20 portfolio has grown 20% larger than the Slow & Steady, which in turn is 11% larger than the LifeStrategy 60/40 portfolio.
Our plucky DIY champ has split the two Vanguard funds down the middle! Which is as it should be because its asset allocation lay somewhere between the two.
And while I don’t know how this match-up looks on a risk-adjusted basis, I’m doubtful of snaffling too many crumbs of comfort given the Slow & Steady was (by design) maxed out on UK government bonds just as that asset class suffered its worst year in history.
Ultimately – as much as I had fun ensuring the Slow & Steady portfolio was better diversified than its fund-of-funds equivalent – if I’d really had that crystal ball in 2011, I’d have recommended picking the LifeStrategy option unless you really enjoyed being hands on.
In fact that’s exactly what I suggested to friends and family.
For some peculiar reason they don’t give two-hoots about investing. But they needed to save for retirement all the same.
So much for taking the scenic route
The main lesson I draw from this investing smackdown is simplicity is under-rated and optimisation over-rated.
Monevator’s model portfolio is souped-up with small cap equities, global real estate, and inflation-linked bonds that LifeStrategy lacks.
And the Slow & Steady’s OCF of 0.16% compares well with the LifeStrategy’s 0.22% charge.
But despite all that, the two load-outs are very similar at a broad equity/bond asset allocation level.
And that’s proved decisive in this score draw.
New transactions
Every quarter we throw £1,264 like autumn leaves into the market winds. Our stake is split between our portfolio’s seven funds, according to our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £63.20
Buy 0.225 units @ £281.34
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £467.68
Buy 0.703 units @ £665.56
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £63.20
Buy 0.147 units @ £431.23
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund identifier: GB00B84DY642
New purchase: £101.12
Buy 49.095 units @ £2.06
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £63.20
Buy 26.057 units @ £2.43
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £316
Buy 2.326 units @ £135.86
Target allocation: 25%
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £189.60
Buy 174.908 units @ £1.08
Target allocation: 15%
New investment contribution = £1,264
Trading cost = £0
Average portfolio OCF = 0.16%
User manual
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If this seems too complicated, check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.
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You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.
Take it steady,
The Accumulator
- i.e. Back at the time you made the decision. [↩]
Hi. Thanks for this. I am a bit surprised the Royal London IL fund did so much better than the Vanguard UK Bond fund. Happy cause I have one but not the other. Is this just a duration thing ?
(PS, just had to renew my credit card subscription – absolute bargain that it is- and found the process a bit tricky. Could just be me but I sort of went round in circles and now still couldn’t tell you how I managed it).
Baby rhino and the S&S were born within a few weeks of each other. Time flies! Same rhino is now creating his own compound interest models and running side hustles. Future mogul no doubt..
I understand why you’d use ETFs, say, for foreign bonds and commercial bonds but why for gilts? Why not just buy some gilts themselves?
^ @dearieme 3
Maybe diversity of credit risk? Easier to manage a constant asset allocation of duration and maturity? Just a lot less hassle to own the ETF rather than rolling maturing bonds into new purchases?
The direct held Gilts would of course come with tax advantages outside of wrappers but they are probably more useful for drawdown spending than an accumulation portfolio which I think is the basic premise of ‘the slow and steady passive portfolio’.
No doubt TA will explain all!
BTW… Just replied to your Sugar Factory reply on the ‘what to do if you left it late to start investing’ thread. 🙂
@ Paul_a38 – looks to me like 3-year yields (I’m using that as a rough proxy for average duration of Royal London fund) have fallen over the last several months while 10-year yields have barely budged (proxy for Vanguard’s gilt fund).
@ Rhino – sounds like a chip off the old block! And that you have successfully conveyed the magic of compound interest 🙂
@ dearieme – it’s an accumulation portfolio with all assets squirrelled away in tax shelters. The only reason I can think to go to the bother of holding individual gilts is because you’re concerned about capital gains tax, or your holding is big enough that it’s worth taking the hit on the trading side to not pay the OCF, or you’re running a non-rolling bond ladder. Otherwise, a bond fund is just much easier to manage. Is there some other angle you’re thinking of?
It is illuminating to see the comparison with LifeStrategy – and reassuring for me since I was one who took the advice you usually put at the end of your S&S updates and went for the simple approach.
Interestingly, it seems once you have a diversified portfolio suitably balanced with bonds extra wrinkles (property, emerging markets) have very minor effects. Even the LS bias towards the UK seems less of a problem than some fear – in fact possibly you could make a case that with US indexes being so tech heavy the combination more fairly represents the balance of the global economy.
@Paul_a38 — Thanks for the nice words (“absolute bargain” — can we please put you on a poster! 😉 ) and for persevering with the credit card payment.
We outsource all payment handling to Stripe which is gold standard for this sort of thing, not least because it’s the most secure for would-be Monevator members, but it does mean we don’t have much insight into the process of card updating and renewals etc. (We don’t see your full card details for instance, just some bits for identification purposes if needed).
Mostly it’s exceeded my expectations in how well it’s worked — and given some useful investing insights into how near-seamless the digital economy now is even for entry-level players like us — but ‘near-seamless’ is not perfect alas and we do lose a couple of members a month to failed payments etc.
I am currently just taking it as a cost of business. I’ve spent time in the past emailing people afflicted but it’s added no value over what Stripe and the membership software do anyway…
Perhaps too much behind the scenes detail but just to share as you kindly shared your experiences.
Thanks again to you (and everyone else who has!) for being a member. 🙂
This has really been such a great series to follow. Very inspirational & thought-provoking. Congrats on acknowledging that LifeStrategy has been pretty much the same (many people might spin it to make themselves look better).
Personally I find LifeStrategy a bit UK heavy (from memory – I’m a bit rusty) & generally favour gold over bonds (not just recency bias this year!) but this is a constant reminder to reflect on the mistakes I’ve made, and work on the KISS portfolio for the future. Thank you.
@TA: “Is there some other angle you’re thinking of”
No, and thank you for the clear explanation. (I’m getting old so if I repeat my question next year please forgive me.)
Thanks too to lenahan.
@TA thanks, esp like the Unitization.
damn! you don’t have time to calculate the full comparison either (fair enough – guess nobody buys LS now as it’s not an ETF)
my sense was always that S&S was some way ahead of LS pre-Bond Crash.
So if we did start with LS80, buy more every quarter, moving more to LS60
in time with S&S, the LS drip would be a way behind. Then LS would drop
less in 2022. From then as S&S is 40% bonds it’s pretty close to LS60.
So I reckon as it stands S&S might still be a smidge ahead of the LS drip.
Now you have set up a slightly interesting finish for the race to this mock
2030 retirement. LS60 is going to hold 40% in Agg bond all the way.
S&S has a lot of gilts which will turn into short linkers along the way.
So, the lifestyling S&S did from 2016-2022 into bonds turned out bad,
but now until 2030, will it likely turn out better? the right choice is to
reduce crash protection and reduce volatility and increase inflation
protection?
@TA (#5)
Historically (1915-2024), the annualised return on a rolling gilt ladder, when the shortest rung was maturity, was about 3 to 8 basis points higher than the equivalent index (I cannot link to the results because I haven’t written them up yet!). Whether this slight advantage in performance is worth it depends, as you say, on comparing costs and tax.
I note that over rolling periods of 30 years, the difference in returns between the ladder and fund is swamped by the difference in returns over different start dates (i.e., history/luck is a much bigger factor) and that not all periods show an advantage for the ladder.
@ dearieme – haha. I think you should repeat the question annually, it can become a Monevator tradition 😉 More seriously, I’ve finally taken the plunge on buying individual index linked gilts for my personal portfolio. I’ve found it to be a lot of work upfront (getting to grips with the quirky mechanics). I suppose it didn’t have to be, but I just couldn’t stand not knowing the true price of the thing I’m paying for, and what the earthly was going on with accrued interest etc. I’m not a trusting soul 🙂 Anyway, with that work put in, it then seems quite straightforward. Though I’ve only got 3 linkers in my rolling ladder. I wouldn’t fancy tracking ten or more.
@ Jonathan B and Meany – You’ve inspired me to look under the bonnet of LS60 and it’s got 15.5% in the S&P 500. That’s on top of 19% in Dev World ex UK, so it’s somewhat weightier than the S&S in US large caps.
Its 15% in FTSE All-Share roughly equates to 5% property, 5% global small cap, 5% FTSE in S&S. Emerging markets about the same.
Meany, you’re reminded me that the LS has a decent chunk of corporate bonds, while it also has 4% in long linkers. Meanwhile the S&S is 15% in short linkers. Another big difference is LS bonds are globally diversified.
So I’d guess that whereas the S&S global small caps have outperformed the LS’s UK tilt, global property has been a drag factor on the S&S, and the LS will have made up some ground with its US large cap tilt.
Meanwhile, while the S&S short linkers won’t have suffered as badly as the LS bond complement, the LS had the advantage of holding fewer UK gilts.
All told, there are quite a few differences but it looks like something of a wash.
@ tom_grlla – Cheers! I’ve learned a lot from doing this. If I was starting again now it’d probably look more like an equity biased all-weather portfolio.
@ Alan S – that’s interesting. Why do you think individual links have nosed ahead? I guess the comparison is with costs stripped out? I think any discussion of individual gilts vs gilt funds also has to consider the human factor. Apart from the possibility of making a mistake, I know I’m more likely to meddle or bend my own rules if I manage something personally. Some might consider that a source of skill, I think of it as another opportunity to shoot myself in the foot 😉
@TA (#12)
Yes, the costs (and taxes) are ignored in the comparison, so it is purely on return. I currently think the differences arises from the difference in how coupons and maturing bonds are reinvested. In index funds, the number of bonds held is typically proportional to the amount in issue for each bond, so reinvestment is spread across all bonds held, while a common approach with a rolling ladder is to reinvest all coupons, maturing bonds and new money in the highest maturity held (in the US, often picked to be at or close to par). So, for the same maturity range, this means that reinvestment in the fund is done at the average price of all bonds held, while in the ladder it is the price of the bond with the highest maturity. For a rising yield curve, the former is likely to be higher than the latter and hence fewer bonds would be bought in the fund than in the ladder.
In accumulation a rolling ladder could be relatively simple, once established the only regular activity is periodically scraping together the proceeds from any maturing bonds (assuming the lowest rung is at term), coupons, and new money (including rebalancing) and purchasing the gilt with a maturity closest to the highest required.
If I was still accumulating, in the absence of a DB pension, my bond component would probably consist of a collapsing linker ladder the first rung of which would mature at my expected retirement date (i.e., following Zwecher’s book, Retirement Portfolios: Theory, Construction, and Management). Currently, with long real yields of over 1% this would be an attractive time to do it (certainly compared to 4 or 5 years ago).
Agree that the complexity of linkers has to be dug into before investing. For example, I have a small collapsing (i.e., non-rolling) ladder of linkers – iweb reports the value using the quoted price (i.e., in real terms) and the book cost in nominal terms (i.e., what I actually paid), so currently indicates an apparent loss which could be worrying if I was unaware of that difference.
@Alan S (13)
Thanks for that warning on how IWeb report linkers. I have my GIA with IWeb and have started investing in some low-coupon individual nominal gilts there. I have not yet ventured into individual linkers but if/when I do it will be on the IWeb platform.
@Alan S
cc: @DavidV, @TA:
Central to the use of ladders [primarily for flooring] is IMO the assumption that you can fairly accurately estimate your retired income need up to thirty plus years in advance. I know from experience just how hard that is! My own experience is that, at least in the early years (first decade, say) I somewhat over-estimated our income need. How do you see such a matter impacting your ladder? Also, how would the impact vs a ladder compare with the impact vs an annuity, which AFACIT cannot be reversed/surrendered in the UK.
FWIW, I suspect the impact of this sort of “income estimating error” would dwarf the differences between a ladder and bond funds in accumulation.
@DavidV. I bought a linker on halifax sharedealing. Telephone only and they only show the clean price which looks like you’ve made a big initial loss. They say it’s their software. Have to go to tradeweb to get real price.
Best to buy a ‘liquid’ one. I figured if HL offered it, it must be ok.
@TA – “I need to do a deeper dive into the diversification potential of a REITs index tracker…”
I used to invest in this same property ETF but sold everything around the time it started its descent into the abyss (in time while I was still making a profit from it). The most important reason for selling it was the sudden increase in property exposure because of my wife’s lake house project. Another reason was that the increasing trend in working from home since the pandemic. It suggested to me that perhaps it was not a good idea to invest in commercial property.
The money was deployed immediately to buy several units of a World large value ETF, a US large value ETF, and a US small cap value ETF (I needed to increase my US allocation which was lower than 27% after selling this property ETF). All these value ETFs have been doing fine since then (obviously not as good as a NASDAQ or Gold ETF, but better than the REITs).
@Al Cam (#15)
Completely agree that estimating required income flooring 30 years ahead is going to be non-trivial! However, information like the PLSA retirement expenditure resource and the online availability of the ONS household expenditure data at least makes some sort of estimate possible (although some factors, e.g., whether married or single, children or not, value of state pension, the date of retirement, etc. may be difficult to predict at that remove). In addition, the flooring can be refined as the retirement date approaches. An overestimate can, if required, be sold off, while an underestimate can be added to any and may still be better than no floor at all.
In practical terms, I’d envisage that the linker ladder would be instead of a bond fund and gradually become a larger portion of the portfolio and, therefore, represent a similar ‘derisking’ process to that used in lifestyling (and the S&S portfolio). At retirement, the bond ladder can either be kept and spent down or exchanged for a RPI annuity (the duration will be matched better than with a fund of over-15 year nominals or linkers that is often used in pensions with an annuity target).
Please could you refrain from starting linear Y axes at values other than 0? You have one here starting at 80, about a fifth of the range.
It’s very interesting for me as an ancient retiree(78) to watch the transition of people having to become their own portfolio and pension managers in the U.K.
Having to as a consequence to handle very large sums of money and having to estimate longevity etc etc-usually the provenance of actuaries and insurance companies
This situation has been the reality in the US for many years and their experience does show the way ahead
There are some lessons (Bogleheads forum is good in this area)
Most investors cannot and don’t want to handle complexity ie Linker ladders etc
There are those few amongst us who have the maths skills and interest to create more complex and hopefully better portfolios but…….
Most investors would do fine with a 60/40 portfolio with a 2 fund set up ie a global equity index fund and a global bond index fund hedged to the pound
(In the case of the U.K. using tax free wrappers as much as possible ie ISAs and SIPPs)
The amateur investor could then concentrate on those items under his direct and understandable control ie save as much as you can,keep costs as low as you can and live frugally
It is truly changing times
xxd09
@Paul_a38 (16) I thought I would have to buy my nominal gilts with IWeb over the phone, and this belief delayed me taking action and investing in some low-coupon gilts (becoming necessary to stay out of higher rate tax). Certainly if you do a general search for, say, T26, it does not find it. However, if you go to the dealing page it finds it okay. I have not yet tried searching for linkers on IWeb’s page.
Could you clarify please what you mean by a ‘liquid’ linker? At the moment I am only considering buying individual gilts, nominal or linker, in my GIA, which is with IWeb. My ISA and SIPP are with HL, but as I don’t have tax considerations there, I have been happy to invest in ETFs rather than individual gilts.
@xxd09:
Re: “This situation has been the reality in the US for many years and their experience does show the way ahead”
Agree. However, the UK is catching up and IMO @Monevator is right up there leading the way!
IIRC, Bogleheads tends to concentrate on what is often incorrectly termed the “safe withdrawals” approach. There are other approaches. Furthermore, there is definitely no one size fits all correct way to approach your de-accumulation.
Pfau et al have developed a tool that a) categorises de-accumulation approaches and b) claims to help you discover (or perhaps uncover) your preference(s) amongst them, see e.g.:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4011297
IIRC, there is an online RISA tool somewhere too.
TI, I rarely leave my Friday night bed before delving into Weekend Reading and as it’s a tad later than usual I’ve been looking at the rest of the site. I notice that the About page needs updating, particularly the end of the seventh paragraph. I feel invested in your success and there’s no harm in a well-written plug for your membership model. It’s renewal time for me and I am very happy with the sustained value you give to me and my family.
@Alan S,
In my case, I had some twenty years of fairly accurate household records – and still somewhat over-estimated.
IMO it is also very important that you are clear in your own mind about the level of expenditure you are aiming to floor. As I see it, there are essentially two extremes as follows:
a) you can try to floor your envisaged lifestyle (plus a bit of padding for comfort); or at the other extreme
b) you can set your floor as low as practical and structure the rest of your portfolio to minimise the chances of ever having to live off just the floor
As I see them, the major pros & cons of each extreme are as follows:
extreme a) very safe; but expensive and almost certainly wasteful too;
extreme b) possibly significantly cheaper than a) and offers some safety; but will [possibly severely] restrict the way you structure the upside.
FWIW, I suspect the best answer for most folks lies somewhere between a) and b) above.
I think the late great Dirk Cotton got this absolutely bang on when he wrote that the trickiest decision in an floor & upside approach is just how much of your Pot to dedicate to flooring. As in so many things IMO he was not wrong.
For similar reasons (inability to correctly estimate retirement costs in advance) I am convinced that, at least initially, avoiding annuities may be pragmatic, especially if you tend to err towards extreme a) above.
Agree linkers can be sold off – but this may come with some loss.
Lastly, I am pretty sure few, if any, folks are buying any retirement income items (ladder rungs, etc) [well] in advance of actually retiring – which of course is where the greatest savings can be made. IMO, we are a long way away from folks adopting that (if you like Zwecher) mind set.
There does seem to be a definite divide amongst investors on the Boglehead forums between the “complex” and “simple” portfolios albeit they all subscribe to the “Boglehead” principles -surely this is the actual case in real life
Taylor Larimore and Rick Ferri et al lead the simplicity charge (3-4 funds only portfolios) where probably most investors should be
The other more sophisticated investors tweak the simple model with TIPs linkers,institute Guardrails like Jonathon Guyton etc -all of which demands from an investor more financial skills than bulk of investors can manage
Definitely a two tier system which gives more sophisticated investors a choice yet lets the less savvy still achieve a satisfactory retirement without too much financial knowledge
xxd09
@xxd09 (#25):
Thanks for your summary of the Bogleheads portfolios; it has been a while since I dipped into that site.
Couple of things probably worth noting [re US sites in particular] are:
a) the “safe withdrawals” approach is not safe in the conventional sense of the word and there is a finite probability it may fail, principally because the so-called safe withdrawal rate is unknown and unknowable in advance;
b) having said that, US Social Security is relatively generous – especially when compared to the UK state pension
The Bogleheads philosophy (https://www.bogleheads.org/wiki/Bogleheads®_investment_philosophy) doesn’t extend to withdrawal strategies. However, in general, the SWR strategy is not widely supported there because of its many weaknesses. In my view, they have been instrumental in developing a wide range of dynamic withdrawal methods (e.g., VPW, APW) that move away from SWR.
Some problems for US retirees not shared by those of us in the UK is the unavailability of CPI annuities and the 30 year limit for TIPS ladders.
@ TT – it’s fine to start the Y axes at values other than zero. The question is why are you doing it? Is it, for example, to make an investment look particularly successful? That’s not a claim I made.
Moreover, I twice drew attention to the fact that the first chart was unnecessarily dramatic. That’s why I included the second chart: to illustrate that the portfolio had not in fact been particularly volatile one way or the other. Alongside all of that was a clear statement of the numbers which are, historically, average.
@Alan S (#25):
cc: @xxd09
Thanks for further Bogleheads clarification and identifying some issues unique to US (vs UK) retirees.
For anyone interested in the range of available drawdown approaches, this paper from 2015 might be of some interest: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2548114
Figure 2 in this paper provides a possible view of the “spectrum of retirement income strategies”.
@xxd09 (#20)
I’d agree that simplicity is important and that a portfolio consisting of a global equity fund and a global bond fund in some acceptable proportions is simple (a single ‘lifestyle’ fund is even simpler). However, I’d disagree with your statement that ‘most investors would do fine’ since historically this hasn’t necessarily been the case. For example, UK accumulators investing 1 real pound each year in a 60/20/20 (stocks/long bonds/cash) portfolio would, after 40 years, have had £32 (in real terms) in the worst cases, £58 at the 10th percentile, and £85 in the median case. Upping the level of stocks to 80% would have led to improvements in each case (£36, £65, and £106 in worst, 10th percentile, and median cases, respectively). The best times to accumulate in the UK have all been post-WWII (cases after 1947 have produced at least £150 per £1 invested per year), so our own lifetimes are not necessarily representative of either history or the future.
A simple approach to investing in a ladder to provide some income flooring would be to invest conventionally for the first 20 years before using a proportion of new money to buy a 20 year linker each year in the final twenty years before retirement. Income then derives from allowing the linkers to mature over the first 20 years of retirement combined with income taken from the portfolio as desired. I’d say that is pretty simple.
@Alan S (#30):
Re: “A simple approach to investing in a ladder …”
I agree that this is a pretty simple approach. However, as I noted at #24 above, I would imagine few (if any) folks do this. There are probably many additional* reasons for this, not least of which IMO are:
a) nobody (and by that I mean not just punters but advisors, etc too!) is thinking that far ahead and promoting such ideas – the retirement mind model seems to be accumulation followed by de-accumulation, whereas in the case of ladders the best approach is much more nuanced, and you would have to persuade folks that they need to seriously start thinking about their de-accumulation at least twenty years in advance. Given how hard it is to get people accumulating, I would not give you low odds on persuading many folks about that!
b) few folks have any clue as to the potential savings to be had;
c) an awful lot can change/happen over those sort of timescales; and
d) AFAICT deferred annuities are not available in the UK – if they were then this might (heavy stress on might) just trigger folks curiosity
Just my thoughts.
OOI, did you do something along these lines? I ask because although I knew about this a handful of years before I jumped ship I did not follow it through.
*to being able to estimate the likely need
@ Alan S (#13) – thank you for your fulsome reply. Very interesting. Does that mean for most of the last forty odd years, bond funds got a small fillip as they were trading in a falling yield curve environment?
@Al Cam (31)
>”AFAICT deferred annuities are not available in the UK……..”
I realise that this is not what you had in mind, but it is possible to buy a deferred care needs annuity. When my late mother went into a care home, we bought a care needs annuity deferred for two years (I had LPA but I involved her in all decisions). This was approximately half the price of an annuity with immediate payment, so the potential loss in the event of early death was much reduced. In the event, my mother did sadly die after only eight months. Given that we were both of the view that the annuity gave her peace of mind that she was not going to run out of money, I’m glad that we went for the deferred version.
It is necessary to buy care needs annuities through an adviser, and the one I used seemed to imply that we (okay I) had made the right choice, even though it meant less commission for them. She said that surprisingly only a very small percentage chose the deferred annuity. This surprised me also, as the report was very clear on the potential benefits.
I have always been very suspicious of advisers and have never used one for my own finances. However, I must say that this firm seemed very reasonable. Once they established that I seemed to know what I was talking about and was doing my own detailed analysis of the options, they shared their own analysis spreadsheet with me.
@TA (32) – sorry, I wasn’t clear enough in my original post – I meant a non-inverted yield curve (i.e., rising with maturity rather than rising with time!).
@Al Cam (#31)
Judging by some threads on bogleheads, I think there are some people following a lifecycle approach in accumulation in the US (but their retirement finance ‘market’ is a couple of decades ahead of ours). However, I’d agree that what might be necessary is a product. Deferred annuities might be one (I’ve been looking at those in the context of purchase at retirement – there’s a paper by Haensly et al “A new strategy to guarantee retirement income using TIPS and longevity insurance: A second look” that is interesting). As you say, as far as I know, with the exception of the deferred care needs annuity described by DavidV (#33), I don’t think there are any in the UK. However, there appears to be a lot of antipathy to annuities.
The other potential product is a collective pension (a half way house between a DB and a DC pension) – it will be interesting to see if any insurance companies go down that route.
My own retirement prep involved me and my employer putting a large amount of money into a DB pension, and my shovelling as much as I could in a old fashioned pension scheme (taken out around 1990 or so, a 5% front load and 1%, or more, fees!). In one sense, the DB pension was equivalent to a ladder being constructed on my behalf – I took little or no interest until about a decade before my retirement, but the privilege of a DB pension meant that I was lucky that I didn’t have to.
@ Alan S (#34):
Thank you for the additional info.
I will try and search out the Haensly et al paper.
That some folks in the US might actually be following a lifecycle approach in accumulation is not entirely surprising; but I wager they are few and far between? On this theme it may be worth noting that Zwecher’s book dates from 2010!
Re your sentence: “I took little or no interest until about a decade before my retirement” IMO just about says it all.
For me the saddest thing is [AFAICT] just how little discussion there is anywhere on the practical nuts & bolts of implementing floor & upside. Especially seeing as DB pensions are becoming ever rarer.
Thanks again.
@David V (#33):
Thanks for that interesting info.
I must admit I share your suspicions about advisors although IIRC @ermine also wrote some time back about having a similarly good experience with an advisor wrt this type of product?
@Alan S:
I have had a quick read of the Haensly et al paper from 2015. Thanks again for the reference.
I am reasonably familiar with the [much] therein referenced Shankar 2009 paper; although it is many years since I last read it. That the H paper’s conclusions ‘correct’ some of the S papers claims is not entirely a surprise.
Unsurprisingly, I found the areas where the two papers disagree the most interesting; especially wrt the likely cost of the deferred annuity (DA).
FWIW, I reckon Table 4 in the Haenly paper can be used as a ‘sanity check’ on [some of] the Zwecher book Chapter 7 allocations for longevity insurance (which IIRC assumes a flat 5% yield curve) – but only for the age 85 case.
IIRC, currently [in the US] only nominal DA’s are available.
Finally, if DA’s were available in the UK I would imagine (based on immediate annuities) they would be more expensive in the UK than in the US.
@Al Cam (#35, #37)
“For me the saddest thing is [AFAICT] just how little discussion there is anywhere on the practical nuts & bolts of implementing floor & upside. Especially seeing as DB pensions are becoming ever rarer.”
In the UK, floor and upside is relatively easy to implement at retirement – if necessary, purchase an RPI annuity to cover the floor and leave the rest invested. Looking at the same problem as Shankar (i.e., retirees are reluctant to handover a large amount of money to an insurance company that they might lose in the event of early death), I looked at using long guarantee periods (which then pay out a legacy in instalments) or, with more complexity, using the same method as Shankar and Haensly et al by combining a linker ladder (for income) and a delayed purchase of an annuity (with the premium held in linker duration matched to the annuity). I’ve submitted the work to SSRN but it is not yet available (most of the paper is directed towards the more complex US case, only an appendix covers the UK).
It is a variant on the latter approach (without the linker ladder) that may offer the simplest pre-retirement purchase of flooring. The accumulator purchases a single linker (and keeps adding to it) that is roughly duration matched to a combination of that of the proposed annuity (approximately half the life expectancy at purchase) and the delay period. For example at a retirement age of 65yo, life expectancy is about 20 years, so someone at 45yo would be trying to match a duration of 20+10 years (the delay plus half life expectancy) i.e., 30 years. TR56 (0.125%, 22/11/2056) has a modified duration of close to 30 years, so might be suitable. An over 15 year inflation linked gilt fund might also be an, albeit inferior, alternative (I know L&G and state street offer them for pensions, but, unlike the nominal version, I don’t think they are widely available).
ps Recent FCA data at https://www.fca.org.uk/data/retirement-income-market-data-2023-24/interactive-analysis indicate only 10% of pension pots accessed for the first time are used to purchase annuities, and of those only 19% have an escalation of some sort (which I think includes RPI – this is an increase on the 11% in 2015 – I suspect recent inflation has given people something to think about).
My apologies for the long post!
Alan S (#38):
I look forward to reading your paper in due course.
Thanks for clarifying your “simplest pre-retirement purchase of flooring”. I had assumed that you meant each year buy another rung for the ladder (e.g. if buying 30 years ahead of today, then buy ’54 in ’24, ’55 in ’25, etc); so on retirement the ladder was usable and not just a pot of cash for purchasing an annuity.
You know my reservations about buying annuities from the off.
Re: “In the UK, floor and upside is relatively easy to implement at retirement …”
Yup that might work as a static implementation – if you can calculate the needed level of flooring. Other than our occasional chatter here @Monevator I have seen little useful discussion on this critical topic, either here or in the US.
I have never seen the importance of Wealth/Need (or if you prefer fundedness) discussed. Even Z concedes that above a certain W/N the floor adds little, if any, resilience to the plan. This is never talked about and the devotees seem to completely ignore this facet. IMO, this is similar to the frequent misquoting of Bernstein’s “stop playing if you have won the game” snippet.
WRT re-balancing, FWIW I reckon the one-sided rules for a static implementation are overly dogmatic. Sure they are designed to protect the floor, but what if you have over-estimated said floor. I have never seen that discussed anywhere.
And these are just a few things off the top of my head.
Look forward to your paper.
@Alan S (#38):
Re: “… that may offer the simplest pre-retirement purchase of flooring. The accumulator purchases a single linker (and keeps adding to it) that is roughly duration matched to a combination of that of the proposed annuity (approximately half the life expectancy at purchase) and the delay period.”
Whilst I can understand the motivation to try and roughly duration match [inc. the expected annuity pay-out period], is there not a risk that when you come to sell the linker [to purchase the annuity] it could incur losses as it is still some ten years from term? Did you by any chance compare this strategy with (the likely more expensive) strategy of selecting a linker that matures at the anticipated annuity purchase date?
@Al Cam (#40)
The short answer is yes I looked at both – there is less variation in the expected income (as in the income from the annuity expected at the beginning of the delay period) with duration matching than choosing a linker that matures at the point of purchase. For example, if the duration matched linker price has declined, then the price of the annuity will also have declined (i.e., the payout rate increased) in roughly the same proportion. I note that there are a shed load of assumptions in that statement.
#39
Using a single linker is easier than constructing a ladder, although the duration matching in the ladder to an annuity will be somewhat better than the single linker.
I think Blanchett did some work on wealth/need about 10 years ago(?). However, I cannot lay my hand on the paper.
@Alan S (#41):
Thanks for the additional info.
There are plenty of hints throughout Z’s book about W/N*, but IMO they are not highlighted as people [with high W/N or low drawdown %age] are described as being, amongst other things, rare. A very clear and easy to understand (graphical) exposition is given on page 121 of Milevsky’s book Pensionize Your Nest Egg. In short, the conclusion is that for people with low drawdown (or a short life expectancy) flooring is not that important, or to quote directly from Z “worrying about flooring becomes less important”.
WRT discussion of practical implementation of floor & upside (F&U), it is clearly a very poor relation vs the screeds & screeds of stuff penned/drawn about so-called SWR. This is a great shame as IMO all the available F&U texts are somewhat theoretical, see also https://monevator.com/risk-of-ruin/#comment-1781470 and note e.g. how Dirk C changed his view (over just a few years) on how much to floor. As it happens, I jumped ship [with my implementation of F&U] before he had published his revised his thinking. Having said that, I completely own my decisions in that area; albeit with the benefit of 20/20 hindsight I reckon I probably got them wrong and somewhat over-floored. Which, as we have discussed previously, can be wasteful. Abiding by one-sided rebalancing rules during this period (ie not up-siding unspent budget) also cost my dearly; bit in fairness there were other pressures/fears at play too which favoured being very conservative. I trust you now see why I am quite curious as to how other people have got on with F&U in practice. The F&U ideas are easy enough in abstract, but once the rubber hits the road a whole host of practical issues surface! None of which, AFAICT, are covered in any of the usual reference texts.
Lastly, I am sure I read somewhere (although I cannot lay my hands on a reference) that Z himself is not really a fan of static F&U implementations, preferring to keep [some of?] his flooring at risk in the market and managing the risk. I suspect however, he does not use the methods described in Chapter 9 of his book.
*chapters 3 and 13 come to mind, wherein he repeatedly states the feasibility of yield based solutions (as opposed to bonds and/or annuities).
P.S. to #42:
There is a clearer steer from Z re W/N in Chapter 11, as follows:
“Only for those with lifestyle needs below 3.5 percent does the flooring discussion become superfluous.”
@Al Cam
Sorry for the delay, I think the paper by Blanchett I was thinking of was https://www.financialplanningassociation.org/article/journal/APR17-impact-guaranteed-income-and-dynamic-withdrawals-safe-initial-withdrawal-rates
My deferred/delayed annuity paper (I referred to some results above) is now at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4957553
@Alan S,
Thanks for these.
I have had a quick look through them.
Although not explicitly addressed in Blanchett (B), I believe his results can be interpreted to conclude that the lower the required withdrawal rate* then less benefit is gained from flooring. His paper only goes down to 5% flooring, but few if any UK folks (in due course) will have zero flooring due to the state pension. Would you agree with this interpretation of B’s results?
Your own paper has some interesting results. However, I will require a bit more slower time to digest it all. OOI, in Appendix 1 you say:
” While a deferred RPI annuity would provide one potential solution (since the premium is likely to be significantly less than for an immediate annuity) to this problem, these are not currently widely offered in the UK and, where available, do not necessarily exist in the form discussed in this paper, …”
What product(s)/providers(s) did you have in mind?
*AIUA, B’s paper is seeking to uncover the highest sustainable withdrawal rate under a variety of circumstances
I think I’d agree with your assessment of B’s paper. Personally I prefer to look at flooring in terms of income rather than wealth, but you’re right – except for those with a very large portfolio, the state pension will form a significant fraction of their income
It is not clear to me whether deferred annuities (e.g., a single premium with a known, predefined income to start sometime later) are actually available in the UK or not (some sources say they are, but not widely used and should be discussed with IFA first). They are mentioned (e.g., https://www.legalandgeneral.com/retirement/pension-annuity/guides/types-of-annuity/), but appear to only set a minimum guaranteed income (e.g., see https://www.onlinemoneyadvisor.co.uk/pensions/pension-annuities/deferred-annuity/) and the rate of interest can be reset during long deferrals. As a lay person, I’ve been unable to find a definitive source of the relevant information
@Alan S ,
As a fellow recipient of a DB pension I understand the income angle; however nowadays not so many folks have a DB.
For a relatively rare subset of non-DB people (those with high Wealth to Needs) I think there may be a tendency for some of them to purchase [too much?] flooring in the mistaken belief that it makes their plan bomb proof – whereas said flooring offers little extra resilience to their plan, as they are already pretty bomb proof anyway.
Putting aside all the worries about SWR, as I understand the maths pursuing a vanishing small probability of failure is a fools errand. I would have linked to Gordon Irlam’s AAcalc, but it seems to have been withdrawn, see: https://www.aacalc.com/
Interesting [albeit non definitive] info re DA’s. A rate of interest reset during the deferral period is a bit of nasty! Thanks again.
@Alan S:
I had a hunt around and managed to locate what I was referring to above (at #47), [by Irlam], see: https://www.aacalc.com/docs/cost_of_safety
I first became aware of this years ago when I built my own MC model and played with cranking up the confidence. You really would need a huge Pot to assure 99.9% confidence vs say 90%. The 99.9% say pot would be much larger than that required in a floor and upside arrangement!
OOI, are you aware of Will Selden’s RiversHedge blog?
@Alan S:
I have now had a chance to read through your paper properly and there is a lot there. You clearly have been busy. I will only have properly absorbed some of it and will re-visit it again in due course.
FWIW, I liked that you included a so-called SWR like bonds and stocks option for “flooring”. IMO, this is often over-looked* as a flooring option and I think your paper also hints that for a low enough w/d rate this is pretty bomb proof too – see my earlier comments. OOI, the one lower w/d rate example you cite is TIPS related and has a modestly lower w/d rate; did you consider citing a SWR like example with a much lower w/d rate**?
Also, did you consider using stripped TIPS (specifically bullets) instead of normal TIPS? I ask as that approach would eliminate some of the interest rate risk, but I strongly suspect this may lead to more missing rungs.
Thanks again for the link.
*my own view is that the SWR vs safety first “schools of thought” thing is often a bit over-polarised; but that seems to be how things are generally looked at these days! OOI, have you had any push back from the (I assume intended) US audience being a non-US writer?
**my concern, which I hope is now clear (and admittedly only applies to a few people – who can probably afford it anyway) is that they fail to grasp how little extra resilience TIPS/Annuity flooring buys them if they have a sufficiently low w/d rate
@Alan S:
You may find my exchanges with Glen N at these two links from ’22 of some interest:
https://www.theretirementmanifesto.com/revisiting-our-drawdown-strategy-after-3-years-of-retirement/
and
https://www.theretirementmanifesto.com/how-real-people-manage-their-money-in-retirement/
as they touch on a lot of the points in your paper.
IMO what the links bring to the discussion is somebody’s real world lived experience. FWIW, what I found most interesting is:
a) acceptance he may have bought too much annuity cover; with a very interesting [US specific IMO] explanation (ie things changed); however
b) that due to timing etc, and in the round: a ladder with a delayed purchase of a smaller annuity would have been about a wash
@Alan S
Re #50 above.
On re-reading my text this morning I think where I used the word “smaller” in point b) is a mistake. Re-reading Glen’s reply again I think he is referring to about the same nominal ($’s) pay-out; albeit the pay-out rate was smaller some seven years down the line. My bad!
Furthermore, I assume all Glens calcs are in nominals – as that is what is to hand.
So with the benefit of 20/20:
i) his decision to buy a SPIA (ie non-indexed linked) annuity will probably prevent him being permanently “over-floored”*; and
ii) had he set his flooring lower (and reducing in real terms) he might have been able to make better/more efficient (?) use of the (assumed increasing (at least initially) in $ terms) RMD’s?
*notwithstanding he says he draws down c. 1%PA from his upside Pot
@Al Cam (50)
I was fascinated to read in the second Retirement Manifesto article that you link:
“I was surprised to find that 80% of those surveyed who are younger than RMD age took no withdrawals from their retirement accounts. Meanwhile, a full 84% of those subject to RMD’s took only the minimum required withdrawal.”
As I am still under the US RMD age, and I haven’t yet withdrawn from my SIPP (or ISA), it seems I’m more normal than I thought! The author clearly regards this as inefficient. However, I guess that the nearest UK equivalent of a Roth conversion is to withdraw from your SIPP (at BR) and deposit in your ISA. As I have been able to fully fund my ISA each year so far from what he call ‘after-tax’ funds, this particular option hasn’t been relevant to me. Spending more is always, of course, an option and I eagerly anticipate reading his referenced article ‘5 Steps to Learn to Spend in Retirement’.
It does seem that US RMDs, while having the intended effect of forcing retirees to eventually withdraw their tax-deferred savings and pay the tax, it also has the psychological consequence of encouraging retirees to continue investing their assets until legally forced to start withdrawing them.
On which subject, there has been much speculation and/or briefing about the forthcoming Budget and pensions. None of this has mentioned RMDs for the UK. All Chancellors seem to like to have a rabbit out of the hat moment in their Budget speech – I wonder if RMDs could be this year’s rabbit?
@DavidV,
Fritz’s website has a lot of interesting stuff.
IMO it benefits from being written by a layman (albeit a well informed/connected one)
We have chatted before about Roth conversions and the UK analogue you identify. Possibly in response to a link to John P Greaney’s website I dropped at SLS.
Interesting stats/observations re US RMD’s.
If I remember correctly, UK RMD’s would be pretty punitive for you – so best not mention that idea too loudly!
@Al Cam (53)
I’m sure HM Treasury is full of officials who scour the world for tax-raising wheezes, so I can’t imagine they don’t know about it, even if it may have hitherto been below the Chancellor’s personal radar.
If it were to happen I think I could accept it more philosophically than something I could have prevented with better planning (it would never have been possible to empty my SIPP completely at BR).
I have now read ‘5 Steps to Learn to Spend in Retirement’. Nothing very inspiring there I’m afraid.
@DavidV,
“Scouring for wheezes” – sound a bit News of the World, of old!!
Fair enough. IIRC even retiring earlier would have made DC emptying a bit of a challenge!
The 80% stat intrigued me, so I hunted down the original JP Morgan (JPM) report. The link at @RM is broken but googling the title seems to work a treat. It is based on a sample of 31,000 JPM customers (over a max of 6 years)* – so perhaps there is some bias/selectivity therein. Not sure.
Also, it is not clear to me if the Q they were asked related to the last year or since you retired – which might give further difference(s) too.
In any case, I understand a bit about your scenario and I venture it is largely down to your DB – what exactly is happening in the US is not so clear to me. But, it is not unknown for folks to live off of any severance pay for a few years at the start too! And, the data may be somewhat mis-leading too.
Seems inspiration is hard to find especially re that particular issue [spending more]. Must keep looking though!
* so an absolute max of 5000/year I think; and that might assume (depending how they count “people”) that none of them appear in subsequent years too
@DavidV,
Closer reading of the JPM report suggests to me that all 401(k)’s are ignored – as mention is made of annuities* / DB’s etc. So probably just IRA’s for a period of up to six years after jumping ship.
*and there is IMO a confusing note about annuities purchased from IRA’s
@Al Cam
I haven’t attempted to locate the J P Morgan report, so I’m only going by the Retirement Manifesto (RM) article and what you say. I interpreted ‘retirement accounts’ in the RM article as potentially including 401(k)s or IRAs. AIUI 401(k)s are occupational DC schemes, while IRAs are like our Personal Pensions (or Stakeholder Pensions or SIPPs). I’m not entirely sure whether it is usual to drawdown from a 401(k) in retirement, or whether it is normally transferred to an IRA once the connection with the employer is severed.
I suppose either could occur, depending on the employer, as is the case here. AIUI you drawdown from your original occupational DC scheme. OTOH I was expected to transfer out of my employer’s scheme no later than two years after leaving the company. The company had a default arrangement with Fidelity for this if you did not specify your own destination (e.g. for me my HL SIPP).
Back to the US situation, I would also have expected it to be possible to buy an annuity directly from an 401(k) or from an IRA.
@DavidV
Sorry in advance for length of link. JPM report downloadable (!) from:
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwib0sf0_J6JAxXOQEEAHewPKksQFnoECBMQAQ&url=https%3A%2F%2Fconferences.pionline.com%2Fuploads%2Fconference_admin%2FMystery_no_more__Portfolio_allocation%2C_income_and_spending_in_retirement___J_P__Morgan_Asset_Management.pdf&usg=AOvVaw1jimim_kT5T7p1z7Ix7na9&opi=89978449
There is also an EBRI PPT presentation that seems to rely on a similar dataset. IMO, the EBRI PPT is far more transparent but, it comes up with a different total sample size, and uses a window of x years around retirement – ie before & after.
JPM statement that got me twitching re 80% stat is: “About 30% had an annuity and/or a pension.”
In other words: I am not sure I believe the 80% is what it appears to be!
Re: “AIUI you drawdown from your original occupational DC scheme. ”
See: https://monevator.com/pension-drawdown-rules/#comment-1749356
@DavidV,
For completeness, see: https://www.ebri.org/docs/default-source/webinars/mysterynomorewebinar.pdf?sfvrsn=c8b93b2f_2
This is much clearer and transparent; albeit seems to use a different sample.
Note age for mandatory RMD’s was 70.5 in period covered by the report.
@Al Cam
I’ve now read the J P Morgan report and the EBRI presentation – thank you for the links. I’m not quite sure what to make of them. Your observation that of the 80% who do not drawdown before their RMD age, 30% have a pension or annuity implies that 70% do not. This further implies that this 70% must be living just on Social Security and/or unsheltered savings/redundancy (if fully retired).
I don’t quite follow your observation in #56. Both the report and presentation refer to data sources including the EBRI database of 401(k)s and IRAs. From the report footnote no. 4 saying there is some difficulty quantifying annuities bought from IRAs, I infer that other annuities must be bought directly from 401(k)s.