Hi, I've recently been looking in detail about how I might go about living off my portfolio, but am getting a bit overwhelmed by the many different withdrawal methods I've seen described.
(BTW I'm in the UK so some of the tax and social security stuff will be different but I don't think this unduly affects my question.)
I understand the primary issue to guard against is sequence risk if I get a bear market or two in the first 10-15 years.
On retirement, I'm likely to have a pretty mixed set of holdings, which currently looks a bit like this:
- A bunch of high-yield shares and IT producing approx. 30% of my target income in dividends. The capital makes up about 40% of the portfolio.
- Some passive stock ETFs/trackers making up another 20%
- Some bonds and gilts ETFs/trackers making up about 10%
- A gold ETF making up about 10%
- Cash savings making up about 20%
I'll aim to take 3.5% at the start (which equals my target yearly income amount), and then take that income amount every year, bumping it up by inflation perhaps.
The way I was thinking of doing this is to take an income every six months by using the natural yield from the socks and ITs first (so not touching the capital there), then draw down on my other holdings according to how they've performed over the past 6 months. So I'd compare their value six months ago to today and make up the remaining income from each in order of performance ranking while trying to preserve the overall 60/20/20 asset allocation (so I don't eat up all my bonds too quickly, for example.
That way, I think I'll be able to mitigate sequence risk by running down stocks in the bull markets and bonds/gold/cash in the bears.
But then I read about "equity glidepaths" "Guyton guardrails" and loads of other strategies and my head explodes
But does this "supplemented natural yield" method also make sense in my case? I've also read about the dangers of relying on natural yield in bear markets too...
BTW I'm hoping to get the UK state pension at age 67 which is about 10 years into my retirement. This should hopefully shore up some effect of a bear market on my portfolio before then.
Any suggestions appreciated!