I’m really enjoying your early retirement content recently. It’s really ticking all the boxes with my own scenario and helping me fine-tune things, well done guys keep up the good work. 👏🏻

The video needs charts to illustrate the sequence of risk returns discussions.

The well researched ‘rising equity glide path’ by Pfau and Kitces showed holding less equities early on in your retirement and increasing them as you age showed a better outcome than holding a higher percentage of equities early on… especially when retiring at a point where the markets are highly overvalued. Also, you could argue that a retiree with what they call ‘enough money’ may not want the additional risk to make more money they will never end up needing and prefers to protect what they already have (mostly against inflation). This is exactly my situation having retired early. If you ask this question to a room full of fund managers (who make their living from investment commission) I wouldn’t be surprised if they suggested holding more equities.

Being flexible with your spending is the key here

If the risk is in the early years you only need to safeguard against it for a short period of time

I live from dividends without any drawdown other than a small amount from my sipp. My yield on cost is 9.7%, and the investments stay invested and growing.

Albeit theoretical, it would be really helpful to have graphs of the scenarios. Worth so much more than words.

Well said Ed (at 24:45)   who wants to be a millionaire when you can't get out of the chair to spend it and it all goes to the taxman

Good educational content. Well done!

I've done some similar-sounding analysis but found the "Maintain cash pile to cover 2-3 years in case of downturns" approach to be materially better in terms of reducing the "risk of ruin" i.e. running out of funds during retirement due to adverse market and inflation performance at the "wrong" time.

e.g. using this approach => "risk of ruin" = well under 5%; 100% equities => "risk of ruin" = 10%-15%.

For me, the issue isn't the final fund value when I "shuffle off" as even the median outcome is dying with a large fund and even an outcome at the top of the bottom quartile of likely outcomes would be a fairly relaxed affair. It's the survivability of a re-run of the Wall Street Crash or equivalent.

Holding circa 3 years income in cash (plus strict rules on limiting spending) allows survival of anything less extreme than - for example - a crash of 80% over the first 5 years of retirement followed by "flat-lining" (in real terms), albeit such a scenario would still be be quite grim!

This is a fascinating episode and I would love to see more detail around the scenarios that Tom used as this is something I am keen to do myself.  The bottom line is to leave it all invested, but accept there will be some hairy moments along the way.  My goal is probably to have 2 years cash buffer, but I need to understand more about if i transfer out from my pension equity fund into a cash fund, what the ongoing charges are, how long it takes etc etc.  My concern is doing this every 3 months might be costly vs once a year.  some more insight into the practicalities of doing this every 3 months would be welcomed

Tom, interesting as always. A couple of points.
If you keep some money in cash and the markets go up, you’ve lost out. True but just celebrate that say 80 or 90% of your money has gone up. Forget about the little bit extra you might have got.
You cannot plan it, but you should consider the fact you are getting older. In your 60s you may choose to have an active holiday, in your 70s you may go on a cruise and in your 80s, if so lucky, you may go to Sidmouth. These possibilities may have very different costs. Put differently, enjoy the money while you can.

So how does the cash pile relate to 60:40 portfolio. If your 40% part is more than 3 years of income should you go more into equities ?

When you're building up your wealth, you drip feed money into your pension (dollar cost average) so on a market downturn do not withdraw big lump sums and take smaller withdrawals.

If it's a short downturn it won't affect you much, but if it's a big crash over 2 years this is where you can smooth the blow with a bit of a cash buffer.

Having 3 years as cash is too much

He doesn't mention one possible reason to have many years in cash... If you believe firmly that a crash is likely (AI bubble) you can buy the dip. Of course that is a gamble, but if you have enough invested to be comfortable for life and you think a crash is coming within the next 5 years, it could make sense to hold 5 years plus in cash.

I have a decent DB pension that covers all my basic needs and then enough to live on comfortably. I also have a decent amount of savings split between Cash ISAs and Fixed rate bonds which i tend to just reinvest when they mature.... is there  a better place to put the cash? I am retired for the last 15 months at 61 years. Zero debts

So the question to ask your expert here is ..Do you think pension investments right now are over inflated and we should not benchmark the current valuation because the reality is the markets will drop ..

if you think of the 4% rule as each year being 4% of your pot, then eg 3 years in cash/MMF and  maybe 7 years in bonds/low risk funds (and the rest in equities) - thats basically a 60/40 ratio of equities to fixed income - the cash/MMF is effectively 12% of your pot and bonds/other low risk funds is 28%.

It would have been helpful to include money withdrawn via tax free cash or UFPLS. But gave me something to think about.

I would say another reason to hold a reasonable level of cash, other than as a safety cushion of not having to sell investments in a downturn, is to actually take advantage of the more severe market downturns (say min 20% drop) and buy some discounted equities. It’s not about trying to time the market, but the cash buffer does give you both peace of mind and flexibility.