Interesting. One of the things a lot of these articles raise is the 'safe withdrawal rate', in this case identified as 3%.
This seems very low to me. I have generally used 5%, simply because that is the target yield of my investment portfolio.
Presumably the authors of such articles assume that assets will be sold and the money invested into 'safe' places, like term deposits or bonds. I disagree with this. To me it seems much smarter to keep your money in the property/shares/businesses that you used to grow your wealth in the first place, for several reasons:
1) You have a much better understanding of the assets you used to grow your wealth in the first place
2) Reduce or remove CGT
3) If your investments continue to generate 5% yield (for example), the why not simply use that as your income (ie LOR) and allow the underlying portfolio to continue growing.
Point (3) implies more risk, but I don't think this is the case. In the early years of retirement or living off your assets you will be more susceptible to market downturns, but as time goes by you become more and more insulated due to your asset base (and income) growing more quickly than inflation. If after 10 years your portfolio takes a 25% hit due to a major economic shock, I'd argue that you're probably still better off than if you'd dumped the assets and gone to cash. You're also much better placed to ride the recovery when it eventuates.
My personal strategy also includes not spending ALL the available cash every year, but gradually building a contingency (perhaps 10% of the yield each year) to allow you to smooth your income, or have the occasional OS holiday or new car. If you get too much cash accumulating you can always buy some more assets (which further increases your income).
What do other people think of this? Have I missed anything obvious? Are there risks that I haven't considered here?
