SWR 4%: An ongoing investigation – July Update

A broken laptop has meant very little time spent doing any writing this month, I tried on my phone but found it far too stressful.   A quick belated update on this to catch up.


Back to the beginning.  It’s now seven months into the experiment where Mr Z in Parallel Universe Number 1 pulled the trigger on early retirement.  This is a completely fictitious portfolio and just a little experiment, hopefully giving some insight on what it would actually be like through the ups and downs of living off an investment portfolio.
Each month I am going to assume that Mr Z has spent every penny of his last drawdown and is ready to drawdown once again from his retirement fund, bang on the end of the month.

This should be prudent, as in reality you would cut back when the markets are down, you may have some months where you do a little bit of work and get a little bit of side income, you might not spend the full withdrawal amount, etc

At the start of this experiment the fund was £625,000 split 75% to equity and 25% to cash and bonds.  That should be enough to withdraw £25k a year (and increase this annually along with inflation) if the 4% Safe Withdrawal Rate is to be trusted.

Position at 31/7/2015
Following on from prior months, first I’ll have a wee look at where the portfolio would be without anything withdrawn;

A bit behind the time now, as the markets have headed south since.

Not much this month;
– £181 in income from the U.K. Government Bond UCITS ETF
– £45 in interest on a Cash ISA.
All of the funds are the income type and so dividends or interest are assumed to be paid into the cash account before we look at any withdrawal.
Mechanical rules are followed to simplify things, based on the initial asset allocation of 75% Equity and 25% Bonds&Cash.

Distributions will be taken first as income for the month and then any remaining withdrawal will be taken to re-balance towards the 75:25 allocation with any dealing costs picked up by poor Mr Z himself out of his £2,083.  This should then skim off any parts of the portfolio that are doing well and hopefully give any flagging parts of the portfolio catch up while avoiding drawing on capital unnecessarily.

This would result in 16 units being sold from the S&P500 tracker and the remaining from cash.

The remaining portfolio
Following withdrawal the portfolio looks like;
Next month will be interesting given the movements in the markets so far in August.

Mr Z

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