Some important loose ends

Five things I don’t address

This blog focuses on asset allocation, product selection and portfolio management. Obviously that’s not the whole picture. Here are five other things that matter - the first one stands out.

1. Mind the tax

When I showed my accountant my self-made retirement spreadsheet model, he was thoroughly unimpressed. What he missed are the exact tax implications. This led to a Spock-like, humbling dissection of my model. He is, quite understandably, not able or willing to work with vague, ballpark numbers. So after taking the model apart, he puts it back together including correct and optimised taxation. Makes a big difference. Based on that, I can make changes to my model, we have another session and so on.

I feel comfortable managing my own money, but I have no problem paying for his services. In my opinion, his advice is an excellent way to avoid costly mistakes. Plus you will get a useful income timeline and, to use a fancy term, a matching tax architecture.

Be aware that tax rules differ by EU member state. I share my setup from my personal perspective, but always verify your local tax rules.

One thing worth mentioning. My portfolio sits inside a separate legal entity, not in my own name. That changes the tax picture compared to holding investments personally. Reason enough not to assume any rule of thumb you’ve read (including on this blog) automatically applies to your own situation.

Get your plan checked by a professional.

2. Decide what to leave behind

This is different for everybody. Can you use the whole pot for your retirement, or do you want to save something for your partner or your heirs?

Also consider what to do after your plan ends and you are still alive. I am working with a 20-year horizon, but that might not be enough. Maybe after 20 years, you want to have a lump sum to buy an annuity.

If you want to end your planned retirement period with a certain amount, you might want to work that into your asset allocation, your risk strategy and the amount of money you take out.

3. Evaluate and adapt

This is my model for the next 10 years - hopefully the first phase of my retirement. Of course, periodically you need to check how things are going. Things in your life will change, and you might need to adapt the model.

I am not talking about yearly rebalancing or changing long-term bond allocation from 10% to 12%. This is more about buying or selling a house, trying to finance a yearlong dream cruise or helping out a struggling relative. Loads of unexpected things can and will happen.

The model is to support what you want and if that changes the model needs to adapt, not you.

4. Build an emergency fund

What if there is a global crisis and my portfolio is in shambles? For this I have an emergency fund which is completely separate from my portfolio. This post is about the difference between an emergency fund outside your portfolio and the dry powder inside your portfolio.

Needing or not needing an emergency fund is personal. Whatever makes you sleep well at night. For me, the objective of my emergency fund is to keep 4 years of income intact.

5. Be honest with yourself

Managing your own money is not for everyone. If it gives you too much stress, or the results keep disappointing you, hire a professional. Or buy an off-the-shelf product, like a life-cycle fund or an annuity. Or both.

Also take into account that what seems fun and interesting in your mid-sixties could become a burden later on.

The ultimate objective is not to manage your own money. It is to have a good, carefree retirement. Stay critical of your own efforts and choose the best path forward.

Where to go from here?

Back to setting up the portfolio, or straight on to product selection.