How to set up your portfolio to live off your income until retirement

I am an employee who, however, is thinking of quitting my job and living "on an annuity" by means of Etf with dividend distribution and, if necessary, using Rita (I have set aside 220,000 euro in supplementary pensions since 2000).
My wife and I are over 50 and will receive our pensions in 10 years at the earliest. NWe have no children (she is a housewife) and we own two properties free of encumbrances worth a total of 600 thousand euro. The risk appetite is high, currently the 300 thousand euro of savings are allocated in a variety of mutual funds, mainly equities. Occasionally I practice online trading using liquidity held for about 100 thousand euro. The financial requirement is about 30 thousand euro per year.

Paolo S.

Answers Marcello Rubiu, Sole Director Norisk Scf

The reader touches on a topic of great relevance: the possibility of living off accumulated capital and available financial instruments. This is a central issue in financial planning, an indispensable element in ensuring continuity in one's standard of living, especially in light of increasing longevity. It is precisely planning and programming that makes it possible to face the different stages of life with serenity. In the situation under review, resources become the main means of livelihood for the next 10 years before retirement and it is therefore crucial to adopt a prudent and risk-aware approach. One of the issues raised by the reader concerns the use of income-distributing ETFs. It is important to point out that many of these instruments, in order to offer seemingly higher returns, select and overweight companies that pay generous dividends, while underweighting those 'growth' companies that reinvest profits and have been the main drivers of market growth in recent years. This choice inevitably leads to a distortion with respect to the global market trend, in fact constituting active selection. For this reason, while dividend-focused ETFs can be included in portfolios, it is essential that they do not deviate significantly from the overall market.The second aspect concerns asset management and the investor's risk appetite. Even if the investor is willing to assume high volatility, it must be remembered that in the absence of earned income, capital ceases to be a mere financial reserve and becomes the main source of income. It is precisely at this stage that an excessive concentration on risky instruments, such as equity ETFs or online trading, exposes one to potential losses that are difficult to sustain. Moreover, trading cannot be regarded as a stable source of income: it can be maintained as a personal activity, but only to the extent that it is experienced as an employment of capital at total risk. As for the Rita (temporary early supplementary annuity), it is accessible in two cases: when there are less than 5 years to retirement age, or if one has been unemployed for at least 24 months and no more than 10 years to retirement. In this case, the possibility of activating the Rita would only be triggered after two years from the eventual termination of employment.In summary, from the point of view of overall financial planning, building an annuity exclusively through dividends from equity ETFs or through trading means exposing oneself to very high risks. A more solid solution is to create a diversified portfolio with a well-calibrated bond component - including government bonds, investment grade corporate bonds and, to a lesser extent, higher-yielding instruments - capable of guaranteeing stable coupons of around 2.5 per cent per year. The equity part, on the other hand, should be represented by global and diversified instruments, not limited to the selection of high-dividend stocks. Indeed, historical data show that, over the past ten years, global equity indices have offered a total return (price plus dividends) that is about 3.4 per cent per annum higher than indices focused solely on high-dividend companies.