Inflation fears

dunstonh

The very thought of an "unsecured pension" sounds scary but I can see some advantages and is perhaps more appropriate for a phased retirement, has tax advantages and keeps it all more flexible, although with risks attached

It has risks of course, but every option does.

Also, remember that you dont have to go 100% into any option. You can mix and match. So, you have the state pension indexed every year. Maybe have part annuity on level basis and part on drawdown.

Taking an income on drawdown is in principle no different to taking income from ISAs, investment bonds or unwrapped investments. Think of the the pension as a tax wrapper only. Treat it more holistically in your overall situation and not a single entity.

If you are going to take income from investments and that does scare you then taking an income from investments within a pension shouldnt scare you as its the same idea.

Certainly relying on investments in retirement to provide an income (compared to a guaranteed annuity or other guaranteed income) carries more risk due to unknown investment returns. It isnt something for the "lazy investor" or the very cautious. You need to be aware of the pros and cons of all the options and make an informed choice.

jamesd

Linton wrote: »

Do you want to base your whole financial situation for the next 30 years of your life on "fair chance"s and "probably"s?

There's no other game available, so we have to play this one. Yes, I base much of my retirement planning on fair chance and probably, since I'm using investments that have non-guaranteed returns to accumulate my pension pot.

Fair chance was describing how the market might be, not what to do about it. Similarly, the thought about inflation. But a later period of high inflation is entirely possible and can't be provided for with annuities that offer only capped inflation protection. Index-linked gilts can cover it, but those provide a relatively low level of income.

A good safety margin and investments in companies (via funds) that have incomes that rises with inflation seems the best moderately high income option to deal with inflation. But that doesn't deal with stock market variations, so some bonds are needed and that... repeat so you end up, hopefully, with a good mixture of investments that'll do reasonably whatever comes along.

peterg1965

Interesting thread, and I wish the OP well in his retirement plans. My thoughts are that when I retire I would be happy to see an erosion over time of my drawdown capital and I would take the maximum allowed each year from the pot - c7% at 120% GAD I think. I know everyone has differing needs and situations but my rationale would be that I am likely to need less money the further I get and the older I become into retirement. I would be likely to travel less, change cars less often and maybe even eventually radically downsize housing which would release more capital or at the very least reduce outgoings. The other factor, for me, is that the State pension should kick in about 11-12 years after I crytalise my pension, this would assist in maintaining income level/standard of living.

The other reason for maximum drawdown is that unused money can be placed within more accessible vehicles, such as ISAs, access is therefore unrestricted.