"Lifestyling"- adjusting pension risk over time

savingforoz

I have a question about reducing pension risk by shifting gradually out of equities as one approaches retirement age.

I'm female, 50 years old and looking to retire at 70. There is longevity on both sides of my family and I am very health and fitness conscious so I am planning to have to fund a long retirement. I was thinking of taking a rising annuity at some stage, maybe aged 80 or whenever I'm old enough to make the rates more attractive, but using capped downdown before then. I have enough in retirement funds to make drawdown possible.

So my thinking is to stay mainly invested in equities (I do already have some investments in bonds) until age 70, then start shifting into bonds/gilts in the ten year run up to being aged 80, when I'll probably take an annuity. Or at least make a decision which way to go when I'm 70.

This seems to fly in the face of the old adage of having 100 less your age in equities and the rest in bonds, but then that takes no account of an individual's retirement date, health, etc.

My risk profile is high and I have been through enough dramatic drops in equities to know I'm not going to bail out when it happens.

So my question is, is staying mainly invested in equities, spread over various regions, classes etc., for the next 20 years a good idea or should I start making the switch into less risky investments now?

dunstonh

This seems to fly in the face of the old adage of having 100 less your age in equities and the rest in bonds,

Its not an adage that makes any sense when looking at personal circumstances.

So my question is, is staying mainly invested in equities, spread over various regions, classes etc., for the next 20 years a good idea or should I start making the switch into less risky investments now?

Depends on your risk profile but given another 20-30 years of investment timescale, reducing risk now would seem premature.

jamesd

Lifestyling is mainly intended for people who will be buying an annuity at a fixed date a few years in the future. This does not apply to you. It applies even less if you ultimately plan to use income drawdown instead of annuity purchase for much of your income generation.

With your high risk tolerance and clear knowledge about investing you should forget pure lifestyling but instead might consider reducing risk gradually during what look like the later stages of a stock market boom more than you might otherwise do to reduce risk that way. You can expect many drops in markets between now and your anticipated retirement date so any large changes in successful investing practices seems inappropriate.

Once you reach 55 you might also consider starting to take the lump sum and income from current pensions and investing that in a new pension to get a second batch of tax relief and tax free lump sum. the lump sum could go nicely into S&S ISA or other investments outside a pension over the years if you want to preserve the capital outside a pension. Otherwise, within the limits allowed, you could consider recycling it into more pension contributions.