Using a "bucket" approach to securing a retirement income from my S&S Isa

gterr

Hello folks,

A brief summary of my status: Self (58) and husband (60) will stop work at the end of this year. We both have small occupational pensions which come into payment over the next couple of years. By the time we reach state retirement age our state and occ pensions together will give us an annual income of just over £11k each (£22k joint), so will use up our personal tax allowances.

In addition, in November this year we will have a sum of about £180k from the sale of a business.

We will get this into S&S Isas as fast as we can, and we want to take about £7200 per year (4%) from it as an income to top up other pension income. We already have about £30k in cash Isas, and about £10k in S&S Isas, largely in trackers.

I have read about the "bucket approach" to managing portfolios in retirement, and think this might be a useful for us, because we may be in retirement for 30+ years or so.

One article I read suggested having 3 buckets: one to hold cash, the second to hold low-risk investments and equivalent to two-years worth of income, and the third to hold the rest (with the third bucket holding a higher percentage in equities, so higher risk.) Bucket 3 tops up bucket 2, which tops up bucket 1. An obvious advantage to this is that you could optimise each portfolio (bucket) to suit its role, rather than having to, perhaps, compromise the holdings in a single portfolio. This might not be so very different from working with a single portfolio (bucket) but changing the holdings at retirement to give more income-producing funds, except that with the bucket approach you could choose a 'good' time market-wise, to top-up each bucket, avoiding the need to sell units when their price was depressed, for instance.

Other articles I've read suggest 4 buckets would be better (or even more!).

We were in any case intending to have at least two years' equivalent of S&S income held in a cash account, to be used first and then topped-up from the S&S holdings, but I wonder if it's worth adding and extra bucket?

And I even wonder if we could use different Vanguard LS funds for buckets 3 and 2, e.g. 80% for bucket 3 and either 40% or 20% for bucket 2, to keep things amazingly simple?

Any comments?

Linton

I have 3 buckets (or "portfolios", it sounds more classy).

1) Cash for 5 years, each year in a 4-5 year fixed rate account plus lump sum for emergencies.
2) Long term investment
3) Income, largely dividend paying shares with some bond funds.

The large amount of cash means that I can delay cashing in my investments for up to 5 years if necessary. My investments are mainly in higher risk/higher return niche funds, the cash and ongoing pension income means that I can afford to take a very relaxed view of short term falls.

I dont have a "waterfall" view of my portfolios where one is designed to top up the next, rather each is designed for a specific and quite different purpose. My high level management task is basically one of balancing the three.

I would have thought 4 portfolios was excessive. Also your thought of just using different Vanguard Life Strategy %'s doesnt justify it. The different portfolios would be holding very similar types of investments, why not merge and take the average %. With a separated portfolio management approach I would expect the separate portfolios to hold very different types of investment.

gterr

Linton wrote: »

I dont have a "waterfall" view of my portfolios where one is designed to top up the next, rather each is designed for a specific and quite different purpose. My high level management task is basically one of balancing the three.

I would have thought 4 portfolios was excessive. Also your thought of just using different Vanguard Life Strategy %'s doesnt justify it. The different portfolios would be holding very similar types of investments, why not merge and take the average %. With a separated portfolio management approach I would expect the separate portfolios to hold very different types of investment.

Thanks. I do understand your point about the different LS funds holding similar investments. However, the higher-equity ones (80%, 100%) do hold some funds not held by the lower-equity ones, for example US Equity Index, FTSE Developed Europe-ex-UK, Pacific ex-Japan, and Japan Stock. Of course, there will still be considerable overlap of the underlying investments. One advantage would be that he individual LS funds would be rebalanced without my intervention.