Drawdown funds in retirement: some thoughts

gterr

I have been reading around the question of asset allocation for folk like me who want to take an income from their investments during retirement - either from a SIPP or an ISA.

There's a huge amount written about investing in SIPPS and ISAs before retirement, but not so much about what to do once we are in the 'decumulation' phase. There seem to be two schools of thought, seemingly at odds with each other:

1. Move holdings to 'safe' or near-cash vehicles, such as cash, gilts and investment-grade bonds.

2. Move into income-bearing investments, particularly equities with good dividends.

For those of us retiring at about 60, looking ahead to 30+ years of income requirement, surely neither of these is adequate? The first may be suitable for someone about to buy an annuity, but is unlikely to bring in enough return during drawdown to give an adequate income after inflation is taken into account. The second, with a high percentage of equities, may suffer from too much volatility and be too risky.

Is there an argument for sticking to a conventional 'income and growth' portfolio, optimised to suit an individual's attitude to risk, rather than making big changes to holdings on retirement?

And has anybody considered the new multi-managed 'Generation' funds offered by Old Mutual Global Investors (formerly Skandia), which seem to be the only funds that are currently aimed specifically at people in drawdown?

I would love to hear your ideas.

srcandas

gterr I'm 60 and will at sometime in the next 2 to 5 years need to start my drawdown.

As you say we may be looking at a 30 year investment window and therefore with 50+% of our funds fully invested for 15+ years.

For that reason I aim not to change my investment strategy.

To be fair I have a small annuity and will have full state pension so it is not my entire income.

And I have a well diversified but some would say high risk SIPP portfolio. But at least in the future I'll have more time to look after it

atush

A bit further off retirement, but I agree. If using DD you need to stay invested. Maybe not as high a risk profile, maybe in income producing assets. But invested.

I won't make decision on cash amounts until much closer to the time to see what rates are available, and how much capital expenditure I expect coming up.

And no I haven't looked at those funds yet.

gterr

Thanks both. Yes, you echo my thoughts, that 'normal' investing principles should still be applied, with perhaps a gentle, but only gradual, move towards lower risk.

Maybe we are in the first tranche of people with DIY SIPP and ISA accounts who are heading towards drawdown and anticipating a long retirement. I also have some other retirement funds, and I guess that may be common, too. So, everyone will have to do their own sums as to what income is required, or feasible, and adjust their investments accordingly. I am aiming for about a 4% drawdown, index-linked, but I have some flexibility with this and can choose to take less, or forego the index-linking, in 'bad' years. So for me, I am not planning to make major changes to my portfolio at this stage.

The new Generation funds from Old Mutual aim for a given return above inflation plus an income. For instance, (and if I've read this right) their "3:4" fund aims to give growth of 3% above inflation plus an income of 4%. They are multi-managed. I've found them on Sippdeal, but not so far on HL.

An article I read said that there is likely to be a number of products coming on line over the next few years aimed specifically at drawdown customers. has anyone else spotted one?