Dazzled and Confused

EdInvestor

dunstonh wrote: »

Why not show the figure if you had the 5 year review in 2002 to get an idea of what could have happened?

If you compare the level of the stockmarket in 1997 and 2002, you will see they are about the same.

http://uk.finance.yahoo.com/q/bc?s=%5EFTSE&t=my&l=on&z=m&q=l&c=

This is why the required reviews are every 5 years: it gives the fund time to recover if there is a big crash. Same principle as applies to any risk-based investment - be prepared to stay in for 5 years.

Of course most people will choose a mix of different assets for their drawdown, including property and cash or bonds, which don't move in tandem with the stockmarket.You wouldn't usually put all your drawdown fund in the stockmarket, that would be too risky.

[BTW, you can get the fund revalued on request every year if you like, so an annual "pay rise" is possible if all goes well.]

swithering

EdInvestor wrote: »

BTW note to the OP: How much are you two due to get in state pensions?

We have just started getting £4000 each a year in pensions from previous employments. I paid the married women's reduced rate NI. Hubby is 60 and hasn't had a forecase yet. We have no dependants. None of our parents lived beyond 75.

EdInvestor

Drawdown can be a lifesaver in this type of situation, as it can act as a bridge while waiting for other pensions to kick in.

This also lowers the risk, because if you find your fund has got depleted over the 5 years of taking max income, you can reduce the amount taken from the drawdown fund when the state pensions kick in, to enable it to grow again. (There is no reason why the drawdown should be depleted in current market conditions if it is properly invested, but it's always wise to look at all possible eventualities.)

The annuity route by contrast would lock you into a lower income for all time and provide no capital sum for a survivor if one of you should die young.

jamesd

swithering, EdInvestor's point about being able to take the higher drawdown income now while you don't have the state pensions is a good one.

You can check the expected life expectancy using the cohort line for the year when you reach 65 here. Add five years to get to about a 10-20% chance of living longer than the graphed average.

Those come to on average living to about 85 for him and 87 for you and about 90 for him and 92 for you to get a fairly low chance of living longer.

Children are living perhaps five years longer than their parents, if their parents were 25 years old when they had the child. More if they were older.

If either of you is unhealthy or a smoker these numbers can be reduced, by perhaps 5 years for smoking or 3 for obesity, more or less for other conditions. A few years less expected for someone who has mostly worked doing heavy or industrial work, a few years more for someone who mostly did office work. Another extra couple of years for those who went to university or did intellectual work. All numbers are very approximate estimates, this paragraph based on me remembering as well, not on me going back to check the sources I originally used, so I might be mis-remembering something.

swithering

All the above comments have helped me find a way through the mire, and I feel I have a much better understanding of the options and pros and cons. Does anyone have any advice to add to what dunstonh told me re selecting an IFA? I'm considering the specialist companies (Annuity Bureau, wba, My Personal Finances) on the assumption that they should be the most knowledgeable. (Don't feel confident to follow the H-L DIY route.)

jamesd

It's a routine transaction and those sites are just IFAs. A local IFA may well be able to beat them. If you're interested in income drawdown now to provide some income I suggest that instead you look for a local IFA who works on the new model adviser (NMA) basis - which means a percent or two in up-front fees paid out of commission and 0.5% a year paid out of commisson from the annual charges of the funds you're invested in.

Since you're not comfortable doing the investing yourself I suggest that you ask for these services:

• Initial sector allocation using Watson Wyatt or comparable method based on your risk tolerance.
• Investment selection advice within the sectors.
• Annual rebalancing.
• Advice on fund changes if a fund manager changes.

You should be able to get those at the commission levels I described. Expect to have at least five and possibly as many as fifteen different funds used. If only one is used you probably don't have a good IFA.