how do you over drawdown funds from bonds

stu12345_2

if your portfolio at retirement has certain amount in corporate or gov bonds paying say 2 to 4% per annum paid say every 3 months, how do you drawdown say 10% ,
i understand if portfolio was equity and money market you could take what you want and when, but how does that work if it has bonds and you need more than the commission they pay.

does that mean in drawdown avoid having any bonds if you want varible amounts of cash per year, i know the old plan was 25% cash and 75% bonds,
but not now come april 2015, flexidrawdown

there is a provider called now pensions i looked and their portfolio is 75% cash,25% equity due to new rules for drawdown

kidmugsy

When you want to do a drawdown, and there isn't enough cash in your "pot", you simply sell some of your investments to realise some cash.

stu12345_2

i mean if its say 40% cash and 60% bonds that mature in 20 yrs, how do you actually dip into the bond part more than they pay out.

for example these new gov bonds for over 65 for sale paying 4%, what if the oap wants more than 4%, can they dip into the bond more rapidly without selling whole thing.
its just that if i go down to drawdown ill have to use the capital and the return as pot too small, so does that mean dont have a portfolio with bonds

if it was all in bonds paying 4% min, can you take say 10% one year then 4% another year or is that impossible

ps why are these gov bonds only for over 65s if you can get pension at 55 now

jamesd

The government bonds for over 65s aren't bonds, they are term deposit accounts. Retail bankers tend to call term deposit accounts "bonds" but they aren't really bonds. If you have money in a term deposit account you wait until the term ends or you check to see if it's possible to exit early and pay a penalty. ISA rules mean it's always possible to exit an ISA term deposit early by paying a penalty.

The government product is presumably only available to those over 65 to limit the use by younger people who may not be retired yet. Since it's paying more than the government needs to pay for money it's a subsidised interest rate so it's important for the budget - and taxation of the rest of us - that it's not available more broadly than intended.

For real bonds like those issued by companies and the UK government there is a resale market and you can sell at any time before maturity if you want to free up more cash.

The commission paid by bond doesn't matter because that goes to whoever is selling the bonds, not you. What you get is interest. Just replace the word commission in your post with interest.

One of your responsibilities in drawdown is to ensure that you will have sufficient liquid assets to meet your drawing needs. Liquid means anything you can sell quickly enough to meet that need. Usually that'd include significant share, bond, commercial property or infrastructure funds or similar investments.

Where did you find that NOW: Pensions is using a 75% cash, 25% equity mixture due to the new drawdown rules? It doesn't seem likely that even all of their scheme members who are over 55 taking all of their pots on 6 April 2015 would require that much cash. now would it make much sense for them to use that much cash anyway, because they invest in index funds and those are highly liquid, allowing them to meet drawdown cash demands by easy selling. A more likely reason for so much cash is taking a view that markets are likely to drop but even there it'd be a very high cash allocation without using alternatives to equities instead of cash.

stu12345_2

if i leave parts in equity but i need to draw on capital as well as dividend, do i leave it in equity growth or equity dividend.

http://www.nowpensions.com/wp-content/uploads/2014/04/Members-Guide-to-Investment.pdf

this now guide quite interesting, what goes up and down in recessions etc and how the new pension rules made them create a pension plan that doesnt let you need an annuity.

Linton

stu12345 wrote: »

if i leave parts in equity but i need to draw on capital as well as dividend, do i leave it in equity growth or equity dividend.

http://www.nowpensions.com/wp-content/uploads/2014/04/Members-Guide-to-Investment.pdf

this now guide quite interesting, what goes up and down in recessions etc and how the new pension rules made them create a pension plan that doesnt let you need an annuity.

I dont believe the principle of steadily de-risking to complete safety at the point when you retire makes any sense at all if you plan to drawdown rather than take an immediate annuity.

At say 65 much of your money wont be needed for many years so why not keep it in better performing equities knowing that you have plenty of time to recover from a crash. What is important is that enough of your pot is safe to guarantee the income for a few years.

So in answer to your question you need both equity income and growth plus lower risk investments for the shorter term. As always with investing it isnt a matter of either/or but rather in what proportions does one do both.

jamesd

You'd use a mixture.

It doesn't seem as though there's been much or any modification of the NOW: Pensions plan based on the Budget changes since it appears to be using a poor switch into cash over far too long, just as was common when everyone was expected to buy annuities. If using that plan and not planning to buy an annuity, or if uncertain, I'd either ask them to turn off lifestyling or set planned retirement age at least 15 years beyond actual planned age. This is because such massively early switches into near-cash investments are likely to do serious harm to retirement wealth.