drawdown in bonds, how do you access more than the dividend

stu12345_2

if you design a drawdown portfolio pension that you need to access not only the dividends, but also the capital, but want it low risk, how do you do that if it has mostly bonds in it that pay out a % .
i cant figure out how you do that.
if say flexi drawdown , how to you actually use the capital within a say 15 yr bond,

a similar prob if it has global equity income,in the portfolio, how do you get an amount out every week that is more than the share dividend.

im planning to keep mostly in cash when older in drawdown portfolio as i thought this is the only physical way you can take a weekly income for my needs if bond or equity dividends arent high enough.
can someone explain how to do it by design and actual process of taking the capital to.

gadgetmind

How are you going to be holding the bonds and the equity income assets? Directly held bonds would need to be traded on ORB, but for funds, trackers and ETFs, you just hit the "Sell" button and decide how much.

My musings on the subject in idle moments suggested that I'd set my cash allocation in my portfolio to target + what I wanted to withdraw, and then see what my allocations to my other assets would be. Anything well over allocation would be sold (and there could also be some buying) and at the end, the cash is there to be taken out. Once this is done, the portfolio is back at target and you can snooze for another year.

dunstonh

if you design a drawdown portfolio pension that you need to access not only the dividends, but also the capital, but want it low risk, how do you do that if it has mostly bonds in it that pay out a % .

Most platforms have a cash account within the wrapper. So, you just sell down the capital investments periodically to make sure there is enough cash to pay the withdrawals. The natural income can go into the cash account too.

but want it low risk

You wouldnt go 100% bonds though as that would actually increase the risk compared to an appropriate spread suitable for your profile (e.g. bonds, property, equity)

gadgetmind

dunstonh wrote: »

You wouldnt go 100% bonds though as that would actually increase the risk compared to an appropriate spread suitable for your profile (e.g. bonds, property, equity)

There are some great graphs in (err, probably) Bernstein's "The Intelligent Asset Allocator" that show how adding just a small equity allocation to a bond portfolio can both boost returns *and* reduce volatility.

stu12345_2

my works pension designs a % in gov bonds, cash and global equity at retirement age, if the pension total at that age isnt high enough to live of the long term dividends on the bond allocation or the global equity return, my confusion is flexidrawdown without having to be 100% in money market if you need to draw on capital

i meant how to you take cash out of the bond part or global equity part if its not enough to live on ,

lets say at 55, its worth 60000 and its 40% cash, 40% gov bonds and 20% global equity and you need 10000 a year out of it to last till 61 when ur final salary pension kicks in, how do you do 10000 a year if its only cash in 40%, what happens to the long term bonds or global equity dividends

im 100% in equity shares at mo, refused lifestyle model, once i reach target amount, not target date, im converting it to money market and drawdown the lot over 5 yrs till db pension, but worry if i leave a section of works pension in bonds or global equity that pays say 1000 a year, thats not enough to live on, hence need to exhaust funds to any weekly amount i want and need to live on.

but money market pays 1.25% in portfolio, longterm bonds pays 4.5% in the portfolio, thus i thought the bond will give greater return, but i need to draw it down in a form similar to being 100% in money market

gadgetmind

stu12345 wrote: »

my confusion is flexidrawdown without having to be 100% in money market if you need to draw on capital

With a more hands-on pension, you choose what to sell to provide the cash needed. I guess for others they'll just sell a proportion of your holdings across the board.

im 100% in equity shares at mo, refused lifestyle model, once i reach target amount, not target date, im converting it to money market and drawdown the lot over 5 yrs till db pension

What's the thinking behind going instantly from very high volatility to a portfolio that's arguably too safe?

Have you modelled this?

noh

stu12345 wrote: »

if you design a drawdown portfolio pension that you need to access not only the dividends, but also the capital, but want it low risk, how do you do that if it has mostly bonds in it that pay out a % .
i cant figure out how you do that.
if say flexi drawdown , how to you actually use the capital within a say 15 yr bond,

a similar prob if it has global equity income,in the portfolio, how do you get an amount out every week that is more than the share dividend.

im planning to keep mostly in cash when older in drawdown portfolio as i thought this is the only physical way you can take a weekly income for my needs if bond or equity dividends arent high enough.
can someone explain how to do it by design and actual process of taking the capital to.

You asked the same question 20 days ago
https://forums.moneysavingexpert.com/discussion/5145838

I don't think the answers will be very different this time.

stu12345_2

so to summarise can i take more cash from a bond part than its divedend provides without drawing from the cash fund only.

my reasons for equities to cash in one swoop isnt decided ill prob derisk gradually, my goal is i need a certain amount to retire early on, not a early retirement date, thus if i dont hit this certain amount i cant retire early, so i need to keep it growing for as long as possible.

i was just looking for clear concise short answer, not about portfolio design, simply, how to you take more money than a long term bond pays out even if it means running the bond down early and not waiting for it to fully mature.

im thinking is it a case of you only get 2 choices, what it pays out yearly or redeem the whole bond early, is that the 2 choices.

Linton

stu12345 wrote: »

so to summarise can i take more cash from a bond part than its divedend provides without drawing from the cash fund only.

my reasons for equities to cash in one swoop isnt decided ill prob derisk gradually, my goal is i need a certain amount to retire early on, not a early retirement date, thus if i dont hit this certain amount i cant retire early, so i need to keep it growing for as long as possible.

i was just looking for clear concise short answer, not about portfolio design, simply, how to you take more money than a long term bond pays out even if it means running the bond down early and not waiting for it to fully mature.

im thinking is it a case of you only get 2 choices, what it pays out yearly or redeem the whole bond early, is that the 2 choices.

UK Gov bonds (gilts) come in £100 lumps, so you sell enough to pay for the income.

stu12345_2

what you mean sell enough, do you sell chunks of the bond in flexi drawdown on top of its dividend, if you can, thats good as im thinking of a gov gilt in a pension as the same as these new oap bonds for sale, but they pay out yearly and if its not enough then the whole bond is sold and closed and redememed i think.

if you can sell the bond in chunks as well as its yearly dividend, then does it make more return in drawdown to leave portfolio in 4% long term gilts or 1.25% money market if your treating your portfolio like a bank account and drawing from capital and return

Linton

stu12345 wrote: »

what you mean sell enough, do you sell chunks of the bond in flexi drawdown on top of its dividend, if you can, thats good as im thinking of a gov gilt in a pension as the same as these new oap bonds for sale, but they pay out yearly and if its not enough then the whole bond is sold and closed and redememed i think.

You are very confused. When you buy £20K worth of government bonds you get 200 X £100 bonds. So you can sell them £100 at a time.

Perhaps you are thinking government bonds are something like "bonds" (actually fixed term deposit accounts) you get from a bank or National Savings. If so you are wrong.