Financial retirement planning

chucknorris

I'm retiring early next year, when I'll be 58, money isn't a problem, but I am starting to think over what assets that I (we) should hold at a particular age, as I start to get older? To get the ball rolling this is my rough outline plan, I was wondering if some posters might comment on it, as I am just in the early stages of thinking about it, and no doubt my final strategy will be different to my early thoughts:

At the moment my wealth is held as follows:

2% Cash
9% Pension (final salary, excludes SIPP)
21% Equities (passive trackers)
20% Home
48% Investment property

I like the rental income from the property, but I feel the need to sell before the next market correction, and also to wind down on the input required, so I'm thinking of phased selling during my early 60's. I am quite comfortable with that, most of the equity will probably go into equities, this is my area of uncertainty, I'm not sure how long I should keep money in equities. Dose anyone know what the conventional age is to start getting out of equities, I'm assuming that it isn't wise to keep your money in shares beyond a certain age? My best guess at the moment is my early 70's, is that about right?

Al.

One point from me; bear in mind longevity. You still have thirty years left, does pension freedom compel or encourage a traditional derisk curve on retirement anymore?

chucknorris

Al. wrote: »

One point from me; bear in mind longevity. You still have thirty years left, does pension freedom compel or encourage a traditional derisk curve on retirement anymore?

Sorry I'm not sure what you are getting at? I think you mean the new pension freedoms, but the 'problem' is that most of our money is outside of pensions. I am working on 35 years, just in case I happen to live that long, but surely risk always has to be considered.

I was thinking along the lines of, if I stayed in equities too long, and there was a crash, then I would have to sell them at a lower price for income. To avoid this a certain amount of planning ahead should be done to keep a certain amount of cash for spending, to avoid selling equities at a possible low price. But I thought that there would be some 'rule of thumb' about this.

TheTracker

chucknorris wrote: »

I like the rental income from the property, but I feel the need to sell before the next market correction, and also to wind down on the input required, so I'm thinking of phased selling during my early 60's. I am quite comfortable with that, most of the equity will probably go into equities, this is my area of uncertainty, I'm not sure how long I should keep money in equities. Dose anyone know what the conventional age is to start getting out of equities, I'm assuming that it isn't wise to keep your money in shares beyond a certain age? My best guess at the moment is my early 70's, is that about right?

Recent research advocates a U-shaped allocation that is lowest at point of retirement and gradually increases the equity allocation as you age in a "rising glidepath". However, conventional wisdom says you decrease over time from say 70:30 to 30:70.

dunstonh

Dose anyone know what the conventional age is to start getting out of equities,

About 85. Although it does depend on where the money goes next. If that person is going to continue to remain invested then there is no need to change anything. Most people continue to invest until death.

I'm assuming that it isn't wise to keep your money in shares beyond a certain age? My best guess at the moment is my early 70's, is that about right?

Why do you think that? Unless you are ill, its likely you will live into your 80s. You never know your date of death but early 70s is very early.

I was thinking along the lines of, if I stayed in equities too long, and there was a crash, then I would have to sell them at a lower price for income.

Depends on the income strategy and your cash balance. There are different ways of doing it but one would be where you have a cash account with about 18 months income and have the natural income paid into it and you draw against that. That should see you have at a couple of years income without the need to sell any investments.

ut I thought that there would be some 'rule of thumb' about this.

There is not. Think about it for a moment, if you rely on the income and you put it into cash, not only will you suffer inflation risk you will also suffer shortfall risk as cash is unlikely to meet your needs.

So, £100,000 in cash with interest paid out will be worth around £65,000 in 10 years due to inflation. Cash wont pay out what you need based on what you are suggesting so you will need to start eating your capital. So, your balance not only is eroded by capital, it is eroded by you and you start a spiral of erosion that results in you running out of money. Start that in your early 70s and you may find you run out before 87.

Income provisions sees no option as being risk free. Cash savings actually carries more risk. With investments, you have investment risk and you may suffer shortfall risk and you may suffer inflation risk. However, with cash you will suffer shortfall risk and you will suffer inflation risk.

It is normal to reduce your risk in retirement where you are drawing income. However, that tends to happen by default as you would pick income paying assets more and these generally tend to be lower risk.

mania112

Chuck Norris doesn't need money, surely. He IS money.... or something.

atush

your 21% equities- ae some of these in a personal pension? Or just ISas?

at 68%, you (like me) are too exposed to property.

chucknorris

dunstonh wrote: »

About 85. Although it does depend on where the money goes next. If that person is going to continue to remain invested then there is no need to change anything. Most people continue to invest until death.



Why do you think that? Unless you are ill, its likely you will live into your 80s. You never know your date of death but early 70s is very early.



Depends on the income strategy and your cash balance. There are different ways of doing it but one would be where you have a cash account with about 18 months income and have the natural income paid into it and you draw against that. That should see you have at a couple of years income without the need to sell any investments.



There is not. Think about it for a moment, if you rely on the income and you put it into cash, not only will you suffer inflation risk you will also suffer shortfall risk as cash is unlikely to meet your needs.

So, £100,000 in cash with interest paid out will be worth around £65,000 in 10 years due to inflation. Cash wont pay out what you need based on what you are suggesting so you will need to start eating your capital. So, your balance not only is eroded by capital, it is eroded by you and you start a spiral of erosion that results in you running out of money. Start that in your early 70s and you may find you run out before 87.

Income provisions sees no option as being risk free. Cash savings actually carries more risk. With investments, you have investment risk and you may suffer shortfall risk and you may suffer inflation risk. However, with cash you will suffer shortfall risk and you will suffer inflation risk.

It is normal to reduce your risk in retirement where you are drawing income. However, that tends to happen by default as you would pick income paying assets more and these generally tend to be lower risk.

Thanks, I really hate the idea of keeping money in cash, and of course I understand what depreciation does to it, which is why my cash is only currently 2% of my stored wealth. Although I wouldn't keep cash for 10 years, probably on 2 years and some in bonds. I did think that it would be conventional wisdom to take on some depreciation and avoid investment risk, but maybe there isn't a logical argument to accept depreciation as you suggest, and just take the investment risk. I suppose the difference is that depreciation is guaranteed, whereas the investment risk might not happen.

chucknorris

atush wrote: »

your 21% equities- ae some of these in a personal pension? Or just ISas?

at 68%, you (like me) are too exposed to property.

It's about 50/50 (50% in ISA and pension) and the other 50% with no tax wrapper. I retire next year so my pension investment will fall off a cliff, but we have both been investing up the max annual allowances for both pensions and ISA's for a while now, a bit slower with pensions though, I only started 4 years ago, and my wife last year.

I'm 58 (not 68) next year, although my wife is 11 years younger than me. I know my/our portfolio is very property biased, but that is the way that I/we wanted it. I really prefer property (but it can of course be a hassle too), but as I indicated I will be off loading some of it quite soon. We are now in a position where we can't really (sensibly) spend the money, so it is just a case of avoiding risk and doing the best that we can to give it a damn good try to spend most of it.

atush

If you sold before you retire could you not up the pensions with the proceeds? Does the OH work?

Otherwise, look to put the unwrapped into pension/next years isa too.

In the run up to retirement, we plan on having a min of 2 years spending in cash (maybe 3) for the sole purpose of not having to sell investments during a downturn.

Is your 2% cash 2/3 years income needed?

chucknorris

atush wrote: »

If you sold before you retire could you not up the pensions with the proceeds? Does the OH work?

Otherwise, look to put the unwrapped into pension/next years isa too.

In the run up to retirement, we plan on having a min of 2 years spending in cash (maybe 3) for the sole purpose of not having to sell investments during a downturn.

Is your 2% cash 2/3 years income needed?

NO, because you can only invest 'earnings' in pension not capital from elsewhere, anyway the equity is in the millions (it would exceed the lifetime allowance, never mind the annual), and as I said above we routinely invest the max allowed in both our pension and ISA every year anyway.

Yes my wife works (she is an actuary, and I am a chartered surveyor, but work as a university lecturer).

Yes the 2% is more than 2 years of current spending money, but at the moment we are not spending anywhere near what we are earning. My wife is thinking about whether to retire next year or not, but at the moment she is leaning towards taking 3 months unpaid leave every summer, and retiring when she is 50 in 4 years time.

So you were also thinking along the same lines as I was, about attempting to avoid selling assets during a downturn, Dunstonh (and I do generally respect his opinions) seems to think that isn't the right thing to do. But I have only just started thinking about it. I may end up deciding that there is no 'right thing to do' and you just have to do with what makes you feel the most comfortable.