Investing in Drawdown

Aged

So, once you have your brand spanking new drawdown account, what sort of investments are most suitable for retirees - anyone here in that position? Would love to hear your thoughts and experiences

dunstonh

what sort of investments are most suitable for retirees - anyone here in that position?

Drawdown has been available since 2006. So, its not new and a number of strategies are possible.

Which one that will be best will depend on how you plan to drawdown in retirement and investment preference. I have several methods in play with different clients due to their different needs. So, I wouldnt want to suggest one being better than another. More a case of which one fits the need.

Aged

dunstonh wrote: »

Drawdown has been available since 2006. So, its not new and a number of strategies are possible.

I just meant it's new to me

Which one that will be best will depend on how you plan to drawdown in retirement and investment preference. I have several methods in play with different clients due to their different needs. So, I wouldnt want to suggest one being better than another. More a case of which one fits the need.

I will be drawing down immediately as I need an income now. It's hard to imagine how it's all going to work in practice, so I'm just trying to find out as much as I can so that I can make the decisions that are right for me

Mistermeaner

How big is your pot?

How much do need per annum?

How old are you?

What state pension are you due?

How long will you live?

How's your wife and kids? Do you want to leave them anything?

Once you've answered the above something along the lines of this will work

Basically divide your pot up so that 2-5 years is in cash, 3-10 years is in gilts, 7-20 years is in bonds, 10-50 years is in equities. As you withdraw each year shuffle it all around so you always have 2-5 years in cash etc.

Ps if on the basis of your pot size and annual drawdown you don't get past 10 years you need to either die earlier than planned or take less per annum

dunstonh

You could segment he pots into three chunks and run a strategy for the three chunks (short term, medium term and long term).

or you could run a sector allocated portfolio with an income focus where the income is paid into the cash account of the pension. Then maintain around 18-24 months worth of withdrawals in cash.

Or you could run a high yield strategy and draw natural income only.

Those are just three options you could use. Pros and cons can exist with each.

Aged

Mistermeaner wrote: »

... if on the basis of your pot size and annual drawdown you don't get past 10 years you need to either die earlier than planned or take less per annum

Haha that's very funny! Seriously though, if you're already drawing down you're of an age that 'the future' is a whole different kettle of fish than it is for most working folks that are paying into a pension for their retirement. I won't be here in 50 years time! :rotfl:

mgdavid

Aged wrote: »

Haha that's very funny! Seriously though, if you're already drawing down you're of an age that 'the future' is a whole different kettle of fish than it is for most working folks that are paying into a pension for their retirement. I won't be here in 50 years time! :rotfl:

It may sound a long time but if you retire at 60 you have about 25% chance of living well into your nineties so you do need to consider a 30 to 40 year timespan.

dunstonh

Male aged 60 of average health sees 3 in 4 likely to survive to 82. half to survive to 90 and 1 in 4 surviving to 96.

Aged

Mistermeaner wrote: »

Basically divide your pot up so that 2-5 years is in cash, 3-10 years is in gilts, 7-20 years is in bonds, 10-50 years is in equities. As you withdraw each year shuffle it all around so you always have 2-5 years in cash etc.

You wouldn't want to invest in cash within a drawdown account would you? Aren't the interest rates that they offer on cash always very low?

dunstonh

You wouldn't want to invest in cash within a drawdown account would you?

Most of my drawdown pensions do.

Aren't the interest rates that they offer on cash always very low?

Yes but you are not using cash to make more money. You are using cash as a buffer when markets fall to cover the short term withdrawals for a couple of years.

Would you rather from cash that has that has made 1% over the last year or draw from an investment that has just lost 20% due to a crash?

Aged

dunstonh wrote: »

Yes but you are not using cash to make more money. You are using cash as a buffer when markets fall to cover the short term withdrawals for a couple of years.

Would you rather from cash that has that has made 1% over the last year or draw from an investment that has just lost 20% due to a crash?

Yes I understand that there will have to be an element of cash held within the account for operational reasons, and that this will vary from time to time dependent on circumstances, but surely cash holdings would be kept to a minimum and the rest of the funds invested to generate income (assuming that the pension holder has more easily accessible cash available elsewhere that could be accessed in the event of hard times)?