low risk investments

markinsouthsea

I have a sipp and have been investing using funds and looking at the medium term, hoping to retire in around 5 years time.


However I also have cash in regular savings accounts and current accounts making use of the 3-5% that is available when using different banks.


I have read that there is likely to be further pressure on reducing interest rates and am thinking that the banks could very well cut the 3-5% interest rates currently on offer. The cash I have in these accounts forms part of my pension plan (using the interest when I am 60 as income to live on). If the savings rates get curtailed I was thinking of two possibilities.


1 move the cash or part of it into my Sipp to benefit from the tax that will be added. Downside would be that the cash would sit there with no further uplift of interest and would get eaten away by inflation.


2 move the cash into the sipp but instead of leaving in cash buy a low risk investment that has some dividend/yield.


My question after all this is what are the low risk investments to consider, that would be closest to holding cash?

dunstonh

The cash I have in these accounts forms part of my pension plan (using the interest when I am 60 as income to live on).

That is a high risk strategy. Why do you think that is a good thing and how are going to compensate for the risks? Or is the use of investments your way to reduce the risk?

My question after all this is what are the low risk investments to consider, that would be closest to holding cash?

Depends on what your definition of low risk is. You dont want to take too high investment risk but you dont want to be too low investment risk (as low investment risk increases overall risks). So, what sort of loss potential are you looking at as being acceptable? What sort of drawdown rate is needed for your objectives?

xylophone

Have you obtained a New State Pension Statement?

https://www.gov.uk/check-state-pension

You mention the SIPP but you also have other pension plans - what would you estimate the total pot to be when you reach 60?

Are you currently employed? Is there an occupational pension?

markinsouthsea

the way I looked at it my cash in ISA and bank accounts was savings so low risk, grows by small margin (isa are fixed 2.5% for another year)..I do not really feel over confident in putting the cash in equities, but may be forced to if the savings rates deplete further.. I was thinking that in 5 years the ISA cash rate would be back up to around 3%. I was curious as to whether there is a fund/ bond that pays around 3% (similar to the savings rates) but does not have a high risk of depleting the capital through market turbulence. In five years I expect to take around 4% of my pension fund (100k at 60) in drawdown..This was based upon having around £3500 interest income from savings and isa...plus DB pensions from current and previous employers, the total of everything would be around £16000 pa... likely to be all tax free based on my current way of thinking utilising the savings and investment route.

markinsouthsea

i haven't obtained a state pension statement as i will not be eligible until age 67 based on current legislation. the way i was thinking of this was a bonus as and when i get to 67, haven't included it any calculations.

dunstonh

£100k at age 60 will be worth around £65k at age 70 if you draw all the interest. £4000 income at age 60 will be worth around £2600 at age 70. So, whilst the balance will still say £100k and you are still getting £4k a year, it wont have the spending power. So, either you accept a reduction in your living standards or you start to eat into your capital to compensate. That is what makes cash a higher risk option when it comes to income provision.

Risk is not on/off. It is a sliding scale. When it comes to income provision, then all options carry risk. Different types of risk but risk nonetheless. You dont need to jump gung ho up the scale as most of the income options used by people in retirement tend to be at the lower to mid range of the scale. However, you can also be too low risk with investments. For example, risk 3 on our scale is, in my opinion, largely pointless. The risk taken is slightly increased but the benefit is not worth it (i.e the gain is not worth the risk). Risk 4 on the other hand has far more viable options.