When to switch to cautious

Rayling

Hi I am saving for retirement at age 65 and I am getting close to 57 now.
I have biggest pension pot invested with Aviva in a mixed investment 20-60% shares it's a midpoint risk level.
At what age do you think I should slip into a more cautious investment as I'm aware the nearer to retirement I get the less risk I should be taking.
I don't currently have an IFA but willing to employ one to advise when time is right for advise on when to take foot of the gas
So I guess I'm asking at what point is it advisable to do the above please
Many thanks
Ray

dunstonh

I have biggest pension pot invested with Aviva in a mixed investment 20-60% shares it's a midpoint risk level.

Its low/medium. Not midpoint. Although on provider risk scales they may show it higher than it is on conventional risk scales.

At what age do you think I should slip into a more cautious investment as I'm aware the nearer to retirement I get the less risk I should be taking.

is that because you are planning to buy an annuity or full fund withdrawal?
If you are planning to use drawdown then you would not reduce the irsk in the same way.

jamesd

Maybe never, since it depends crucially on whether you will have an immediate need to spend a large portion of the money on something like buying an annuity at a set age. The more flexibility you have in a purchase date or if you even want to buy an annuity the lower the risk level is and the lower the reason to reduce risk becomes.

For a person not buying an annuity it isn't really true that there should be reduction of volatility of investment returns (often called risk) as a planned retirement age approaches. That's because the fixed date issue doesn't arise for most of the pot.

There's a good deal of discussion of the risk-related issues in Drawdown: safe withdrawal rates and you may find reading much of the material there and linked from there of interest to learn more about risk management and the different views that people have of it. A lot of reading but it's not urgent.

Rayling

Hi thanks both for your replies I can see here my lack of knowledge has made for a rather simplistic way of asking the question.
Basically I am looking for a regular income from my pension much the same as a regular salary income
Not interested in any lump sums just to be paid an income for as long as I survive.

tacpot12

For me the time to move to a more cautious investment is when I don't need the extra return that the riskier investment delivers. If a more cautious investment will meet your needs, why take the extra risk?

For most people, investing in a higher risk fund than you are currently invested in is a necessity, as their expected life span, basic living costs and reduced annuity rates and state pension provison means they won't have enough to live on in old age.

Rayling

My pot currently running at £150,000

PennyForThem_2

Depends what other sources of pension income you have. I am lucky in that I have basic widow's pensions and also NHS pension (not a full one) in my own right.

But I also have a SIPP to which I have been contributing in last 6 years. Wish I had known about SIPPs earlier.

And wow what an investment for me! Ticks all the right boxes - tax relief, inheritable (I won't touch it unless my need is dire), Gov contribution via tax relief even when I retire (and I may take pt time job if I can so can contribute more)

Edit - so not cautious with my SIPP

Rayling

Sounds like another option for me to look into
I'm sat on quite a large isa too

jamesd

Rayling wrote: »

Basically I am looking for a regular income from my pension much the same as a regular salary income
Not interested in any lump sums just to be paid an income for as long as I survive.

That's where things get interesting because drawdown in the worst case will be likely to pay more than an annuity but in the average case more like 50% more. Based on history and all the past results. But still not guaranteed, just highly likely. And that's where people differ: some will be happy taking an income level that would never have failed in any investing time in the past 100 years. Others wouldn't be because what if something worse happens than a couple of world wars, the great depression and the high inflation late sixties and early seventies? And others would cut back from 100% to say 95% success rate to get perhaps a 15-20% increase in income unless something in the worst case 5% happened (normally that's high inflation in the late 1960s as the worst starting point in the US).

In some ways the question is a bit moot because deferring the state pension tends to pay more than buying an annuity for those in normal good health. And you can't defer with a lump sum so there is minimal single point in time risk. But many people in the future will have more money than they can sensibly use to fund deferring their state pension and that option might not be around or might not be attractive when you get there.

So for all or part of the pot, can you handle the ups and downs of investment in retirement in exchange for getting a substantially higher income if normal times happen, or a comparable one if the worst historic case happens? If you can't, then you might well be a good candidate for buying an annuity even though it locks in the worst case income level: it does that with close to certainty. But in exchange you get the income even if something worse than history happens, assuming that the annuity company survives or if not the FSCS pays out, which in a worse than history case isn't so certain either.

Annuities for those in normal good health start to offer really good value for money somewhere around 80-85 years old at the moment, perhaps a bit older.

kidmugsy

One problem is that it's not at all clear what "cautious" might be. Classically it meant lots of bonds. When bonds yielded real income, and when people planned to buy annuities, this made sense.

Whereas now annuities seem such poor value that people in good health probably wouldn't want to buy one before age 80-85, and bonds seem astonishingly risky.

Our "cautious" money is in a mixture of sterling cash (in high interest current accounts), ETFs of precious metals (in ISAs and SIPPs), and Extra State Pensions bought by pension deferral.

Are we right? Lord knows.

Rayling

Thanks very much indeed for your very detailed replies I really appreciate your efforts in replying so succinctly
I will have a good read and digest your kind advice
Thanks