Pension Planning in Retirement

Hal17

I was looking back at my first post in January 2013, when I was looking to take early retirement after being made redundant. - and received the following reply from Jamesd.

"Since you're apparently unfamiliar with managing investments, have you considered making lots of use of tracker funds, with the majority of the money in say a global tracker fund? Such funds are cheap, perform only a little less well than the market, and don't require you to pay much attention".

Well hindsight is a wonderful gift, and I am afraid I did not take Jame's good advice - seeing that global tracker funds having done really well over the last 4 years.

So looking forward, I am 63 this year and have always been a cautious kind of guy. Back in 2013 I transferred all my various pensions into a Royal London Governed Portfolio 3 - Cautious/Moderately Cautious short term fund - and have averaged about 5.5% return over the last 4 years.

I know I could have done better, but now I am thinking with a possible 30 years to fund an income in retirement, perhaps I should have invested in a long term fund and then switched to a more cautious fund at a later stage.

I am drawing a pension equal to my personal allowance, but have other savings which I use to live on. In time my biggest problem will be the effect of inflation on this money, max'ed out on all the current accounts, monthly savers. All my forecasts and spreadsheet plans show we will be financially okay, but I feel I am missing something by being to cautious.

Perhaps I should just relax and enjoy retirement!

xylophone

Have you obtained a new state pension forecast?

https://yourstatepension.campaign.gov.uk/?utm_source=Mail-Online&utm_medium=Partnership&utm_campaign=GTKY

OldMusicGuy

You are a cautious kind of guy and so am I. 5.5% looks OK to me - you are ahead of inflation. And you are ok for a 4% drawdown rate (if you believe that norm). Assuming you have enough in your pot, that's fine.

But you are right, you do need to think about the next 30 years. What I have done is to map out the phases of retirement and try to decide what level of income I will need and how I will fund it. I am 59, doing early retirement next year. Here's the phases I see:

- 60 to 66 (SP age): spending will be highest. Very active, plan to enjoy life. Need to fund all expenditure apart from 5K of DB pensions my wife will get from 60.

- 66 to 75: SP kicks in but still active. Similar level of spending (maybe going down a bit) but less funding needed from my pension.

- 75 to 86: likely to be slowing down and doing less. Planning that annual expenditure will go down.

- 86 and over - bonus years if I am still here. Likely to have sold house and moved to a flat, if not will do so at this time (FiL downsized to a 1-bed flat aged 88, was just the right time for him). Lowest spending phase but may need to fund care home for one or both of us.

- Death: not planning on leaving anything for our son. We will give him a chunk of the equity from our house when we downsize next year so he can get on the property ladder, that's his inheritance upfront. He may get lucky if we both die without needing to go into a home.

My thinking right now is to fund the 60 to 66 years out of savings and either cash from 25% lump sum or tax free withdrawals. 66 onwards will require less drawdown. So once I retire I'll be restructuring my investments so that I have enough cash and low risk investments to fund the early years. The rest of the pot will be invested with a 10 year plus return horizon, thus more aggressively invested. I can imagine taking out annuities at 75 to reduce the need to actively manage investments but we'll need to see what annuity rates are like.

That's only my rough thinking at this stage. Not sure if that helps you though.....

Do get a SP forecast if you haven't. It's really helpful for this kind of planning.

dunstonh

I know I could have done better, but now I am thinking with a possible 30 years to fund an income in retirement, perhaps I should have invested in a long term fund and then switched to a more cautious fund at a later stage.

Going more aggressive after a high growth period means you have missed out on those gains and could then suffer increased losses when the next crash comes. (when being unknown). Are you chasing returns or do you genuinely feel you can accept that higher risk level now?

Hal17

Thank you both for your replies. Old Music Guy, that was really helpful, breaking it down like you showed does give some perspective. Thanks for taking the time to post that reply.

In 3-4 years we will receive 2 full SP's which adds over £16K to the spending pot, so perhaps I am beating myself up on what could have been, rather than fully enjoy what we are already receiving from our investments and savings.

dunstonh wrote: »

Going more aggressive after a high growth period means you have missed out on those gains and could then suffer increased losses when the next crash comes. (when being unknown). Are you chasing returns or do you genuinely feel you can accept that higher risk level now?

You have hit the nail on the head, I am looking to chase returns, my attitude to risk has not changed. I was thinking of moving from a Short term Cautious fund to a Long term Cautious fund still within the Royal London Governed Portfolio.

As always, I will ponder this and then sit back and make no changes. I have been wanting to post this for awhile, and I actually feel better now that I have posted.

Thanks again.

OldMusicGuy

Hal17 wrote: »

I am drawing a pension equal to my personal allowance, but have other savings which I use to live on. In time my biggest problem will be the effect of inflation on this money, max'ed out on all the current accounts, monthly savers. All my forecasts and spreadsheet plans show we will be financially okay, but I feel I am missing something by being to cautious.

Another thing to think about. For me, inflation will be irrelevant over the next 10 years as long as it doesn't get into the 5 to 10% range. Inflation only impacts you if you spend a lot on consumer goods. We will be significantly deflating our lifestyle so that our living costs will be less impacted by inflation. My wife is already great at managing the food and household budget and when I'm retired I'll be doing all the DIY and a lot of the car maintenance instead of paying people to do it. We will control our expenditure so that we can largely negate the effects of inflation. The only things we won't be able to control will be utilities and council tax but we are moving to a smaller house and plan to make that as energy efficient as possible.

So I'm not bothered about holding a lot of cash and spending that over the next 10 years. Also I will be saving on tax (I plan not to pay any tax for the next 10 years) so that is also saving us money. Hence my strategy of "splitting" my pot into a 10 year investment fund for later retirement and a 10 year cash and safe investments element. But I am a very cautious investor and I fear the downside much more than lost upside.

The other thing to ask yourself is do you have enough money? When I look at our total net wealth I feel that has to be enough for two people for 30 to 40 years. Aged nearly 60, we have enough, so my investment goal is more to protect what I have rather than go for aggressive growth. So the "splitting" strategy makes sense to me, but that is what they call a safety first strategy rather than a probability-based strategy.

Enjoy your retirement! I can't wait.

ThinkingOutLoud_2

TBH you have clearly and consistently defined yourself as cautious and so should not beat yourself up to much for being like that.

I can imagine the unease with which you would have watched the markets as the referendum approached and passed and now Brexit itself (if you were pursuing high risk/reward strategy). There is as noted no known answer as to when the markets will see the next shock - but your fund is likely to survive that less apparently impacted than a high risk fund - so will your sanity. Of course, the high risk fund may recover and do better over time.

What does seem true is that your are hopefully in retirement for the long term - so your investments should reflect that aim as you have recognised. You are not going to drawdown all your money in one year - so a longer term strategy seems wiser than short.

There will be many who think you are mad - but they are not you. You sound like your income will match or even exceed comfort levels. You don't hanker for the higher life or poverty on a bet - rather than a more predictable income - so live with that.

One area OldMusicGuy does raise and is often debated is what level of income you need at various stages if you live to a ripe old age. Some would argue your spend will shift from active spending and holidays abroad and fun towards care and support. The inference being that the income needed won't go down as you age. But, many prefer to live life today ...

ThinkingOutLoud_2

There is lots of common sense or at least balanced thinking in your plan IMHO.

But...

OldMusicGuy wrote: »

Inflation only impacts you if you spend a lot on consumer goods. .

You will also likely be paying more for transport, fuel, medical care, insurance and food, holidays, days out and so on.

OldMusicGuy wrote: »

The only things we won't be able to control will be utilities and council tax .

You won't be able to control inflation - you can reduce your expenditure on things to a point. But, as you say the aim is to enjoy not live ever more frugally till the fun has gone. You have to eat and some enjoyment comes from spending on things you like, not just from joy at saving :-)

OldMusicGuy wrote: »

I will be saving on tax (I plan not to pay any tax for the next 10 years) so that is also saving us money. .

Being tax efficient is not something to aspire to in retirement only. It is good. But, paying more or even any tax once you are being tax efficient is usually a sign you have more money too (as tax is not yet at 100% levels).

jerrysimon

I remember being told that if you are retired and pay tax, be thankful.

Jerry

Hal17

OldMusicGuy wrote: »

But I am a very cautious investor and I fear the downside much more than lost upside.

Thank you so much for your reply. I am going to remember your comment above, that is me to a tee - even if I think I could have done better.

It has really helped me reading your replies, so thank you again. I can really see my thought process mirroring yours, and seeing someone else on the same path makes me think perhaps I have got it right without any undue risks. I guess the careful planning in hindsight has worked and actually I am at the point where I hoped we would be.

Sometimes you can look at your numbers and your net worth and still have doubts, and yet I seem to be in the same situation as you. I cannot see how we should run out of funds, we don't need to be careful, just normal and spend like we had planned for retirement, enjoying our life after a lifetime of working.

You will enjoy retirement - no more answering to the "man". It is a great feeling and I love it. I hope you fulfil all the plans you have made, this is what we have all been working for and we need to fulfil those dreams.

Thanks ThinkingOutLoud - a really valid point which I will take on board. "There will be many who think you are mad - but they are not you. You sound like your income will match or even exceed comfort levels. You don't hanker for the higher life or poverty on a bet - rather than a more predictable income - so live with that.

And live with that I will - thanks. Glad I posted and really pleased with the replies, so thanks to everyone.

Dazed_and_confused

Hal17

Amongst this thread you refer to receiving 2 full SP's in 3-4 years and that you are drawing a pension equal to personal allowance.

Are you married and if so what income does your spouse have at the moment ( thinking of this tax year just ending, the next one and the previous one, 2015:16?)