Does 'lifestying' make sense?

michaels

So I tried to use cfiresim to work out a resonable guess at what withdrawal rate / annual income my DC pension pot might buy me. However what I found difficult was figurign out how large a pot to input at my hoped ofr retirement date in about 8 years. IN the end I went for current pot plus expcted contributions all uplifted by 2% pa in real terms which sounds fairly conservative. However of course the pot is subject to the same swings during the accumulation phase as the cfiresim models for the drawdown phase. This made me think more seriously about life styling during the accumulation period but I am not sure it is worth it. I guess what I would ideally like would be a pick liss of investment opitons with average expected return vs likely variability (sort of like the BoE 'fans'). Do any such risk/return charts exist? If I do do decide to lifestyle I assuem it is more efficient to put new savings into a low risk product to gradually build up a more balance portfolio than to move all my funds straight from a higher risk product to a medium risk one? I don't really beleive in alpha and I am certain I don't have the knowledge to invest to find it myself so I am happy to invest in a managed fund with the appropriate aims. Currently I have about 25% in a Scottish Widows International fund and the remainder in their 'portfolio 2' fund. I am thinking that if I leave these in place and then direct new contributions to their portfolio 4 fund that might acheive the sort of lifestyling makes sense. My contributions over the next 8 years shoudl equal my current pot.

dunstonh

Most providers are withdrawing their lifestyle funds. Some completely whilst others only for new investors.

With drawdown now being the mainstream option used, there is no reason to go have lifestyling any more.

EdSwippet

Commentary from The Pensions Advisory Service:

Lifestyling may be suitable for you if you’re intending to purchase an annuity when you retire, to provide you with an income for the rest of your life. It’s unlikely to be suitable if you intend to keep your retirement pot invested and to use income drawdown to provide you with an income in retirement. This is because moving your pension fund to lower risk assets is likely to reduce the investment returns that you will receive.

michaels

So what they are saying is that with drawdown you will probably still have a portfolio that balances risk against reward and therefore it makes no sense to move to a low risk position prior to retirement only to immediately up the risk again during drawdown?

dunstonh

michaels wrote: »

So what they are saying is that with drawdown you will probably still have a portfolio that balances risk against reward and therefore it makes no sense to move to a low risk position prior to retirement only to immediately up the risk again during drawdown?

Annuity was a line in the sand. On that given date you were going to completely dis-invest. So, it made sense to reduce risk as you got closer as you should do with any disinvestment planned.

Drawdown is going to remain invested for another 20-30 years. You may want to risk reduce some of the money (people in retirement typically want less investment risk and income generation tends to be a little lower in risk as well - some may want to draw their 25% up front rather than in stages over time)

With drawdown there is no line in the sand that you will not cross.

Triumph13

dunstonh wrote: »

With drawdown there is no line in the sand that you will not cross.

To misquote Inigo Montoya, I do not think that means what you think it means!