Excited but Nervous - Transferring Final Salary Pension

bostonerimus

atush wrote: »

Which is why we recommend having 1-3 years income required in cash before starting DD, so that you dont have to draw during downturns.

Yes I just wanted to make that clear to the OP, particularly if they are going to be making large withdrawals early in retirement.

kidmugsy

bostonerimus wrote: »

The cash value is yours if you want it, or you can have the promise of a lifetime income.

It's very new. Nobody knows how it will all shake down.

bostonerimus wrote: »

if the Government is worried about fraud they should mandate advice and provide it free of charge if the consumer wants it.

Certainly not: that's my money you're planning to spend on someone else's advice.

bostonerimus

kidmugsy wrote: »

Certainly not: that's my money you're planning to spend on someone else's advice.

An understandable position, not one I agree with if the Government allows the dubious practice of DB pension cash out and then mandates advice to try to cover up the inherent problems......equally I wouldn't like the government requiring me to spend money on an IFA to access the cash value of my DB pension From a number of posts here some of the IFA charges for this "service" are very high.

k6chris

atush wrote: »

Which is why we recommend having 1-3 years income required in cash before starting DD, so that you dont have to draw during downturns.

I think the penny has just dropped (I'm slow I know) but is the idea;

1) Have 3 years of planned DD in cash (ie not in your SIPP) at the start of your pension withdrawal, because assumption is any pull back / crash in your investments can be left to recover over a 3 year period.

2) Rebalance investements in SIPP on annual basis, in line with whatever plan you have

3) Then top up that 3 year buffer (on an annual basis?) if investment growth has not pulled back / crashed.

This being the case, it might make sense to have a '3 year buffer' bank account that holds cash and has a monthly standing order into the current account that any DC pension is paid into?? The 'penny dropped' thought is that you are not setting up a standing order from your SIPP, but from a buffer account.

bostonerimus

k6chris wrote: »

I think the penny has just dropped (I' The 'penny dropped' thought is that you are not setting up a standing order from your SIPP, but from a buffer account.

Exactly.... you can choose to top up the cash from the SIPP at a good time rather than having to do it in a down market. Of course too much cash sitting at 0% will bring down the potential returns of your portfolio so it's a balance.

jamesd

Yes, that's the idea, though three years would be too much because it'd cut the investment gains too far.

What I'd do instead is more like six months plus a couple or three years in some of the higher paying P2P outside the pension. That way you're getting some nice investment gains but the money is still available if needed.

One reason I like and suggest the Guyton-Klinger method is that it pays from cash first, then bonds, and only shares if that's all gone. But if markets do well it sells shares to top the others up.

Guyton's sequence of returns risk reduction method is also important. It cuts share holdings when values are high so you won't suffer as much in a drop. After a drop it then switches back if the prices have fallen enough.

Drops will still be worrying but things like those can help.

bostonerimus

jamesd wrote: »

Yes, that's the idea, though three years would be too much because it'd cut the investment gains too far.

What I'd do instead is more like six months plus a couple or three years in some of the higher paying P2P outside the pension. That way you're getting some nice investment gains but the money is still available if needed.

One reason I like and suggest the Guyton-Klinger method is that it pays from cash first, then bonds, and only shares if that's all gone. But if markets do well it sells shares to top the others up.

Guyton's sequence of returns risk reduction method is also important. It cuts share holdings when values are high so you won't suffer as much in a drop. After a drop it then switches back if the prices have fallen enough.

Drops will still be worrying but things like those can help.

There's a lot of personal preference here.......it's the amount that allows you to sleep well at night. I keep between a 6 and 12 months of cash in the bank and a couple of year's spending in a saving account that pays 2%. I use them for daily spending and single large ticket items......I had to spend 10k on a couple of new heating systems last year and that came straight out of the saving account.

jamesd

Not so much personal preference as research. No significant benefit was found for going beyond a year. Though I've suggested more at times for the very cautious with low income targets compared to pot size.

It really depends quite a bit on when you want to sleep. The drawdown trade off for more cash is either less income or higher failure rate so it's usually best not to go too high. Not much of an issue in your case because of the very low amount of income you're planning to take compared to your pot size. So much margin in your own situation that it won't make much difference and you might as well do it.

That 10k seems more like what an emergency fund is for. If that's the amount you need for emergencies then that's on top of the drawdown cash portion.

Given the amounts I have in P2P - around a decade of my basic spending - I could raise £100k pretty quickly if I needed to. 10k I could do on overdraft or credit cards if I happened not to have cash in the bank at the time and also didn't have sufficient quick selling P2P available. Though I normally do manage things to achieve that.

It happens that I actually did raise more than 10k last week to pay down some credit card balances that were no longer at a cheap rate.

atush

1) Have 3 years of planned DD in cash (ie not in your SIPP) at the start of your pension withdrawal, because assumption is any pull back / crash in your investments can be left to recover over a 3 year period.

Some of that cash could be from the TFLS, some could be savings.

But as said above, you need to get a return on all that cash so will need to spend some time getting it all earning interest.

Thrugelmir

jamesd wrote: »

Given the amounts I have in P2P - around a decade of my basic spending - I could raise £100k pretty quickly if I needed to.

That's providing that there's a liquid market at the time you wish to cash in.