Retierment income

Dazed_and_confused

LobsterMemory

One advantage of the op's plans is they will have only a tiny amount of income with actual tax exposure.

The £1k/month pension will have tax liability of just £30 per year (slightly less if op is Scottish resident for tax purposes) but that will mean they can have £5,850 of taxable interest which would be taxed at one of the 0% rates.

Their is still the inflation risk others have mentioned but tax will be a minor proportion of the op's overall income. This will totally change once they start to receive the new State Pension but that is some years off for the op

LobsterMemory

Hmm, just looked up how you can claim your pension lump sum before you're 55 so perhaps long term stocks and share schemes may not be the way to go

MallyGirl

generally you can't claim any of your pension before 55 - not without a big tax bill.

Audaxer

OldMusicGuy wrote: »

However, I suggest you do some reading about investing in things like multi-asset equity/bond funds. You don't have any risk of "losing" capital, unlike some investments.

I know what you mean, but I'm surprised that you say that there is no risk of losing capital, as there could be a risk with even multi asset funds (which I do like) if there is an equity and bond crash at the same time. Recovery time could be a lot longer than on previous occasions in history.

OldMusicGuy

Audaxer wrote: »

I know what you mean, but I'm surprised that you say that there is no risk of losing capital, as there could be a risk with even multi asset funds (which I do like) if there is an equity and bond crash at the same time. Recovery time could be a lot longer than on previous occasions in history.

Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover. That was the point I was trying to make for the OP, who is nervous of investing.

Your point is a different one, which is about timing the market. That's why I would not recommend the OP putting all their money into investments because they seem to want access to some of it in the short/medium term.

kidmugsy

OldMusicGuy wrote: »

the value of your investments will recover.

If he were living off the dividends it might take a long time for his capital to recover though. Cheerful talk in this forum about recovering in just a few years ignores history.

The UK and US have atypically satisfactory stock market histories and so tend to be the only ones equity boosters mention. And even then recovery can be slow.

For example, consider the S&P 500, and consider total return - i.e. an investor who is not drawing the dividends but accumulating them. How long does he take to recover from a market fall, allowing for inflation? Two years? Three? Since the Second World War the two worst cases have been one period requiring 13 years and another requiring 17 years. And that's for the favourable case of the US. What about Japan? What about the fact that we are in the aftermath of a financial experiment that is unprecedented in history? And what about someone who is spending the dividends rather than accumulating them?

To hold no equities is probably pretty risky. To believe that history proves that the market is bound to snap back in two or three years is deluded.

Audaxer

OldMusicGuy wrote: »

Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover. That was the point I was trying to make for the OP, who is nervous of investing.

Your point is a different one, which is about timing the market. That's why I would not recommend the OP putting all their money into investments because they seem to want access to some of it in the short/medium term.

I wasn't talking about timing the market. I agree that investments should recover in time, but if the OP is nervous about investing, he should be aware that capital is not guaranteed. We have had a long bull market, so if there is an equity crash now and again within the next 10 years, there is a possibility that the value of an investment could be lower in 10 years time - hopefully not, but it could be.

As he is looking for retirement income, it is certainly okay for him to withdraw income from his investment, provided he is willing to take out no more than a safe withdrawal rate (estimated to be 4% per annum maximum) provided he has a cash buffer to cover bad years.

bostonerimus

When you're taking retirement income you might not have the luxury of waiting for your investments to recover from a downturn before you have to sell some for income. This is where having a sufficient cash/short term bond allocation is useful so you can avoid selling other things at a loss......or you might partially annuitize to provide a stable income foundation or an equity and bond portfolio with a 4% withdrawal rate and a strong stomach.

Thrugelmir

OldMusicGuy wrote: »

Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover.

Companies are living breathing entities not numbers that simply move up and down. Northern Rock shareholders, as an example, lost everything. That capital cannot ever be replaced.

OldMusicGuy

Thrugelmir wrote: »

Companies are living breathing entities not numbers that simply move up and down. Northern Rock shareholders, as an example, lost everything. That capital cannot ever be replaced.

That's why I was trying to explain to the OP about investing in diversified, multi-asset funds, not single shares/stocks, which is what you are talking about here. Investing in a single company, corporate bonds or unregulated investments involves the potential for complete capital loss. The only chance of complete capital loss with a diversified, multi-asset fund is when the entire economy goes to hell in a handbasket. Everything else is a question of timing,
I never said that the value of units will recover quickly, I said they would recover over time.