Pension planning - initial thoughts

Suffolk_lass

Actually I don't think I was suggesting that - more that we can spend more of our disposable capital in the front-loaded years because we believe we have the SP to look forward to at 66 (both of us in my household) or 67/68 for Mr & Prof Lomcevak - my mistake for referring to it as income

Lomcevak

Thank you all - there's a lot to take in there, so i'm going to have a careful think and a re-read too

Regarding risk profiles and performance etc., this needs some careful thought because I think i'm not in the right place for my timeframes. At a high level, my DC + S&S ISA breakdown is:

- SIPP, £160k approx with Fidelity, almost all VLS80 with about 8% each S&P 500 and FTSE All-World trackers (left over from when I started the SIPP, rather than an intentional skew of VLS80 away from the UK). I'm looking at moving all this to ETFs to reduce platform costs.

- current workplace DC plan, £140k approx, 80% equities (split 75% BlackRock Global Equity Index; 25% BlackRock Emerging Markets Index), 20% bonds (even mix of corporate, <5 year gilts, and >5 year gilts). There's a very limited selection of funds available from my work plan, which is managed by Fidelity but doesn't offer Fidelity funds.

- previous DC plan, £110k approx, 100% all-world equity tracker (charging 0.09% total!), run by L&G

- current S&S ISA with Vanguard, £20k approx, 80% in VLS60 with some VWRL and VFEM. Current contributions are to the ETFs but relatively small amounts (£1k here and there when I have some spare). Anticipate using full ISA allowance from next year onwards. ISAs for Prof. L are complicated as she's a dual US-UK national.

- cash ISAs are about £15k, with another £20k+ stashed in interest-paying current accounts. The former are emergency funds, the latter is our day-to-day on-budget YNAB money.

The plan is to have the SIPP cover the initial phase of retirement (57-65) via drawdown, the current workplace pension then gets taken post-65 to supplement the DB income. The dormant DC pension is held as reserve, best case would convert it to an annuity post-70 I think.

So I think that the dormant DC pension is probably in a good allocation, current workplace not too bad (too much EM? but the 75%/25% split is the packaged equities fund available, so not easy to rebalance). But SIPP with a 12-year horizon to drawdown might not be ideal.

S&S ISA allocation hasn't had much thought, but relatively small amounts so far, so not terrible.

kidmugsy

Lomcevak wrote: »

I think we'd be looking to draw down about £400k from my DC schemes to get from 60 to the DB schemes fully kicking in at 68, followed by about £15k/year after that. My DC schemes are in roughly the right place for this already, but i'll be putting in approx. £500k here over the next 13 years (assuming no political reduction in the annual limits) so there should be plenty to spare.

I see you don't approve of the ancient counsel that you should hold a %age bonds equal to your age: in your case that implies that you'd hold 56% equities. Mind you, even that seems bold to me at the moment. We shall see.

The notable American financial writer William Bernstein said "if you've won the game, stop playing". I suppose that in your shoes I'd be looking for more diversification.

For example I might leave this one alone: "previous DC plan, £110k approx, 100% all-world equity tracker (charging 0.09% total!), run by L&G".

I might transfer this one to a non-mass-market SIPP that let me hold cash at non-trivial interest rates, gold bullion, TIPS, or whatever: "£160k approx with Fidelity". In other words I'd time the market. To hell with orthodoxy!

I might then use this one to give me the overall balance I fancied: "current workplace DC plan".

Lomcevak

I see you don't approve of the ancient counsel that you should hold a %age bonds equal to your age: in your case that implies that you'd hold 56% equities. Mind you, even that seems bold to me at the moment. We shall see.

In all honesty, I've not put as much thought into asset allocation as I should have done - I figured that VLS80 and all-world trackers weren't terrible options, and better to do something than nothing. Slowly correcting that.

I do struggle to love bonds in the current climate though, negative real yields and a potential capital loss when interest rates rise isn't a great combo, especially for long-duration gilts etc. where convexity is worse. TIPs or something, maybe. I know bond losses aren't anything like short-term equity volatility, but it's hard to see much upside at the moment.

Saying all that, I do feel I have a lot of equity exposure, but it's the "if not bonds, then what?" problem. I wouldn't go to cash at this point unless I could time the market, and I can't. Plenty of property in my house already, it's over half my assets. Closer to retirement I like the graduated risk approach of a few years of cash, more years of bonds, and long-term equities that gives short-medium term predictability of cashflow, but i'm not there yet.

kidmugsy

Lomcevak wrote: »

I do struggle to love bonds in the current climate.

I sympathise. But I can imagine that, for instance, US equities might fall 50% from their peak. It's unimaginable that ten-year TIPS would.

You might almost say that a world in which ten year TIPS fell 50% is a world were it wouldn't matter.

Lomcevak

kidmugsy wrote: »

But I can imagine that, for instance, US equities might fall 50% from their peak. It's unimaginable that ten-year TIPS would.

Oh, I agree - I remember 2008 well enough, and right now my plan would be the same as then, just ignore it and carry on with the monthly payments. Cheap(er) units, yay. I can also imagine US equities recovering again and doubling in a multi-year bull run, which TIPs wouldn't do. We'd all have other problems if equities collapse and are still 50% down a decade later.

However, I'd also agree that with not much more than a decade to go until I want some of this money, I'm starting to reach timescales where "chuck it into equities and forget about it because retirement is decades away" doesn't work any more,