Do we need a ifa?

Linton

To go back to the OPs question of whether she should use an IFA going into drawdown , I thought it may be helpful to provide a fuller answer, hoping she hasnt already lost interest........


1) What is your situation?
- If you have less than perhaps £75K it wont make a lot of difference in real terms and probably isnt going to the that worthwhile for either yourself or the IFA.
- Is income from the pot essential your long term well-being? If not I dont see why post-retirement should be any different to pre-retirement.
- If you are in ill health and have good reason to believe your life expectancies are lower than average you should seriously consider taking an annuity with the insurance company bearing the risk that you unexpectedly live to a good old age. This should be done through an IFA who should get better rates appropriate for your medical conditions.


So I assume you have a substantial pot from which you require income from now until the death at extreme old age of you and your spouse.


2) Drawdown risks
The two top level risks are running out of money before you die and being too cautious so you are unable to enjoy the full benefits of your pension pot. Your management of these risks will be essential to having a comfortable rtirement.



3) Your levers of control
- what you invest in
- how much you drawdown each year


4) Investments
You will need a certain amount of equity in your portfolio as otherwise you will lose out to inflation and (possibly up to a point) the more equity you have the higher the sustainable drawdown. So there will be some level of equity needed to ensure your income is at the level you want. However if you go for a very high %equity a stock market crash could seriously interfere with your income prospects.



5) Drawdown
Obviously the more money you take the more likely you are to run out before death. You will need to determine a reasonable target drawdown. However even if your average take is reasonable you have the risk of stock market crashes. If you take out too much money from equities at this time you will eat into the core funds you need for future growth. So you have two options:
- be very cautious in your drawdown.
- adopt a variable drawdown policy to decrease your take in the bad years. There are various ways of determining the reduction on a standard basis rather than what feels right at the time. You can then live frugally within your income at such times or you hold a large cash buffer to provide an income when you dont want to sell equity. How big a buffer? The bigger the buffer the longer crash you can withstand but the smaller the % of your total wealth invested in equity.


Another question is whether you want to plan for a variable spend over time. Perhaps highest immediately after retirement decreasing until real old age at which time care costs (eg carers coming to your house) could be significant.



6) Extreme old age
At some point you will lose the interest or ability to manage your drawdown. What will you do? One sensible option could be to take out an annuity once you reach the age where death rates make a significant difference to the money the living continue to receive, perhaps at 80 or 85. Another is for a trusted Attorney to manage your affairs.


7) Reviews
You need to make plans and define a strategy before you start drawdown. However things wont run to plan so you need to review your situation each year.


OK - that is a very high level overview of what managing drawdown can mean. So to answer your original question. Do you feel reasonably confident in your knowledge and experience (and Excel skills!) to do it entirely yourself? If you do, then go for it, you can always get an IFA if needed. Otherwise you may be better advised to consult an IFA now with a view to taking it over yourself when you feel more able.

[Deleted User]

- If you have less than perhaps £75K it wont make a lot of difference in real terms and probably isnt going to the that worthwhile for either yourself or the IFA.

These are typically the people who need good, cold advice the most. People with a 10 million pot will be ok under most scenarios.. Agree that most IFAs won’t be interested in the first and very keen to help the second.

Linton

Deleted_User wrote: »

These are typically the people who need good, cold advice the most. People with a 10 million pot will be ok under most scenarios.. Agree that most IFAs won’t be interested in the first and very keen to help the second.

No tradesman is very interested in people who cant afford to pay the bills. Why should IFAs running as a business be any different, especially with the high potential liabilities?


Yes, bespoke money advice for relatively poor people is a real problem. Organisations like the CAB should be able to help but they cant because of the regulation of advice. IFAs couldn't help in such a voluntary organisation because they are liable even if not on duty. Only people like us with some experience but no legal responsibility could in principle offer help but that is very much at the investor's risk. Perhaps the situation is better in Canada or whichever part of the world you know about.

bostonerimus

Linton wrote: »

Yes, bespoke money advice for relatively poor people is a real problem. Organisations like the CAB should be able to help but they cant because of the regulation of advice. IFAs couldn't help in such a voluntary organisation because they are liable even if not on duty. Only people like us with some experience but no legal responsibility could in principle offer help but that is very much at the investor's risk. Perhaps the situation is better in Canada or whichever part of the world you know about.

The crowd sourcing of advice is one of the benefits of the internet and social media . There's usually enough geeks and nerds on a forum to respond to even the most particular questions. This forum generally gives sensible advice from a range of viewpoints and it can be seen by anyone with access to a web browser.

One reason I post is that I think that many people are paralysed by unnecessarily complicated advice given by the financial industry and there are some simple things they can do to become more financially secure...whatever their income levels. So someone with a small pension pot and a comparatively low income probably shouldn't be paying an IFA on an on going basis as they can DIY pretty easily. The trick is to keep it simple and not do foolish things, but that isn't as easy as it sounds with so many voices encouraging foolishness.

Linton

bostonerimus wrote: »

The crowd sourcing of advice is one of the benefits of the internet and social media . There's usually enough geeks and nerds on a forum to respond to even the most particular questions. This forum generally gives sensible advice from a range of viewpoints and it can be seen by anyone with access to a web browser.

One reason I post is that I think that many people are paralysed by unnecessarily complicated advice given by the financial industry and there are some simple things they can do to become more financially secure...whatever their income levels. So someone with a small pension pot and a comparatively low income probably shouldn't be paying an IFA on an on going basis as they can DIY pretty easily. The trick is to keep it simple and not do foolish things, but that isn't as easy as it sounds with so many voices encouraging foolishness.

Agree on the whole. I dont think that such people can DIY quite easily but rather that the damage they can do to their future by lack of experience or the gains they can make by skilful investing are both relatively limited since the bulk of their income will always come from the state.



The problem is that there is a tendancy for the benefits from social media to be swamped by people with an agenda which is not necessarily relevent to the question asked.

zagfles

Linton wrote: »

The problem is that there is a tendancy for the benefits from social media to be swamped by people with an agenda which is not necessarily relevent to the question asked.

Indeed, that is a problem. Always ask yourself if someone has something to gain from you (or people in general) taking a particular course of action.

daisyrose

Thank you Linton for the very useful explanation. I haven't lost interest. In an earlier post I asked if 3% in fees and charges for drawdown were too much and the answer was that there are cheaper options. It is a cautious fund so 3% in deductions are going to have an impact.
I understand about annuities and it is not something I need to think about yet and your assumptions about needing income now are correct.
I don't have the knowledge or experience to select funds so it looks like its back to finding an ifa.
It seems that there are so many options with drawdown I dont know how anyone gets it right.

bostonerimus

I think you have fallen foul of the idea that finances and investing need to be complicated....they simply don't. You don't need to choose multiple complex funds or trade or know "the market". Just put your SIPP money into a low cost multi-asset fund and keep a couple of year's spending in the bank. You will need to choose the sort of multi-asset fund, but if you think you might have 20 or 30 years in retirement you should be looking at funds that have at least 50% equities. Spend from your bank account and then use dividends and capital gains to top up the bank account in good times and in bad spend a bit more from the bank. Make sure you track your spending so you can adjust it down a bit in bad times and keep withdrawals to no more than 4% compounded annually by inflation.....the max in fees you should be paying is around 1% (0.5% for the IFA), but i would try to get it even lower and see if you really need an IFA.

MK62

daisyrose wrote: »

Thank you Linton for the very useful explanation. I haven't lost interest. In an earlier post I asked if 3% in fees and charges for drawdown were too much and the answer was that there are cheaper options. It is a cautious fund so 3% in deductions are going to have an impact.
I understand about annuities and it is not something I need to think about yet and your assumptions about needing income now are correct.
I don't have the knowledge or experience to select funds so it looks like its back to finding an ifa.
It seems that there are so many options with drawdown I dont know how anyone gets it right.

The bottom line is that at 3%, you are getting caned on charges.......to the extent that, if you are using a "cautious" fund in your SIPP, the charges will eat away most of the income you might expect to generate.

TBH, without details of the SIPP, the fund(s) within that SIPP, your ages and general financial situation etc (ie other investments and income), then it's difficult to offer more than that.
All I would say is that it's very likely that you could replicate, or get very close to, your current arrangement for a fraction of the cost.......

bostonerimus

Yes, charges of 3% are going to severely reduce the sustainable income from retirement accounts. I would never consider any company that quoted at those levels.