Why I don't want to go with drawdown

DT2001

Deleted_User wrote: »

In the end we don’t know what will happen over the next 20 years but assuming it will be like the past 20 years is downright dangerous.

Shiller’s forecasting used in your example tells us nothing about the sequence of return, which is another key factor to keep in mind.

You were, I thought, wishing to promote caution and I was suggesting using a lower rate of return from your research?
Shiller is looking at US equity returns?
An IFA in the U.K. for retirement income would look for a mix of asset types?
The OP on another thread stated he wanted as near to £6k as possible. I think there is, with that level of income requirement, a better plan than annuity now.
With refined 4% withdrawal spreadsheets, as you say taking into account sequence of return, what are the odds when needing £6k p.a. from a £250k pot? He has cash for emergencies.

You maybe be correct however I just wanted to understand your reasoning better.

The more information the OP has the better

[Deleted User]

choi wrote: »

Where would I find information on savings bonds

Might need these for a safe play for my savings

Here is some background https://www.globalbankingandfinance.com/how-to-invest-in-saving-bonds-in-the-uk/

These tend to be very popular with retirees. Usually people use 5 year ladders, so at all times they have bonds maturing in 1, 2, 3, 4 and 5 years. Every year 20% (roughly) matures and gets reinvested. This leaves you with some interest rate risk but your return becomes much smoother vs having everything mature all at once and being at the complete mercy of interest rates at that point in time.

One thing to watch out for is insurance. If the lending institution goes bankrupt, amount up to 85k is insured and you would still get your money back. Go higher and you could be at risk.

Inflation adjusted annuities provide more security and less hassle but you can’t leave a legacy.

Personally I prefer actual bonds to saving bonds because I use them to mitigate certain types of risk and need liquidity but that’s a different scenario.

[Deleted User]

DT2001 wrote: »

You were, I thought, wishing to promote caution and I was suggesting using a lower rate of return from your research?
Shiller is looking at US equity returns?
An IFA in the U.K. for retirement income would look for a mix of asset types?
The OP on another thread stated he wanted as near to £6k as possible. I think there is, with that level of income requirement, a better plan than annuity now.
With refined 4% withdrawal spreadsheets, as you say taking into account sequence of return, what are the odds when needing £6k p.a. from a £250k pot? He has cash for emergencies.

You maybe be correct however I just wanted to understand your reasoning better.

The more information the OP has the better

Yes, assuming lower expected return is a good idea but that’s not the only issue if you want safety. You may guess the expected return but with a few disastrous years early on in retirement the plan could still fail.

Getting 6k per year on a 250k investment should be pretty safe but the op isn’t comfortable with investments and that in itself is a huge risk. What will he do in a year when portfolio goes down?

US expected returns are important to all investors regardless where they live even if they don’t invest in the US.

People don’t give the option of annuities enough consideration these days. I think it’s a mistake. It’s a perfectly viable option even if the rates are low by historic standards.

cfw1994

choi wrote: »

My pension pot is currently in cash with Aviva
[Don't ask]
So I would need to arrange a safe place for it if I took your advice and pay a set up fee and ongoing management and platform fees
Or is there a simpler option for this

I will ask!

You are massively adverse to risk, and yet you are sitting on a pot that is losing you money (to inflation) every year.
You have just accepted the risk that your pot is reducing.
Are you Nostrodamus, predicting an imminent market crash?!

None of the people replying here have a crystal ball. NONE!
& neither does your IFA.
(nor do I)

It does sound like you have other funds at your disposal.

I’m more of a gambler: with that in mind, & with that sum, I would invest in the lowest cost drawdown with exposure to world equity funds (& yes, some bonds) and see what I could do.
The only cost you can guarantee are those fees!
& certainly I would avoid any annuity.

But that is just me.

You did come asking for views!

Have you spoken with Aviva?

My current active pension fund is managed by them. Super low costs (we have a company member site: typically just 0.25-0.35% per fund chosen), but they sure me that in drawdown the mechanic work the same. My broad spread of funds have “averaged” over 10% for the past 10 years. Yes, I’ve now switched a bit to lower risk bond & gilt options, so I expect that to drop a bit, but even so, the fact I have 1% less to make each year put some me in a strong position to grow the pot.

After all this: if you are (in my mind, crazy) risk adverse and want an annuity, get your IFA to find the best he or she can.

Then get ANOTHER IFA to do the same. Maybe the second could beat the first.

Finally, ask a third.....or research them yourself.

Remember in drawdown you can revisit things: If I was locking my funds away in an annuity that I cannot then adjust, I would want to get a minimum of 3 quotes.

Good luck with your decision!

DT2001

A question for the IFA’s. How would bonds such as those sold by LV with a guarantee compare with an annuity? The risk is limited to inflation erosion over the term of the guarantee. So for arguments sake if the OP kept some of the funds in a savings ladder to cover 5 years of expected income and invested the rest in a bond with a guarantee would that better meet his criteria? At the end of the guarantee he could buy an annuity at a higher rate, renew the guarantee or carry on without a guarantee.
Is this a possible alternative if the OP wanted funds at the end of term as I am not sure if that was a potential criteria.

[Deleted User]

Not an IFA, but here are my thoughts...

The main risks to life-time inflation-protected annuities are

a) economic disaster with insurance providers going bankrupt and government not being able or willing to back up and
b) annuity not providing the necessary level of income to maintain the desired lifestyle

The risk of a) is very small. Never happened but does not mean it never will. Looked like a possibility in 2009.

The risk of b) can be evaluated up front quite accurately as you know what you will be getting.

Saving bond ladders have the same risks with less certainty about future income but also one additional risk: a sudden bout of high inflation. There were several periods in the 20s century when inflation devastated real returns for bond investors, eg 1970s. Saving bonds are riskier than a bond fund in this respect because they are illiquid.

Malthusian

DT2001 wrote: »

A question for the IFA’s. How would bonds such as those sold by LV with a guarantee compare with an annuity?

If you are referring to "guaranteed" or "third-way" drawdown products, they would provide significantly less starting income than a conventional lifetime annuity, with the prospect of income increases if the underlying fund value increases.

The prospect of the underlying fund value increasing is in reality extremely low due to a) the money being withdrawn directly from the fund b) the extremely high charges (3%pa+ is typical including cost of advice) c) the low-volatility, low-growth funds you are restricted to.

So in reality what you get is a fund that quickly gets whittled down to nothing, leaving you with only the original guaranteed income which is less than you would have got if you'd just bought a lifetime annuity in the first place.

Unless growth is extraordinarily high - and if you were willing to bet on extraordinarily high investment growth you wouldn't buy one of these.

Malthusian

choi wrote: »

This was the reason I originally though of going with
Single Life
30 year guarantee
RPI escalation

This would pay out £5.5k pa
Which is a bit low
But would pay out more than pot in 30 years
And should provide funds for my wife or kids if I or she dies before then

What would your wife live on if she lived longer than 30 years? This sounds like a Daily Mail cautionary tale of the future to me.

What do your kids need the money for?

choi

Malthusian wrote: »

What would your wife live on if she lived longer than 30 years? This sounds like a Daily Mail cautionary tale of the future to me.

What do your kids need the money for?

You ask what would happen if my wife lives longer than 30 years

At age 90 she would be able to sell one of our houses or even both and downsize into a smaller house

She would be worse off if I went with the drawdown option as £250k would be long gone at age 90

My kids are all in good jobs and should be fine

choi

Here are the basics of my Drawdown Option

Set up a balanced income portfolio for cautious risk
Cost approx 0.6%
Yield circa 3.5 - 4.0%
Cost pa to run
Circa
Platform 0.25%
Running Fund 0.5%
Portfolio Costs 0.6%

So costs funded from Pot
Income funded by yield which could fluctuate

Options

I could go with drawdown for 3 years then review
Or just go with RPI Joint 50% annuity and sleep easy