Another newcomer

Willi3000

Hi everyone,
I have £250k invested with Old Mutual Wealth and £60k with (my current company scheme) Aegon, and £75k in savings
Last year (my first year of investment) the OMW pot made just shy of £3k and the Aegon made £7k
My FA charges me a 1% management fee on the OMW (so he's probably made more from it than me this year)
Q1-
As a complete novice and someone totally ignorant of the ways of the financial world am I missing something here?
Q2-
Should I leave both plans as they are, or transfer some into Aegon?
I'm 58 and planning to give up working end of this year and start taking a drawdown.
I'm only going to pay myself £18k
Q3-
Should I leave my investments alone for a year and take £18k from my savings?

Yes, I know I should speak to my FA.....but this is easier and more interesting!

Cheers folks

Bravepants

Well a general principle around here is to keep 2 or 3 years' worth of drawdown as cash in case of an equity downturn and use this as a buffer. It all depends on how your invested funds have been doing over the previous few years. If they are "up" then refill cash buffer, if they are "down" then use the buffer. This way you save selling equities during downturns.

Albermarle

Last year (my first year of investment) the OMW pot made just shy of £3k and the Aegon made £7k

When you first had discussions with the IFA , you will have been asked a lot of questions about your risk appetite. Did you maybe agree on ' cautious ' especially as you were nearing retirement age ?
In which case the IFA would have picked a cautious investment portfolio for your OMW investments .
Your Aegon pot could be invested more aggressively, hence the higher increases.
In a downturn the situation could be reversed .
I am just speculating but maybe you are comparing apples with pears.
It's probably fair to say there is a variance of opinion on this forum about whether to use IFA's or not but for sure 1 % is on the high side .

Audaxer

Willi3000 wrote: »

Hi everyone,
I have £250k invested with Old Mutual Wealth and £60k with (my current company scheme) Aegon, and £75k in savings
Last year (my first year of investment) the OMW pot made just shy of £3k and the Aegon made £7k

Last year was a year of poor returns, so some portfolio would have made losses, so I don't think your OMW did that badly. If you Aegon pension made £7k on £60k that is a very good return for last year. The markets have been good for the first 6 months of this year, so I would check how your investments have performed to date in 2019 to date - you might be pleasantly surprised.

I'm 58 and planning to give up working end of this year and start taking a drawdown.
I'm only going to pay myself £18k

If your total pot, including savings is £385k, then paying yourself £18k, increasing with inflation per year, may not be sustainable over a long retirement. I have read that many consider a 'safe' withdrawal rate on a balanced portfolio to be between 3.5% and 4% each year.

DairyQueen

Willi3000 wrote: »

Hi everyone,

I'm 58 and planning to give up working end of this year and start taking a drawdown.
I'm only going to pay myself £18k

18k on a portfolio of 385k is approaching 4.7%. There is much discussion around 'safe withdrawal rates' and that percentage would be considered optimistic (even in the US) unless you use one of the strategies that suspends drawdown in adverse markets. If you reserve 3 x annual income as a buffer against a bear market (i.e. £54k) then you are looking at a portfolio of £331k for drawdown. In addition, you will need an emergency fund and (unless drawdown covers all capital spends) another chunk of savings to, for example, replace cars/white goods/major home maintenance.

Our drawdown strategy is conservative but we aim to take no more than 2.5% plus hold three years drawdown income as a buffer.

It may be helpful to review your drawdown strategy and amount with your IFA.

Audaxer

DairyQueen wrote: »

Our drawdown strategy is conservative but we aim to take no more than 2.5% plus hold three years drawdown income as a buffer.

DairyQueen, that does sound conservative and likely will let you leave a large inheritance, which is fine, but I remember you recently advised you were planning to spend the lot rather than leave an inheritance?

DairyQueen

Audaxer wrote: »

DairyQueen, that does sound conservative and likely will let you leave a large inheritance, which is fine, but I remember you recently advised you were planning to spend the lot rather than leave an inheritance?

Spending as much as poss. is still the aim.

Our non-discretionary spends are covered by OH's DB plus 2 x SP. We also have non-pension assets. We will be consuming other assets at a faster rate than the 2.5% drawdown on the SIPPs.

If we had less guaranteed income, or wished to preserve inheritance, or if I had normal life expectancy, we would drawdown all of our assets at no more than 2.5%. Also, a much larger cash buffer would be held in order to suspend drawdown from pensions if sequence of returns is really nasty for our retirement cohort.

We are of the opinion that sequence of returns will not favour those retiring in the next few years i.e. 'us'). However, we plan to continue drawdown from the SIPPs (at a conservative rate) even if a bear market hits early. We also intend to take max TFC upfront.

The conservative drawdown rate is also insurance against longevity as we are assuming a 30 year drawdown period for OH (normal life expectancy for him) and I hope that he will be a very merry widow(er).

atush

We will draw around 5% at first, but will use the buffer if markets are down, and will reduce the draw under 4% once SP are being paid.

lisyloo

Am I right in thinking a withdrawal rate takes no account of inflation?

cfw1994

lisyloo wrote: »

Am I right in thinking a withdrawal rate takes no account of inflation?

Well....the pot growth might be expected to do that!

I've been crafting a spreaddie to show a 'desired' amount to be taken, increasing with an inflation number (which can be edited each year).....to also take into consideration a couple of other pots and state pension kicking in a different points...
....whilst also accounting for some growth in the pot (which can also be edited....)

It is tricky to make something simple, but I *think* I am about there. It does show how small changes can potentially make big differences to outcomes!
If anyone wants to 'road test' a 'sanitised' version, PM me with an email to send it to!

lisyloo

cfw1994 wrote: »

Well....the pot growth might be expected to do that!

Sorry that’s not clear to me.

If you had pot growth of 4% (after charges) and a SWR of 4%, then the pot would stay static forever (hoorah) but the income would be level which in real terms would reduce over a long retirement.

Are you saying you’d expect growth after charges to exceed SWR bearing in mind some is in more cautious investments in case of a downturn?

Or am I missing something?

Or is it a case of adjusting as you go. I get that expecting an SWR to work without adjustment over 30 years is naive, but I’d like to understand how the inflation is catered for or not as the case may be.