Asset Allocation

DairyQueen

Meno said:

I guess I have to work with what I know now i.e. my earliest retirement date is in 6-7 years, so I can invest say 60/40 now and then then take stock of plans in a couple of years and make a decision, and so on. 

Good idea.

Current allocation depends on how much growth you require versus attitude to risk.  The potential for reasonable growth requires at least 50% equities so anything from 50-75% at this stage wouldn't be unusual.

Reviewing plans annually is definitely worthwhile as investments are so fluid and income requirement may change. If the markets are kind then you may wish to lock-in gains by rebalancing to a more cautious allocation sooner. If OTOH markets crash you will be prepared to extend retirement date.

I converted our total (still approximate) front loaded drawdown requirement to cash last year (around 18-24 months before OH's still flexible retirement date). There is no fixed timescale in which to bite the bullet but this suited our attitude to risk. I sleep better knowing that OH is now at liberty to retire whenever he wishes. I chose to take-on the inflation drag of cash over a 7 year period (up to 2 years prior to retirement plus 5 years of drawdown) but that may not suit your strategy.

djjd70

I was asking something similar a little while back. In similar situation to you where I don't need my pension to last retirement, just a stop-gap fund for lean years before get full workplace pension. Have settled for 60% equity now (am 50, want to start drawing from pension at 60), and gradually reducing it down to 20% at 60, then reducing it gradually to 0 over the 7 years. Am doing this myself. Everyone has different ideas about best asset allocation, but comes down to when you need the money and what you're comfortable with.

gm0

At retirement - sounds like cash deposit (outside SIPP or inside), actual gilts, gilt funds to me at <5 years and all to be drawn and consumed short term.  Enough rebalancing between now and retirement to build up the required bridging position slowly.  How much is enough ?

Simplest is to build the annual cashflow spreadsheet from commencement for DB and SP arriving from when you stop.  And consider your emergency cash buffer, cash/bond element and even established credit lines (purely as contingency) so you can see how you would vary income and asset disposal in the face of sequence of return while you get to DB. 
How much is needed in "minimal risk assets" - cash/fixed term deposit ladder/gilt ladder/gilt fund to "get there".  (Average case)
The Lars Kroijer financial planning spreadsheet videos builds a spreadsheet which should be adaptable to this without a lot of extra work.

If you can see a way through it for the "correction during bridging in year 1 case" avoiding selling off equities at the worst time then you can afford for more of that bridging portfolio to be in the equity markets - if you want to.  Or not - if you prefer lower risk and no "bonus" possibility 5 years out.

FlexibleRetirementPlanner (a US tool but can zero out the tax and it's then fine for running MonteCarlo (random return simulations) and especially sensitivity analysis.  Testing combinations of returns, inflation, draw to get a comfort that choices are robust for reasonable distributions of possible returns over a period of choice.   It's a bit intimidating at first especially if statistics is long ago for you.  I think it is a useful complement to back testing in that you can assess what a "normal" distribution of random returns would do for a range of average returns, inflation values, income.  Nothing you couldn't do in Excel if you have the background for it (which most of us don't). 

It's not telling you anything definitive but it is helpful for assessing whether you are miles back from the bleeding edge or staring over it agianst a view of ranges of market returns and inflation rates. 
So it adds something to the simple single value for inflation and average return approach in Excel

To do any of this a good view on the actual guaranteed income requirement is also important.  My experience is that it can take a while to iterate your budget view of that especially in your 50s with the various issues - kids/college support (ending), support to parents, refurb of houses prior to downsizing etc.  You might be willing to take a chance on a couple of years fancy holidays not happening during bridging if markets are unfriendly but not on the central heating.

Albermarle

On a slightly simpler note , you have not actually mentioned if you have any cash savings of any significance outside the SIPP, as this can make a big difference to any asset allocation decisions in your SIPP. 

Meno

Tdjjd70 said:

I was asking something similar a little while back. In similar situation to you where I don't need my pension to last retirement, just a stop-gap fund for lean years before get full workplace pension. Have settled for 60% equity now (am 50, want to start drawing from pension at 60), and gradually reducing it down to 20% at 60, then reducing it gradually to 0 over the 7 years. Am doing this myself. Everyone has different ideas about best asset allocation, but comes down to when you need the money and what you're comfortable with.

Thanks - very similar, to me - although I may draw a little earlier depending on how things progress - perhaps 58, so yes yours is the path to follow on allocation I think.