Forum Home» Pensions, Annuities & Retirement Planning

How much of my portfolio should be in cash during retirement?

New Post Advanced Search

How much of my portfolio should be in cash during retirement?

89 replies 5.4K views
My SIPP is invested in Vanguard LS60 and the HSBC equivalent (can't remember the exact name at the moment).  I understand that there is such thing as 'sequence of returns risk' and that I should try to mitigate this by having several years worth of living expenses held in cash (including the current year's requirements).
I am effectively retired, and no longer making contributions to my SIPP.
I would appreciate the views of contributors to this forum on how many years worth of income I should have in cash, given the make-up of my SIPP.
I appreciate there is no definitive answer, but I'd like to get a sense of the range.

«13456789

Replies

  • 8370562883705628 Forumite
    482 posts
    100 Posts Name Dropper First Anniversary
    ✭✭

    1. The research on safe withdrawal rates, say the conventional 4% rule, already has that risk built in. But these days with high global equity valuations and bond yields lower than what you can get on a savings account, I would say that the "super safe" withdrawal rate if you want it to last indefinitely is 3%. 4% including *total* charges (platform + OCF+ transaction expenses + all the rest) is fine for retirement depending on your age, other pensions and life expectancy. A poor long-term return expectation from a 60:40 portfolio is inflation, so in real terms you can plan on 5% lasting at least 20 years, 4% at least 25 years 3% at least 33 years etc.
    2. I would always hold at least a year's spend in cash savings, best deal right now is NS&I, but not within the SIPP account, that would be a bit pointless. That's the next year of normal spending, plus any upcoming larger planned or known expenses - holiday, new boiler. On top of that you should have a cash buffer you agree never to go below, like Warren Buffett promises Berkshire Hathaway's cash pile will never go below $20bn, and he will never do anything that could threaten having to go into that $20bn.
    3.  I would say that the most a ridiculously cautious retiree would need would be the next 5 years but then you run short-term inflation risk.
    4. Problem is sometimes crappy returns last a while. A balanced fund like a 60:40 would have almost entirely recovered from the 2008 crash by the end of 2009, but the dot-com bubble took >5 years to build up, 3 years to burst and then 4 years to recover.
    5. Everyone else in the forum: hold my beer.
  • TBC15TBC15 Forumite
    1.1K posts
    Part of the Furniture 1,000 Posts Name Dropper
    ✭✭✭
    3-5 yrs if your not invested in one of the outdated LS bits of nonsense
  • AnotherJoeAnotherJoe Forumite
    18K posts
    10,000 Posts Fourth Anniversary Name Dropper Photogenic
    ✭✭✭✭✭
    I've got ~5 years which allows me to be somewhat speculative with some of my investments.
  • PrismPrism Forumite
    1.8K posts
    1,000 Posts Second Anniversary Name Dropper
    ✭✭✭
    I hold a years income in cash. It’s the only holding that’s absolutely guaranteed to lose value so why hold more than you really need?
    I get the feeling quite a few people are holding more cash in fixed term savers with a lower allocation to bonds. Cash, however poor the rates are, is paying more interest than bonds do at the moment. I sold my last bond fund in march.
  • Joey_SoapJoey_Soap Forumite
    299 posts
    Fourth Anniversary 100 Posts
    ✭✭
    I recommend 2 to 3 years income. So, like now if your income from stocks drops by 40% or so, you can ride through maybe 6 years at a pinch without selling family silver to live. Just draw down on the cash. Hopefully replenish it when times get better.
  • BritishInvestorBritishInvestor Forumite
    180 posts
    100 Posts Second Anniversary Combo Breaker Name Dropper
    _pete_ said:
    My SIPP is invested in Vanguard LS60 and the HSBC equivalent (can't remember the exact name at the moment).  I understand that there is such thing as 'sequence of returns risk' and that I should try to mitigate this by having several years worth of living expenses held in cash (including the current year's requirements).
    I am effectively retired, and no longer making contributions to my SIPP.
    I would appreciate the views of contributors to this forum on how many years worth of income I should have in cash, given the make-up of my SIPP.
    I appreciate there is no definitive answer, but I'd like to get a sense of the range.

    I posted this on another thread
    https://www.moneymarketing.co.uk/opinion/abraham-okusanya-why-providers-are-getting-crps-wrong/
    Holding too much cash can impact long term returns. Without knowing your exact requirements it would be very hard for someone to give a reasonable opinion.

  • cfw1994cfw1994 Forumite
    824 posts
    Part of the Furniture 500 Posts Name Dropper Photogenic
    ✭✭✭
    _pete_ said:
    My SIPP is invested in Vanguard LS60 and the HSBC equivalent (can't remember the exact name at the moment).  I understand that there is such thing as 'sequence of returns risk' and that I should try to mitigate this by having several years worth of living expenses held in cash (including the current year's requirements).
    I am effectively retired, and no longer making contributions to my SIPP.
    I would appreciate the views of contributors to this forum on how many years worth of income I should have in cash, given the make-up of my SIPP.
    I appreciate there is no definitive answer, but I'd like to get a sense of the range.

    As you say, no definitive answer.....I’m in the 12-24 months camp, but that is just my view.  Lob it in premium bonds - up to 100k for a couple - who knows, maybe a winner to be had there, but at least the capital is safe.
    On the SoR risk....that is my biggest concern, tbh, and actually having the C19 fiasco whilst I’m still earning at least (in my view) lowers that risk a little.  
    Of course we don’t know how it will play out over the next 1-3 years, but I’d rather have had those dips earlier in the year behind me than in front....
    Plan for tomorrow, enjoy today!
  • tacpot12tacpot12 Forumite
    3.5K posts
    1,000 Posts Fourth Anniversary
    ✭✭✭✭
    I hove 12 months cash, but also have some lower volatility assets that could also be sold if this level of cash doesn't hold out. I also have rental income as an alternative income stream, and luckily my tenants have all managed to pay their rent on time through the pandemic. 

    My investments are mainly in ITs, and ITs also have reserves of cash, some of which can be enable the IT to pay dividends at a consistent rate even if its own income has fallen. Much as with your own cash reserve, no-one wants to run this down to zero even in the middle of a crisis (as you then have no further slack), so the ITs use these reserves sparingly. But it all helps. 

    My view is that you need 30 months of cash available; 24 months is how long the typical stock market crash takes to pass and for the stockmarket to get back to where it should have been, and a further six months because you don't want to be running on fumes. 

    If you get lucky during a crisis, you can find that one of your holdings is seen by others as being particularly safe or beneficial to hold and its value goes up in a crisis. I saw this with Scottish Mortgage which as increased 97.4% since I bought it in Feb 2018, most of this increase having occurred since lockdown. 
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always check official information sources before relying on my posts.
  • Moe_The_BartenderMoe_The_Bartender Forumite
    1.3K posts
    1,000 Posts Name Dropper First Anniversary
    ✭✭✭
    Prism said:
    I hold a years income in cash. It’s the only holding that’s absolutely guaranteed to lose value so why hold more than you really need?
    I get the feeling quite a few people are holding more cash in fixed term savers with a lower allocation to bonds. Cash, however poor the rates are, is paying more interest than bonds do at the moment. I sold my last bond fund in march.
    True but factor in inflation, however low it might be, and holding cash still costs you.
    The fascists of the future will call themselves anti-fascists.
Sign In or Register to comment.

Quick links

Essential Money | Who & Where are you? | Work & Benefits | Household and travel | Shopping & Freebies | About MSE | The MoneySavers Arms | Covid-19 & Coronavirus Support