How cash rich should we aim to be at retirement?

scdandem

scdandem said:

Sea_Shell said:

scdandem said:

molerat said:

I look at it as having enough for a new car + new boiler + new roof in easily accessible, not necessarily instantly accessible, liquid funds that are not subject to the whims of the market tanking on the day you need them which covers you for all those emergencies that could happen.

Thanks! That's the sort of thing I was looking for. I found the Which? survey really helpful to show what a basic, moderate and comfortable retirement would look like in terms of changing the car every X years, holidays abroad (or not), clothing, replacing white goods, leisure, food etc. I know it's very broad but it does give a sense of direction and whether you're on track or not. I just wondered if anyone had seen any articles/advice along those lines relating to what cash savings pot to aim for.

But just think how many permutations of "comfortable" different people would consider out of those categories?

Is that new car a Ford or a Mercedes?
Are those holidays Europe or Long Haul?
Are those clothes Primark or Designer?

Someone could have a very "comfortable" retirement on the first items, and for some, they would definitely want everything in the second item list!!

Absolutely, it's very subjective, but the report does state how much they have allocated to each category, so at least it gives you a starting point to work things out more closely to your own requirements.

Also I think it does specify between Europe and long haul?

Albermarle

£12k and other regular surplus 70/30 between my (Royal London) DC and S&S ISA. Am I on the right lines?

Personally at age 55 I would go for the pension 100% due to the tax advantage .

michaels

It is possible to hold cash in your pension wrapper but it is not accessible until age 55

BritishInvestor

squirrelpie said:

BritishInvestor said:

A diversified portfolio will contain more than just equities and if the equity market falls it may well be that you are buying equities (as well as taking withdrawals from the non-equity part of the portfolio) to ensure you remain aligned to your desired asset allocation.

It would probably help if you were clearer about the point that you seem to want to make.

But if you have a diversified portfolio and part of the markets you are invested in fall, then as and when it comes time to rebalance and if the same condition persists, then you may need to sell some of the well-performing assets and buy some of the poorly-performing ones in order to rebalance the portfolio. Always assuming that you have determined the reason for the imbalance is not due to an inherent weakness in part of the market as an asset class. If you are also taking withdrawals from the portfolio then that will complicate the decisions further, but these are all well-understood principles.

It really doesn't matter whether we are discussing equities, bonds, gold, classic cars, fine wine or what. All can go up and all can come down.

Yep, so if we take a simplified example 

Year 0:

Starting pot £1,000,000

Annual withdrawals £40,000 (ignoring inflation)
Asset allocation 60/40 equity/bond

Equities £600,000

Bonds £400,000

Year 1
Equity market has fallen 20%
Balances are now:

Equities £480,000

Bonds £400,000

Current total balance £880,000.0

After 40k withdrawal £840,000.0

60% of £840k: £504k
40% of £840k: £336k
Sell £64k of bonds, £24k is used to buy equities and £40k for withdrawals

Not clear on why withdrawals will complicate matters nor how you would determine an inherent weakness in a particular asset class or what you would do about it.

scdandem

michaels said:

It is possible to hold cash in your pension wrapper but it is not accessible until age 55

I'm not sure I understand this, could you help? I've assumed amount I invest in my DC pension will only give me access to 25% tax free cash? Thanks!

scdandem

Albermarle said:

£12k and other regular surplus 70/30 between my (Royal London) DC and S&S ISA. Am I on the right lines?

Personally at age 55 I would go for the pension 100% due to the tax advantage .

Thank you!

AlanP_2

scdandem said:

michaels said:

It is possible to hold cash in your pension wrapper but it is not accessible until age 55

I'm not sure I understand this, could you help? I've assumed amount I invest in my DC pension will only give me access to 25% tax free cash? Thanks!

Holding cash as your chosen asset class  i.e. not invested money is different to what you can take as TFLS.

The TFLS is 25% irrespective of whether the money has been invested in to equities / bonds etc. or if it never has been used to buy anything, or if the investments have been sold in the run up to retirement.  

scdandem

AlanP_2 said:

scdandem said:

michaels said:

It is possible to hold cash in your pension wrapper but it is not accessible until age 55

I'm not sure I understand this, could you help? I've assumed amount I invest in my DC pension will only give me access to 25% tax free cash? Thanks!

Holding cash as your chosen asset class  i.e. not invested money is different to what you can take as TFLS.

The TFLS is 25% irrespective of whether the money has been invested in to equities / bonds etc. or if it never has been used to buy anything, or if the investments have been sold in the run up to retirement.  

OK thanks for that. It's above my head in terms of pension knowledge. I don't control the investments myself, simply pay into a balanced managed fund with Royal London set up by an IFA.

michaels

You could ask your ifa if rather than 100% going into the balanced fund, a smaller percentage went into this fund and some was left as cash (or invested in a 'money market fund'. thus you still get the tax advantage of the funds going into your pension but the 'cash' portion of your pension does not have any investment risk.  It is of course in your pension so there may be tax implications when you pull it out of the pension, but as mentioned above you should save more tax on the way in that you pay on the way out.  Thus you can have more 'cash' without losing the tax advantages of a pension.

atush

A min of one year cash, i'm going for 2.  Plus an emergency fund.  Most of this is outside of pensions, intend to keep them invested and harvest income.