Managing pension investments during retirement

laser707

Hello.  I am planning to retire at the end of the year.  My strategy is to maximise withdrawal from my pension whilst minimising tax payments.  I am looking as how to best structure investments with my SIPP whilst retired. My plan is to have 1 year in cash, 1 year in wealth preservation (PNL) and 1 year in mixed 40%equity/60% bond.  With the remainder in growth funds.  I am primarily invested in low cost passive lifestyle type funds (Vanguard 100%equity, Blackrock & HSBC  equivalents) and plan to keep as the basis of my growth element.  Each year reducing the growth section to fund the pension withdrawal, but having 2-3 years reserve in less volatile investments in case of stock market slump.  I am interested to understand how others have structured their pension holdings to manage withdrawals against market volatility and what comments you may have on my intentions.  

Audaxer

What percentages of your total portfolio do you intend to have in cash, wealth preservation fund, and 40/60 mixed asset fund?

Linton

We have been retired for 15 years, living off annuities, SP and drawdown.  In my view 1 year cash and 1 year in Wealth  Preservation funds is far too little.  I would advocate 5 years at least in total and personally have more than that. Being able to sleep at night during the deepest crash is worth more than a few extra % long term growth. 

I manage my and my wife’s investments by splitting them into 3 separate portfolios, one for wealth preservation which also includes our cash reserves, one for income from dividends and interest and the final one focussed on 100% equity growth. The intention is that all normal expenditure would be covered by the guaranteed pension income and by the ongoing payments from the income portfolio. Large one-off expenditure Is taken from cash released as part of rebalancing the three portfolios.

laser707

Structure would be
4% cash
4% wealth preservation
4% mixed equity/bonds
88% equity funds 

garmeg

Linton said:

We have been retired for 15 years, living off annuities, SP and drawdown.  In my view 1 year cash and 1 year in Wealth  Preservation funds is far too little.  I would advocate 5 years at least in total and personally have more than that. Being able to sleep at night during the deepest crash is worth more than a few extra % long term growth. 

I manage my and my wife’s investments by splitting them into 3 separate portfolios, one for wealth preservation which also includes our cash reserves, one for income from dividends and interest and the final one focussed on 100% equity growth. The intention is that all normal expenditure would be covered by the guaranteed pension income and by the ongoing payments from the income portfolio. Large one-off expenditure Is taken from cash released as part of rebalancing the three portfolios.

Seems a reasonable approach. I will only have a small DB as a guaranteed income and will be reliant on a DC pension which has lost 25% due to Covid (my UK investment trusts, cg City of London, Temple Bar etc, have overall pretty much tracked the FTSE 100 down from 7500 to 6000).

Once the dust settles, a rebalance may well be in order!

laser707

Thanks Linton for your post. How different are  your investment strategies for managing your pension element and your investments outside of the pension wall?

Audaxer

laser707 said:

Structure would be
4% cash
4% wealth preservation
4% mixed equity/bonds
88% equity funds 

That seems a very high percentage of equity. In a bad crash, your equity funds could drop in value by 40%, and the mixed equity/bond and wealth preservation funds could also lose some value. With only one years cash as a buffer that seems quite a high risk strategy. 

[Deleted User]

Is it just me or is “wealth preservation” an incredibly irritating marketing gimmick? 

Also, any asset with allocation < 5% of the total is kinda meaningless in terms of an overall portfolio.   If an asset with 4% outperforms the rest of your portfolio, the grand total will hardly notice the difference. Even anything under 10% makes me wonder “why bother”? 

[Deleted User]

I am in exactly the same position as the OP, retiring November, I keep refining the strategy and hopefully I have found the right balance
I don't use percentages but years of spending, so mine are
1 year cash
5 years bonds (VAGP and Royal London Short Duration Index Linked) and wealth preservation (MyMap3, PNL, CGT)
1 year mixed asset (wife's pension)
the rest growth 

Linton

laser707 said:

Thanks Linton for your post. How different are  your investment strategies for managing your pension element and your investments outside of the pension wall?

Our growth and wealth preservation investments are spread unevenly across all 4 accounts (his and hers SIPPs and ISAs). If you don’t have multiple portfolios in each account rebalancing would be very difficult since you cannot move cash between them. However with care and the occasional tidy-up one can limit the number of funds in any one account.
The Income  Portfolio is kept to one of the ISAs as I do not want to pay tax on the dividends & interest keeping my total taxable income below the Higher rate band. The ISA also contains funds from the other two portfolios to ensure that rebalancing is manageable.

AnotherJoe

I've got 10% cash 90% equity. No bonds. 

Was more like 20/80 Start of the year but my investments have been on an insane roll recently. 

(At the heart of the covid crash it might have even hit 60/40, I wasn't tracking it at the time I just hung in there as I have through previous crashes.)

The 10% cash is about 5 years spending and will soon be 10+ years because I have pensions kicking in this year and next. 

This is probably not a good strategy for windows and orphans.