Help - hitting 55 soon - any major flaws in my pension thoughts?

DiggerUK

I don't see any need to  worry about obtaining your 3-3.5k income when you have the forecast pensions you give. Going forward you will also have SSP. You're also ash heavy.

Given the long term reality that interest rates on savings will likely get much worse, you should consider taking larger DB pensions and decline the lump sums. Cash savings will become increasingly  open to inflation devaluing them.

We here at Digger Mansions have all our retirement savings in gold and cash in hand with PB's, very glad we have it so. You may never have considered gold before but I recommend you investigate the benefits.

Best of fortune..._

garmeg

DiggerUK said:

I don't see any need to  worry about obtaining your 3-3.5k income when you have the forecast pensions you give. Going forward you will also have SSP. You're also ash heavy.

Given the long term reality that interest rates on savings will likely get much worse, you should consider taking larger DB pensions and decline the lump sums. Cash savings will become increasingly  open to inflation devaluing them.

We here at Digger Mansions have all our retirement savings in gold and cash in hand with PB's, very glad we have it so. You may never have considered gold before but I recommend you investigate the benefits.

Best of fortune..._

Does that make you a gold digger?

Another_Saver

house paid off, £300k saved, £80k DC

55 £24k pa DB pensions and salary and use the £80k to bridge to 60 and a little from the savings if needed

60 +£20k pa DB pensions

67 +£18k pa state pensions

... you're already there, you've made it, you've won capitalism

i understand your history with equities, however there is no other asset class that has a real chance of generating at least an inflation matching return over the rest of your lives. i would suggest transferring the bulk of that to a stocks & shares ISAs (it may be cheaper if only one of you does to avoid getting charged fixed account and dealing fees twice if you both did) with a good broker (iWeb will be cheapest if you keep buying and selling to a minimum) and buying ideally only one good multi asset fund such as Vanguard Lifestrategy, HSBC global strategy etc. There are plenty to choose from.

personally i would keep maybe £50k cash and stick £250k in a 100% equity portfolio

if you're wanting to keep your risk down, the worst that's happened in recent history on a balanced fund, say 60% equities, has been a ~20% drop in the big market crashes and always recovered within a few years. all good multi-asset fund providers offer such a fund (vls 60, HSBC global strategy balanced)

 however, its important not to:

a. react to "the news" - it's always bad

b. panic

c. sell in a crash

d. once youve sold in a crash, try and time when to buy back in

e. think you know better than the market

f. chase higher returns (i.e. switch to gold, emerging markets, tech), for most people, most of the time this does not work as your post indicates may have happened to you before

 just stick with a good balanced multi asset fund and stay the course

holding onto that much cash is hardly a bad thing to do, but general wisdom is the more guaranteed income you have coming in - and you have more than enough - the more risk you can afford to take with any DC pensions or savings you have.

the reason i suggested 100% equity is because, say you go £50k cash, £250k in a 60% equity fund, you're actually only 50% equities, 33% bonds and 17% cash (and again, you have more than enough guaranteed income). Or you could keep £100k cash and stick £200k in a 100% equity fund and end up 67% equity, 33% cash.

ultimately it's a personal choice, you would have to try hard to mess up the very comfortable situation you're in

SheenaG4

george4064 said:
When you say “having had our fingers burned with equities in the past” what actually happened?
I suspect you were not diversified enough or did not have a strategic plan with your equities that you quickly got ‘spooked’ and have now (it seems) ruled out equity investing because you were inappropriately invested in the first place!

I should make you aware that keeping a lot of your savings in a low earning interest account is risky in its own ways:
1. Inflation risk. Imagine inflation is circa 0.8% per annum and your savings are earning c. 0.5% per annum, you real return (after inflation) is 0.3%
2. Shortfall risk. This is where your savings fall short of your financial objectives and risk ending up not having sufficient assets for your particular goal because your savings generated such a poor return (you are guaranteeing this part because you have put it all into a low interest earning account).

That is fair comment. We had a very narrow holding (largely in part due to share option schemes in our respective companies), held onto shares too long when the options matured and subsequently saw them nosedive. Our reluctance to 'go back in the water' is even greater when I look at some of the recent FTSE share graphs. Appreciate these are unprecedented times with Covid, but the fear of losing money in the markets outweighs the the potential for greater returns, either though I appreciate the latter is more likely. We've worked hard and spent modestly to get to our current position and I suppose we're happy if we can now just 'stand still' in real terms going forward.
Which does bring in the inflation risk you mention, which is also hubby's concern. He's read differing opinions about inflation increasing on the back of increasing Govt borrowing, so I guess the major potential hole in our plan is savings rates not keeping up with inflation and therefore our cash holdings going backwards in spending power terms. It may be that to cover all bases I should at least investigate appropriate equity investment options but as I've no idea where to start, that's probably a subject for a different thread. Food for thought indeed, thank you.

SheenaG4

Another_Saver said:

house paid off, £300k saved, £80k DC

55 £24k pa DB pensions and salary and use the £80k to bridge to 60 and a little from the savings if needed

60 +£20k pa DB pensions

67 +£18k pa state pensions

... you're already there, you've made it, you've won capitalism

i understand your history with equities, however there is no other asset class that has a real chance of generating at least an inflation matching return over the rest of your lives. i would suggest transferring the bulk of that to a stocks & shares ISAs (it may be cheaper if only one of you does to avoid getting charged fixed account and dealing fees twice if you both did) with a good broker (iWeb will be cheapest if you keep buying and selling to a minimum) and buying ideally only one good multi asset fund such as Vanguard Lifestrategy, HSBC global strategy etc. There are plenty to choose from.

personally i would keep maybe £50k cash and stick £250k in a 100% equity portfolio

if you're wanting to keep your risk down, the worst that's happened in recent history on a balanced fund, say 60% equities, has been a ~20% drop in the big market crashes and always recovered within a few years. all good multi-asset fund providers offer such a fund (vls 60, HSBC global strategy balanced)

 however, its important not to:

a. react to "the news" - it's always bad

b. panic

c. sell in a crash

d. once youve sold in a crash, try and time when to buy back in

e. think you know better than the market

f. chase higher returns (i.e. switch to gold, emerging markets, tech), for most people, most of the time this does not work as your post indicates may have happened to you before

 just stick with a good balanced multi asset fund and stay the course

holding onto that much cash is hardly a bad thing to do, but general wisdom is the more guaranteed income you have coming in - and you have more than enough - the more risk you can afford to take with any DC pensions or savings you have.

the reason i suggested 100% equity is because, say you go £50k cash, £250k in a 60% equity fund, you're actually only 50% equities, 33% bonds and 17% cash (and again, you have more than enough guaranteed income). Or you could keep £100k cash and stick £200k in a 100% equity fund and end up 67% equity, 33% cash.

ultimately it's a personal choice, you would have to try hard to mess up the very comfortable situation you're in

Many many thanks for your detailed reply.
I was writing a response to george4064 as you were posting, so I hadn't read your comments at that stage.
You've completely understood our position.
Tips on appropriate asset funds are very helpful. Whether we're brave enough to take the plunge is another matter.
As you say, we're in a comfortable situation, which makes taking any equity risk at all a difficult decision. But on the other side of the coin, I suppose the potential for negative return on cash savings (v inflation rates) is, in itself, a risk.
Much to think about.

Another_Saver

SheenaG4 said:

george4064 said:
When you say “having had our fingers burned with equities in the past” what actually happened?
I suspect you were not diversified enough or did not have a strategic plan with your equities that you quickly got ‘spooked’ and have now (it seems) ruled out equity investing because you were inappropriately invested in the first place!

I should make you aware that keeping a lot of your savings in a low earning interest account is risky in its own ways:
1. Inflation risk. Imagine inflation is circa 0.8% per annum and your savings are earning c. 0.5% per annum, you real return (after inflation) is 0.3%
2. Shortfall risk. This is where your savings fall short of your financial objectives and risk ending up not having sufficient assets for your particular goal because your savings generated such a poor return (you are guaranteeing this part because you have put it all into a low interest earning account).

That is fair comment. We had a very narrow holding (largely in part due to share option schemes in our respective companies), held onto shares too long when the options matured and subsequently saw them nosedive. Our reluctance to 'go back in the water' is even greater when I look at some of the recent FTSE share graphs. Appreciate these are unprecedented times with Covid, but the fear of losing money in the markets outweighs the the potential for greater returns, either though I appreciate the latter is more likely. We've worked hard and spent modestly to get to our current position and I suppose we're happy if we can now just 'stand still' in real terms going forward.
Which does bring in the inflation risk you mention, which is also hubby's concern. He's read differing opinions about inflation increasing on the back of increasing Govt borrowing, so I guess the major potential hole in our plan is savings rates not keeping up with inflation and therefore our cash holdings going backwards in spending power terms. It may be that to cover all bases I should at least investigate appropriate equity investment options but as I've no idea where to start, that's probably a subject for a different thread. Food for thought indeed, thank you.

SheenaG4 said:

Another_Saver said:

house paid off, £300k saved, £80k DC

55 £24k pa DB pensions and salary and use the £80k to bridge to 60 and a little from the savings if needed

60 +£20k pa DB pensions

67 +£18k pa state pensions

... you're already there, you've made it, you've won capitalism

i understand your history with equities, however there is no other asset class that has a real chance of generating at least an inflation matching return over the rest of your lives. i would suggest transferring the bulk of that to a stocks & shares ISAs (it may be cheaper if only one of you does to avoid getting charged fixed account and dealing fees twice if you both did) with a good broker (iWeb will be cheapest if you keep buying and selling to a minimum) and buying ideally only one good multi asset fund such as Vanguard Lifestrategy, HSBC global strategy etc. There are plenty to choose from.

personally i would keep maybe £50k cash and stick £250k in a 100% equity portfolio

if you're wanting to keep your risk down, the worst that's happened in recent history on a balanced fund, say 60% equities, has been a ~20% drop in the big market crashes and always recovered within a few years. all good multi-asset fund providers offer such a fund (vls 60, HSBC global strategy balanced)

 however, its important not to:

a. react to "the news" - it's always bad

b. panic

c. sell in a crash

d. once youve sold in a crash, try and time when to buy back in

e. think you know better than the market

f. chase higher returns (i.e. switch to gold, emerging markets, tech), for most people, most of the time this does not work as your post indicates may have happened to you before

 just stick with a good balanced multi asset fund and stay the course

holding onto that much cash is hardly a bad thing to do, but general wisdom is the more guaranteed income you have coming in - and you have more than enough - the more risk you can afford to take with any DC pensions or savings you have.

the reason i suggested 100% equity is because, say you go £50k cash, £250k in a 60% equity fund, you're actually only 50% equities, 33% bonds and 17% cash (and again, you have more than enough guaranteed income). Or you could keep £100k cash and stick £200k in a 100% equity fund and end up 67% equity, 33% cash.

ultimately it's a personal choice, you would have to try hard to mess up the very comfortable situation you're in

Many many thanks for your detailed reply.
I was writing a response to george4064 as you were posting, so I hadn't read your comments at that stage.
You've completely understood our position.
Tips on appropriate asset funds are very helpful. Whether we're brave enough to take the plunge is another matter.
As you say, we're in a comfortable situation, which makes taking any equity risk at all a difficult decision. But on the other side of the coin, I suppose the potential for negative return on cash savings (v inflation rates) is, in itself, a risk.
Much to think about.

/

You're very welcome

The text I have made bold is the kind of thinking that would make me concerned about you investing again so here's a few more thoughts:

1. Looking at charts and reading the news is about as useful to investors as horoscopes.

2. The UK has done particularly badly lately, whereas the funds I suggested are global, balanced funds. I've attached a pdf showing the performance of the two I suggested since the start of the year: ~17-18% dips, recovered by June. You could also look at the next risk level down, VLS 40/HSBC Conservative (others are available), anything lower than that may not be worthwhile vs cash. Also you could transfera bit at a time into a stocks & shares ISA rather than say, £200k or £250k all at once you could move £20k a month for a year.

3. The fact you're in a comfortable situation is precisely why you can afford to invest your huge pile of cash, though I understand why being comfortable makes you want to keep it safe - you don't need it to grow.

4. It's not so much about being brave enough to get back in the water, it's more about being emotionally and mentally prepared for the fact that there will be waves and storms (to use this analogy) and keeping faith that a balanced fund, staying the course, "don't do something, just stand there", will see you through. Just treat it like a savings account. You wouldn't log into your cash ISA accounts every day or make changes to them because of the news. The same discipline and relaxed attitude should apply to investing. Buy right, hold tight.

5. You sound like you have already planned out your estimated spending vs income to figure out how much top-up you will need to take from the DC pension/cash pile before the pensions at 60 and state pensions at (presumably) 67 kick in. Generally, anytop-ups due within 3-5 years should be held as cash, anything due later you can look at investing in a balanced fund, anything due much later, i.e. end of life care/funeral expenses you can look at 100% equities (both of those last two options could be encapsulated within a single balanced fund).

6. Your DB pensions are likely mostly inflation-linked - why not try and do the same with your savings?

7. As most people in this thread have said already, you are in a very comfortable position, don't forget to enjoy it!

SheenaG4

Another_Saver said:

You're very welcome

The text I have made bold is the kind of thinking that would make me concerned about you investing again so here's a few more thoughts:

Your thoughts make perfect sense. 
I sometimes wish we weren't so conservative in our savings strategy and we will explore options suggested.
Thanks again for the further input.

MarkCarnage

We had a very narrow holding (largely in part due to share option schemes in our respective companies), held onto shares too long when the options matured and subsequently saw them nosedive. Our reluctance to 'go back in the water' is even greater when I look at some of the recent FTSE share graphs.

Your honesty is refreshing. In this case 'equities' whilst grammatically correct, was a pretty unbalanced and risky 'portfolio'. 

Don't look too long at FTSE charts....firstly, they are probably without reinvested dividends, which makes a big difference in the UK, and secondly, FTSE100 has been a dreadful performer in relation to global markets. Consider a global index tracker fund, or a well managed active global equity fund, or both. The risk of being in cash long term will outweigh the short term risk of equities. Even gold is likely to do better.....

Or consider a wealth preservation type of fund....discussed on quite a few threads here. Personal Assets Trust, Ruffer, Capital Gearing to name but three all with decent enough records at preserving and growing capital. 

SheenaG4

MarkCarnage said:

We had a very narrow holding (largely in part due to share option schemes in our respective companies), held onto shares too long when the options matured and subsequently saw them nosedive. Our reluctance to 'go back in the water' is even greater when I look at some of the recent FTSE share graphs.

Your honesty is refreshing. In this case 'equities' whilst grammatically correct, was a pretty unbalanced and risky 'portfolio'. 

Don't look too long at FTSE charts....firstly, they are probably without reinvested dividends, which makes a big difference in the UK, and secondly, FTSE100 has been a dreadful performer in relation to global markets. Consider a global index tracker fund, or a well managed active global equity fund, or both. The risk of being in cash long term will outweigh the short term risk of equities. Even gold is likely to do better.....

Or consider a wealth preservation type of fund....discussed on quite a few threads here. Personal Assets Trust, Ruffer, Capital Gearing to name but three all with decent enough records at preserving and growing capital. 

Thanks for your input.......even more to think about!