Could you review my plan?

tigerspill

Having been reading this forum for many years, leaning and enormous amount form those way more knowledgeable and experienced than me.  And having seen many post their financial status and plans, requesting these be critiqued in a constructive manner.  This has led me to step put and post mine in the hope that I can receive opinions.

Mine and my spouse's financial circumstances have changed radically in the past two-ish years.  

We are both just turned 55.  I retired nearly two years ago - something we had worked towards.  But my wife retired in the summer past, one year ahead of plan.   

 

I have a DB pension which starts this month (30K / year gross).  Actuarial reduction factors were very favourable to taking early.  So I will have net income of around £2,200 / month - indexed linked with RPI until the government changes this in 2030 (I think).  Along with this I will receive a significant lump sum (in cash) from AVC/lump sum.

 

My wife has a TPS pension that at today's value is £17,000 - indexed by CPI.  More on this later in terms of plan to move into payment.

 

We both have "full" SPs in that I am already at the most at £175.20.  We will have to pay for three years NI Class 3 NIC for my wife to have the same.

 

Our assets (not including home) come to around £1,100,000.

 

I am completely redoing our portfolio because -

1. It is currently a mess in terms of investments (some an IFA set up (reviewed on here previously), VLS and some other stuff).  Needs rationalised
2. We are now in decumulation
3. We currently have FAR too much cash - 70% due to previously having too much cash, inheritance and pension lump sum.
4. I am paying too much in platform fees (CSD at 0.35% and Aegon at 0.3%).

 

In terms of spend - our yearly notional target spend I have been using is £60,000.  This looks very safe to me.

 

Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7.  And I know that we are generally risk averse.

 

I want to hold around 5-6 years top-up money (on top of DB / SP pensions) in cash (Premium Bonds and savings).  Around £200,000 (more in short term plan due to HL SIPP - see below).

 

I plan to split the investments and savings pretty much evenly between my wife and I.

I want to diversify across platforms and fund providers to some degree - I am thinking three low cost platforms (Vanguard, II & iWeb).

 

So my current target is the following in 2021.

 

Cash - £247,000 (inc HL SIPP)

 

ISAs (includes 2021/22 allowances of £20k each)

Me - iWeb ISA - VLS 40 - £115,000

OH - iWeb ISA - VLS 40 - £76,000

Me - Vanguard ISA - VLS 60 - £77,000

OH - Vanguard ISA - VLS 60 - £83,000

Me - II ISA - VLS 80 - £59,000

OH -  II ISA - VLS 80 - £80,000

 

GIA accounts

Me - iWeb - HSBC Global Asset fund - Dynamic - £50,000

OH - iWeb  - HSBC Global Asset fund - Dynamic - £50,000

Me - Vanguard - VLS 60 - £50,000

OH - Vanguard - VLS 60 - £50,000

Me - II - PNL - £50,000 (need to check if platform offers this)

OH -  II - CGT - £50,000 (need to check if platform offers this)

 

OH - Illiquid asset that cant be utilised at this time - £70,000

 

The ISA splits are based on moving from existing ISAs, hence they are not currently exactly split.

 

This gives an asset split of - 

Cash - 22%

Bonds - 24%

Equities - 39%

Wealth Protection - 9%

Illiquid (currently) - 6%% (will eventually invest in VLS 60 and cash top up in 2-3 years)

 

I plan to move investments form GIAs to ISAs if needed.

 

My thinking on the above is that -

1. I have enough cash to allow me to take more risk on long term money.
2. The mix across different risk multi asset funds will allow me to chose where to withdraw from based on market conditions at the time.  Equities drop, I can withdraw form VLS40 or if they do well, then from VLS80 or HSBC Dynamic.
3. I have added a couple of Wealth Preservation funds in here - PNL and CGT.  Not totally sure about these, but might give some diversification across fund managers.  Interested to hear opinions.
4. I am not going to run out of money.  I have done a spreadsheet looking at where income is coming from each year until age 90 and being reasonably pessimistic/realistic, I think even a £75/80K yearly spend is doable.  
5. Much of our planned spend will be travel so can be tweaked up and down if needed.

 

Re the HL cash SIPP OH has been putting money into a HL SIPP (Cash) to avail of tax uplift.  This will total £47,000 in this FY.  The plan is to deplete this while she has no income to avail of her tax free allowances from April 2021 (£24,250 - 25% TFLS plus tax free allowance of £12,500);  April 2022 - £12,500; April 2023 - £10,250).

These payments will either top up cash or will be invested in ISAs.

 

Plan (subject to checking actuarial reductions - currently around 4% per year), my OH will take her DB pension in April 2024 at 58.

 

We have no dependents so I am nor really interested in inheritance issues beyond the two of us.  We will sort them out, but not going to look at for a while.

 

Thanks for reading.

 

I would value comments and thoughts.

Cus

If the question is: Do we have enough to cover an estimated spend of £60k a year, then

DB's of £47k, plus SWR rate of 3% on the £1,100,000 is £33k, so total £80k, ignoring all the other minor elements, it's a yes.
If the question is: have I made any obvious mistakes, I cant see any, others better placed than me will comment.

BritishInvestor

tigerspill said:

Having been reading this forum for many years, leaning and enormous amount form those way more knowledgeable and experienced than me.  And having seen many post their financial status and plans, requesting these be critiqued in a constructive manner.  This has led me to step put and post mine in the hope that I can receive opinions.

Mine and my spouse's financial circumstances have changed radically in the past two-ish years.  

We are both just turned 55.  I retired nearly two years ago - something we had worked towards.  But my wife retired in the summer past, one year ahead of plan.   

 

I have a DB pension which starts this month (30K / year gross).  Actuarial reduction factors were very favourable to taking early.  So I will have net income of around £2,200 / month - indexed linked with RPI until the government changes this in 2030 (I think).  Along with this I will receive a significant lump sum (in cash) from AVC/lump sum.

 

My wife has a TPS pension that at today's value is £17,000 - indexed by CPI.  More on this later in terms of plan to move into payment.

 

We both have "full" SPs in that I am already at the most at £175.20.  We will have to pay for three years NI Class 3 NIC for my wife to have the same.

 

Our assets (not including home) come to around £1,100,000.

 

I am completely redoing our portfolio because -

1. It is currently a mess in terms of investments (some an IFA set up (reviewed on here previously), VLS and some other stuff).  Needs rationalised
2. We are now in decumulation
3. We currently have FAR too much cash - 70% due to previously having too much cash, inheritance and pension lump sum.
4. I am paying too much in platform fees (CSD at 0.35% and Aegon at 0.3%).

 

In terms of spend - our yearly notional target spend I have been using is £60,000.  This looks very safe to me.

 

Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7.  And I know that we are generally risk averse.

 

I want to hold around 5-6 years top-up money (on top of DB / SP pensions) in cash (Premium Bonds and savings).  Around £200,000 (more in short term plan due to HL SIPP - see below).

 

I plan to split the investments and savings pretty much evenly between my wife and I.

I want to diversify across platforms and fund providers to some degree - I am thinking three low cost platforms (Vanguard, II & iWeb).

 

So my current target is the following in 2021.

 

Cash - £247,000 (inc HL SIPP)

 

ISAs (includes 2021/22 allowances of £20k each)

Me - iWeb ISA - VLS 40 - £115,000

OH - iWeb ISA - VLS 40 - £76,000

Me - Vanguard ISA - VLS 60 - £77,000

OH - Vanguard ISA - VLS 60 - £83,000

Me - II ISA - VLS 80 - £59,000

OH -  II ISA - VLS 80 - £80,000

 

GIA accounts

Me - iWeb - HSBC Global Asset fund - Dynamic - £50,000

OH - iWeb  - HSBC Global Asset fund - Dynamic - £50,000

Me - Vanguard - VLS 60 - £50,000

OH - Vanguard - VLS 60 - £50,000

Me - II - PNL - £50,000 (need to check if platform offers this)

OH -  II - CGT - £50,000 (need to check if platform offers this)

 

OH - Illiquid asset that cant be utilised at this time - £70,000

 

The ISA splits are based on moving from existing ISAs, hence they are not currently exactly split.

 

This gives an asset split of - 

Cash - 22%

Bonds - 24%

Equities - 39%

Wealth Protection - 9%

Illiquid (currently) - 6%% (will eventually invest in VLS 60 and cash top up in 2-3 years)

 

I plan to move investments form GIAs to ISAs if needed.

 

My thinking on the above is that -

1. I have enough cash to allow me to take more risk on long term money.
2. The mix across different risk multi asset funds will allow me to chose where to withdraw from based on market conditions at the time.  Equities drop, I can withdraw form VLS40 or if they do well, then from VLS80 or HSBC Dynamic.
3. I have added a couple of Wealth Preservation funds in here - PNL and CGT.  Not totally sure about these, but might give some diversification across fund managers.  Interested to hear opinions.
4. I am not going to run out of money.  I have done a spreadsheet looking at where income is coming from each year until age 90 and being reasonably pessimistic/realistic, I think even a £75/80K yearly spend is doable.  
5. Much of our planned spend will be travel so can be tweaked up and down if needed.

 

Re the HL cash SIPP OH has been putting money into a HL SIPP (Cash) to avail of tax uplift.  This will total £47,000 in this FY.  The plan is to deplete this while she has no income to avail of her tax free allowances from April 2021 (£24,250 - 25% TFLS plus tax free allowance of £12,500);  April 2022 - £12,500; April 2023 - £10,250).

These payments will either top up cash or will be invested in ISAs.

 

Plan (subject to checking actuarial reductions - currently around 4% per year), my OH will take her DB pension in April 2024 at 58.

 

We have no dependents so I am nor really interested in inheritance issues beyond the two of us.  We will sort them out, but not going to look at for a while.

 

Thanks for reading.

 

I would value comments and thoughts.

"Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7."
I never really understand what IFAs mean or achieve when they undertake a risk questionnaire in isolation, nor what a "low attitude to risk" is. 
Risk can mean
1. Unacceptable short term volatility
2. Investment pot going to zero in the short term because you have bet on black
3. You portfolio becoming depleted over time and unable to support your withdrawals.
What happens if you have a "high attitude to risk" yet your pot is so large relative to your desired withdrawals that there is no need for you to take that much risk.

Terron

BritishInvestor said:

"Our attitude to risk is Low - when we did this with out IFA five years ago we were either 2 or 3 from 7."
I never really understand what IFAs mean or achieve when they undertake a risk questionnaire in isolation, nor what a "low attitude to risk" is. 
Risk can mean
1. Unacceptable short term volatility
2. Investment pot going to zero in the short term because you have bet on black
3. You portfolio becoming depleted over time and unable to support your withdrawals.
What happens if you have a "high attitude to risk" yet your pot is so large relative to your desired withdrawals that there is no need for you to take that much risk.

I have had the same feeling whenever I have gone through such an assessment.

I know my attitude to risk. I look at the income I can expect and the lifestyle it brings. I want a solid safe base, then i am willing to take more risks with the more optional parts of the lifestyle, i.e. from Low to High at the same time.

The OPs base (inflation linked DB pensions + state pension in future) is very low risk and is enough to live very comfortably. In terms of money he should have no problem. So it is other factors (like peace of mind) that should determine his plans.

[Deleted User]

I am with @BritishInvestor.  You’ll be fine.  Your risk aversion is already covered via a very decent DB plus your future state pension.   It makes no sense to have such a low allocation to stocks in the liquid portion of your portfolio.  Honestly, I would take out enough cash to keep you going for 3 years. Put it in an interest account and replenish every year. The rest can go into either VLS100 or the HSBC version. Done. 

gm0

This being looked at like a drawdown but most of the assets outside DB are in ISA and GIA not DC SIPP - which is nice as we can largely skip the whole LTA discussion.

40% equities on average is at the lower end of the "planning a long drawdown" range and yet your circumstances allow it so why not.  My take on this from my own reading is that the useful range for most mortals in deaccumulation is 40 - 80. 
Lower than that inflation + drag vs returns hurts.  Higher end volatility gets you in the worst sequences - if you need to keep drawing.  You can take only as much risk as you need and want to if inheritance is not an objective.  At 3% draw with a fat cash buffer for sequence of return - you should not have too many insomnia issues.  The balance of tax wrapped to GIA and managing the portfolio gains/losses and CGT seems more pressing.

Minor stuff

You are subject to the Vanguard position on home market UK bias vs global market cap weight.  That may be good or bad later. But understand what it is as a % / value and take a view on how you feel about it being more UK equities than global weight.  Many don't care.  A few do.

You could consider adding further diversification within equities by adding an EM or a Small Cap fund.  This will dial up  diversification within that asset class (and risk (partly offset by the diversification) + potential return). 
Can make a contrarian case at this point for some Value focus also.  None of this is really worth the bother unless you are going to 5-10% of it.

The next wave out from there would be commodities and commercial property (REITS).  I don't understand commodity cycles and think that the blood is not yet all in the water on commercial property.  So I'm out.  But they are the traditional next diversifiers alongside equties and bonds.  And you need a no regrets point of view on Gold (Permanent Portfolio etc.) as to why you have it or don't

JohnWinder

Yes, the whole things screams comfort and common sense to me. You'd be well set up, but here are some comments and trivial nit-picking:

I can't reconcile your income/withdrawal maths, but if you want to monitor/control your investments drawdowns here's a clever approach: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

If you'll be looking after the investments yourself there's a lot to be said for simplification for when you're old and/or less interested in all that. You (both, fair enough) are holding VLS 40, 60, and 80. Couldn't you omit the 60, and get the same risk/return mix, and the same 'draw from one in good times and the other in bad times' strategy, by just holding the 40 and the 80 in suitable proportions?

Your asset list includes 'wealth protection' at 9%. That's not an asset class, it's probably a collection of asset classes which is mostly stocks and bonds. It sounds to me like a marketing term, so I'd be checking on the fees compared with VLS or the like, and using a compound interest calculator on the web to see how much I'd be losing over possibly 35 years of investing by paying higher fees with which come no guarantee of better returns for the level of risk. However, assuming the 'wealth protection' component costs the same, how much benefit will you get from it at only 9% of assets? If it miraculously outperformed something comparable by 1%/year for 30 years you'd be gaining 0.09%/yr extra returns; not to be sneezed at, but worth the added complexity in view of the rare chance that will be achieved?

The wealth preservation funds sound like active management; you don't need to hear the arguments again, it's just a gamble on over- or under-performing the market returns and you're in a comfortable enough position to take that on. With the index following funds you don't need to diversify the managers as you do with active funds; it's easy to follow an index, but not easy to beat the market.

I haven't looked into the bonds in your funds, but are there enough of, or do you even need index linked bonds as well as nominal bonds? Longevity, inflation, sequence of returns and confiscation are retirement investing risks. You've got the first well covered, but the second? Not so sure. Apart from adding complexity, what's wrong with half your bonds as nominal bonds and half as index linked? They both should have the same return after inflation, but the nominal bonds will do better if there is below expected inflation (or deflation, obviously) while the index linked will do better with unexpected inflation. You've got both eventualities covered; in fact you've already got the deflation risk covered with all your cash holdings, so you might want even more inflation protected bonds. We all know stocks protect against inflation but they don't have to, and have failed to, over periods as long as 10-15 years; a lot of damage to a portfolio can be done in that time.

BritishInvestor

gm0 said:

This being looked at like a drawdown but most of the assets outside DB are in ISA and GIA not DC SIPP - which is nice as we can largely skip the whole LTA discussion.

40% equities on average is at the lower end of the "planning a long drawdown" range and yet your circumstances allow it so why not.  My take on this from my own reading is that the useful range for most mortals in deaccumulation is 40 - 80. 
Lower than that inflation + drag vs returns hurts.  Higher end volatility gets you in the worst sequences - if you need to keep drawing.  You can take only as much risk as you need and want to if inheritance is not an objective.  At 3% draw with a fat cash buffer for sequence of return - you should not have too many insomnia issues.  The balance of tax wrapped to GIA and managing the portfolio gains/losses and CGT seems more pressing.

Minor stuff

You are subject to the Vanguard position on home market UK bias vs global market cap weight.  That may be good or bad later. But understand what it is as a % / value and take a view on how you feel about it being more UK equities than global weight.  Many don't care.  A few do.

You could consider adding further diversification within equities by adding an EM or a Small Cap fund.  This will dial up  diversification within that asset class (and risk (partly offset by the diversification) + potential return). 
Can make a contrarian case at this point for some Value focus also.  None of this is really worth the bother unless you are going to 5-10% of it.

The next wave out from there would be commodities and commercial property (REITS).  I don't understand commodity cycles and think that the blood is not yet all in the water on commercial property.  So I'm out.  But they are the traditional next diversifiers alongside equties and bonds.  And you need a no regrets point of view on Gold (Permanent Portfolio etc.) as to why you have it or don't

"commercial property (REITS).  I don't understand commodity cycles and think that the blood is not yet all in the water on commercial property.  So I'm out.  But they are the traditional next diversifiers alongside equties and bonds."
REITS have suffered large drawdowns during GFC and COVID so not clear on their (genuine) diversification benefits.

gm0

Don't disagree.  Long term there is a case to be made/evaluated for property as an additional asset class.  Bernstein looks at it.
But it's not a no brainer.  It's terrible now.  Valuation risk not blown fully through for the accelerated changes to retail and office usage (which themselves may be overhyped).  Sub-prime property looks dodgy therefore if demand is suppressed.
When valuations reach an honest/overshot position there ought to be a buying opportunity (in theory).  I will likely stay clear though as there are too many "rigged" examples for my taste.

I just don't like to invest in illquid stuff with "opinion" based valuation feeding into NAV and a largely fake mark to market.  Essentially the information dominant can do what they like skirting the edge of the law.  Hired help (incentivised by future business not to rock the boat) does not reassure (Find a way to justify rather than find fault/reasons not to - what you look for is often what you find).

BritishInvestor

gm0 said:

Don't disagree.  Long term there is a case to be made/evaluated for property as an additional asset class.  Bernstein looks at it.
But it's not a no brainer.  It's terrible now.  Valuation risk not blown fully through for the accelerated changes to retail and office usage (which themselves may be overhyped).  Sub-prime property looks dodgy therefore if demand is suppressed.
When valuations reach an honest/overshot position there ought to be a buying opportunity (in theory).  I will likely stay clear though as there are too many "rigged" examples for my taste.

I just don't like to invest in illquid stuff with "opinion" based valuation feeding into NAV and a largely fake mark to market.  Essentially the information dominant can do what they like skirting the edge of the law.  Hired help (incentivised by future business not to rock the boat) does not reassure (Find a way to justify rather than find fault/reasons not to - what you look for is often what you find).

"I just don't like to invest in illquid stuff with "opinion" based valuation feeding into NAV and a largely fake mark to market. "
Yep, 100% agree. 

[Deleted User]

There is an important difference between publicly traded REITs and private property funds so popular in the UK.  The former are liquid and the price is determined by the market.  The latter are illiquid and the price is determined by a specialist and his opinion.  Unlike private property funds, REITs traded in March and April and never suspended payouts.  

In most respects REITs are no different from any other stock, except that they are subject to special rules governing payouts and taxes.   Nor would I group them together when evaluating prospects; there is a difference between REITs leasing out flats vs hospital buildings or Asdas.