Approaching Retirement....few questions

Sanxxx

Hi, I'm looking for help/advice on what I should be doing with my pensions as I approach retirement.

Background

Will be 63 in May and intend to retire at some point this year, always assumed that retirement 'occurred' at State Pension age and then a light bulb came on a few years ago that technically I can retire whenever.

Living with my partner who has next to nothing over and above her full State Pension in 9 years time, I'm not factoring this in.

Mortgage free, may downsize in a few years so she can realise c£100k from her share of the house as pension.

Two adult sons for whom I'd like to leave some inheritance.

Pensions

1. DB £12.5k/year, payable at 65, index linked

2. GMP/DB £5.5k/year , Pre-1988, payable at 65, not index linked, if deferred will escalate at 1/7 of 1% for every week it is not taken

3. GMP/DB £6k/year , Pre-1988, payable at 65, not index linked, not sure about escalation

4. DC £275k, all equities, 'higher risk'

5. DC £220k, all equities, 'higher risk' (current)

6, DC £150k, all equities, 'higher risk'

7. DC £30k, all equities, 'medium risk'

8. SP £9k, payable at 66, will need to 'buy' 1-2 years for full amount.

At current values (20*DB etc.) this puts me at c108% of LTA

£60k in 'cash' (ISA/Bank), £100k UK Stocks

Income Target

£50k gross, c£40k net per year, starting cSep 21 , allow for inflation say 2.5%, last till 90 (i.e. 27 years), ideally preserving the majority of DC capital as inheritance.

Questions

1. Is my target achievable?

2. Given that I need to fund 2/3 years until DB/SP kicks in, how should I approach this?

3. Related to 2) , is there any recommended approach to drawdown or do I just pick one or more of the DC pensions to get the tax free amount I need?

4. For pensions 2/3 these are not index linked, the CETV on these has been c15-19x which would be poor value for an index linked DB pension, should I think about taking the CETV or accept inflation erosion?

5. Considering pension 1/8 (and 2/3 if CETV not taken) to be 'low risk', should I consider moving 4/5/6 into lower risk (bond/equity) funds?

6. Whilst I'm at 108% of LTA, a stock market downturn could easily put me below 100%, should I do something about being over now, and if so what?

7. With c4-9 months to go, is there anything obvious I should actively be doing at this point in time?

Thanks for any assistance.

Marcon

Now might be a good time to have a chat with an IFA and get some proper (paid for) advice, based on a full understanding of all your circumstances. There may well be some immediate/short term actions which would be very much to your advantage, but impossible to know based on such limited information.

cfw1994

My sums could be off, & if I have missed or misunderstood something here, my apologies.....
.... but the question I am asking myself is "why haven't you retired years ago?"
Key question is "why do you want to leave the majority of the DC as inheritence?".

Seriously: you have around £775k in stock/DC, £60k in cash, & your income streams look something like this given the information above:

The final column (£ amount required) would be taken from the Stock/DC/cash, and sure, I haven't allowed for tax here, but have put £50k as the target income, rising at 2.1%
It looks clear to me you have PLENTY of money to retire, use some of the stock/DC/cash to live on, and still leave a decent chunk for inheritance.

DT2001

I reckon it is achievable however if I were you I’d see an IFA to help you formulate a strategy even if you intend to manage your investments long term. The LTA and GMP/DB’s situation needs to be resolved. Is it possible to easily transfer and what is the cost and then does that get you below LTA and save tax. If you retain them or one of them how to align your investments to counter higher inflation than you have forecast. 
Your short term plans might depend on exactly when you retire and how much you have earned in the tax year.
Complex but a nice problem to have. 

tacpot12

1. Is my target achievable? Yes

2. Given that I need to fund 2/3 years until DB/SP kicks in, how should I approach this? In the absence of professional advice to the contrary, drawdown from your DC pension savings.

3. Related to 2) , is there any recommended approach to drawdown or do I just pick one or more of the DC pensions to get the tax free amount I need? I would start with the least risky investments; risk is your friend if you want to fund a retirement over the next 30+ years.

4. For pensions 2/3 these are not index linked, the CETV on these has been c15-19x which would be poor value for an index linked DB pension, should I think about taking the CETV or accept inflation erosion? You can afford the inflation erosion, but an IFA might be able to justify taking the CETV, and so achieve a better outcome for you. 

5. Considering pension 1/8 (and 2/3 if CETV not taken) to be 'low risk', should I consider moving 4/5/6 into lower risk (bond/equity) funds? As per my response to Q3, I think you should be doing the opposite. 

6. Whilst I'm at 108% of LTA, a stock market downturn could easily put me below 100%, should I do something about being over now, and if so what? I have no advice here. 

7. With c4-9 months to go, is there anything obvious I should actively be doing at this point in time?
Buying your missing years for your state pension entitlement, as it will take a couple of months to go through, and it would be good to know that that was done, and the cost will only go up. I agree with the other comments that you should take professional advice to ensure that you have the best strategy, as this will reduce your risk. So the other thing you should be doing at this point is looking for a good IFA, ideally via a personal recommendation from someone who has needed similar advice. 

Albermarle

is there any recommended approach to drawdown 

Yes lots of different ways , including many academic studies , so you are not going to get a sensible answer in a couple of lines in an internet forum.

 Whilst I'm at 108% of LTA, a stock market downturn could easily put me below 100%,

Well with your very equity heavy investments a proper downturn could hammer your pots. 

On the other hand if markets do well you will get hit even harder by LTA. 

Personally I would restructure the portfolio to something less risky and more diverse, but that is only my opinion.

The interplay between DB schemes; income tax ; DC investment portfolio and drawdown strategy; LTA etc is quite complex or at least needs some kind of integrated plan , So I think you would benefit from some professional advice.

JohnWinder

Just to focus on some 'risk' issues. Others wrote:

' I would start (consuming) with the least risky investments; risk is your friend if you want to fund a retirement over the next 30+ years.'   And, 'Well with your very equity heavy investments a proper downturn could hammer your pots. '

If anyone's head-scratching over that apparent contradiction, this is how I untangle it.

'Risk' is commonly measured by how much the price of a share or a fund varies each month, over a year or 5 year period; it's a handy measure as it's easy to calculate and allows comparisons. When some people say something is a risky investment, that's what they mean; but others mean 'This investment could lead me to not having the money I need when I need it even though I've pretty much got enough now.'

It's that second risk you and I need to plan our investments around, and when you think about it, that first risk (if it's big because of big falls in prices sometimes) creates the second risk. However, other things can also create the second risk for us without the 'price variation' risk, such as inflation reducing spending power, taxation, etc.

Last element: investments risky by the first measure (price variation) tend to have the better returns; a reward for taking that risk. So if you're about to retire, and thus have potentially 30 years of spending needs ahead of you AND want to leave an bequest, you've got a long investing horizon and likely need to have some 'risky' investments at this stage.

Thrugelmir

You say higher risk equities. Do you mean exposure to volatility?  Where market prices in could move far greater than 10% in a short space of time. 

tacpot12

The OP has enough cash to survive one downturn; they can avoid selling equities at a sub-optimal time, but will have to sell more on the next up-swing to replenish their cash reserves if they are to survive the next downturn. 

barnstar2077

I think it was Pensioncraft that did a video saying that 100% equities, even in retirement, was statistically the best way to go (to have your money last x amount of years.)  It sure would require nerves of steel though! :  /  

Linton

barnstar2077 said:

I think it was Pensioncraft that did a video saying that 100% equities, even in retirement, was statistically the best way to go (to have your money last x amount of years.)  It sure would require nerves of steel though! :  /  

And you would need to be willing to lower your expenditure in bad market conditions.

Though perhaps the extra worry would shorten your life to match the money available!