Planned future withdrawal - want to avoid volatility

hamishandarchie

I have a pension of £300k invested in Blackrock Consensus 85. The pot is untouched and I am retired. We have got a cash reserve and our income is sufficient at the moment.
I plan to withdraw £15k or so for a new car in a couple of years time. I am thinking of putting £25k into a less volatile fund to protect against market movements. I could put it into Blackrock Consensus 35 or Vangaurd Life Stratergy 20.
Any comments?

Albermarle

The Blackrock 85 fund has about a 60% equity content ( as a   rule of thumb the higher the % equity, the more risky/growth potential) the 35 fund and VLS 20 both have about 20% equity .
By moving £15 K , you will overall have reduced the % equity of the whole pot by 3% so basically a waste of time .
If you really want to protect the £15K then withdraw it now and put it into savings account . However the more logical thing to do would be just to leave the whole £300K alone and just take out the £15K when you need it .
If you had said you would need £150K in two years time then it would have made a lot more sense to protect it in some way.

Costabit

Agree with @Albermarle re. No point in reducing the equity content by 3% .
I would get the £15K into cash now , but would leave it inside the pension wrapper until you need to withdraw it as inflation won’t have much impact on it in two years. And you never know,there may be an opportunity to take advantage of a market correction in the meantime .

shinytop

Or you could put the £15k into a more risky managed fund.  Or a single company, like Tesla. You might be able to afford a nicer  car, maybe even a Tesla 
But the correct answer is to put it in Premium Bonds or just leave it where it is.

JohnWinder

The idea is good, I'm just not sure about the execution as I don't have enough detail or crystal balls.

My worst case working assumption is usually 50% drop in equity values just before withdrawal, and bonds hold their value. Since our best guess of the 'worst case' that might hit you can be only vaguely correct, it probably doesn't matter that I can't apply the same simple numbers to your fund because it seems to hold some ?illiquid alternatives (?property) etc, so we'll go with my figures for the calculation.

Staying solely in BC85 your fund value would drop to £210k, then buying the car would take it down to £195k.

Moving £25 to another fund with 20% equity (and assuming 80% safe bonds) before the crash, the same market crash would leave you with £215k before your car purchase, and £200k after the car. This is clearly a better choice, by £5k.

However, would you need to 'set aside' as much as £25k for a £15k car, with a 60% equity (ideally 40% safe government bonds) fund? Maybe the non-equity part of the BC85 is not as safe as I'd prefer, and you're right. Secondly, in most 2 year periods a 60% equity fund will have more increase in value than a 20% equity fund; so to gain some safety, you'd be risking some lower overall return. Only you know how important the fund value after car purchase is to you.

No one will know ahead of time which strategy will give you the best return, so you nut it out as clearly as you can with as accurate inputs as you have, and choose which makes you feel more comfortable. Don't forget any costs/taxes.

Retirement withdrawal approaches are continually being argued and agonised over but no one knows which will turn out best for anyone, but if you need to enhance your knowledge of the inputs (and their accuracy) try this series https://earlyretirementnow.com/safe-withdrawal-rate-series/

and https://www.bogleheads.org/wiki/Safe_withdrawal_rates

hamishandarchie

Thank you all for your responses. Its clear that there is no "correct" strategy.
Taking the money out now as cash is effectively reducing the equity of my total holdings.
Changing to lower equity funds will reduce it by a smaller amount.
Leaving it where it is has no effect.
So as JohnWinder says "do what feels more comfortable"
We are lucky as we do not need the pension for income, we see it as an inheritance for our children. I think we will leave it where it is, thanks once again.