Investing at 55+ for beginners

paddcomp

I'm 55 with a final salary pension and hoping to retire in the next 2-3 years.  I'll take the 25% tax free lump sum when my pension is available and look to invest this, with a view to drawing down on the capital over the next 25 years to supplement my pension income.  So taking this investment from 100% to 0% over 25 years, with annual drawdowns, if that makes sense?
I don't want to risk losing 25% of my pension, but would like a return on the investment, which will make my overall income better than just sitting in a savings account.  I realise that previous equity returns (circa 7%) seen over the last 10 years probably won't be available over the next 10 years.  I would be happy with a return of 3%pa and this would enable me to budget for the future and decide how early I can afford to retire.
I'm new to investing and I'm trying to learn the basics, I've been watching Pension Craft videos by Ramin Nakisa for example. I've opened up an account with Vanguard and made some small investments in index and ETFs equities.  I like the idea of index funds over individual shares.
Most investment advice covers starting investing in your 20s, 30s or even 40s and not to worry about volatility, but as I'm looking to invest for 0-5 year, 5-10 yr and 10-20 yr returns, I'm unclear as to the strategy I should use.  Others must be in a similar position with pension lump sums, how did you invest yours and what was or still is the outcome?

Eyeful

If you are investing, then think 10 years or longer

Watch the Pension Craft video  " Vanguard Target Retirement Funds Review."

As you are new to investing you  might wish to consider a Global Multi Asset Fund, with a share/bond split that you are comfortable with. There are a number of such funds available, two which spring to mind are
https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?intcmpgn=lifestrategyfunds_learnmore_link
https://www.hsbc.co.uk/investments/isas/hsbc-global-strategy-portfolios/#balanced

The following gives you the basic idea
https://www.youtube.com/watch?v=lGQ9KyQq8Jw

Hope this is of some help.

dunstonh

  I'll take the 25% tax free lump sum when my pension is available and look to invest this, with a view to drawing down on the capital over the next 25 years to supplement my pension income. 

Defined benefit schemes do not get a 25% tax free lump sum as there is no pot to calculate 25%.    They get a calculation that reduces the income in exchange for a lump sum.  Some schemes reduce the income more than others.        Some schemes reduce the income so much that its not worth taking the tax free lump sum because of the income given up. And vice versa.    So, before deciding to take a  pension commencement lump sum (PCLS) you should work out the breakeven point.

I don't want to risk losing 25% of my pension, but would like a return on the investment, which will make my overall income better than just sitting in a savings account.

You are asking for the holy grail.  It doesnt exist.  Every option has risk.     Or maybe it doesnt.  Taking the higher income is the one that carries no risk.

Most investment advice covers starting investing in your 20s, 30s or even 40s and not to worry about volatility, but as I'm looking to invest for 0-5 year, 5-10 yr and 10-20 yr returns, I'm unclear as to the strategy I should use.

I would disagree.  You tend to find that advice is more commonly sought by people closer to retirement or in retirement.

Others must be in a similar position with pension lump sums, how did you invest yours and what was or still is the outcome?

You haven't explained your position much.  You also have the luxury of a defined benefit pension income that most do not have.  You appear to have a low risk profile but your early investments are into more sophisticated investment options with higher risk than what you state you have.  You have given up the risk free option that may have been better for you. So, you are going to have to accept investment risk to get what you want.

More detail from you is needed to understand your situation better.   you should not be focusing on what others do as their objectives and situation are unlikely to be the same as yours.  Look at your situation and the best solutions for you. Not others.

Albermarle

 So, before deciding to take a  pension commencement lump sum (PCLS) you should work out the breakeven point.

Good advice but when you do,  be aware it is not quite as simple as it looks . The fact that the lump sum is tax free increases its value, but on the other hand the pension you are giving up is inflation linked ( presumably ) which gives it more value .

I would be happy with a return of 3%pa 

You need to be clear if you mean 3% gross or 3% net after inflation . The latter is preferable but harder to achieve 

.ut as I'm looking to invest for 0-5 year

Not a good idea. 

I agree with 'eyeful' You say you are new to investing but dabbling in individual ETF's and index funds . It would be much easier ( and probably get a better result ) to buy a low cost multi asset fund at a risk level you are comfortable with. Or at least use one of these as the core investment.

Here is a comparison of the main ones . They all offer four or five different 'risk related ' options .

https://monevator.com/passive-fund-of-funds-the-rivals/

Linary

I put my lump sum into premium bonds.  Have averaged a win a month maximum so far is £1000 but more usually £25 to £50 a month.  I put the rest into the highest interest account I could find (not very high).  from this account I opened a share dealing account with the Halifax and bought monthly into a share dealing ISA.  I buy 2 different Investment trusts at a time from different categories e.g. this year I am buying an International biotechnology trust and Scottish Oriental smaller companies.  I aim to change categories of investment either annually or every 2-3 years and have built up a portfolio of Investment trusts like Capital gearing, Impax environmental Markets, MG securities global themes, Personal assets trust and RIT capital partners.  
from April I"ll keep my portfolio but buy into different sectors thinking this year of emerging Markets and a Global Income trust.  buying shares monthly is called Pound Cost Averaging and smooths out peaks and troughs and works out better than buying in a lump sum.  I don't worry too much if the trusts I'm currently buying share price falls as it just means I get to buy more shares.  However once I've stopped paying in I do pay close attention to them and sell if they fall below 10% of price I initially bought them for.  If I realise a good profit 100% on initial buying price then I sell half and reinvest in something different.
I used to subscribe to Money Observer monthly as like you I was a novice but unfortunately they were bought over by Interactive Investor and have stopped publishing.  still searching for a similar publication as it was really invaluable.
May seem counter intuitive to buy Premium Bonds but it's really easy to cash them in.  Only takes 5 days.  I started with maximum and now have much less than that but they're still paying out more than any easy access account.

Linary

should say in addition to above I always reinvest dividends and prefer Investment trusts with good dividends.

Bravepants

Do you have the option to NOT take a lump-sum, but have a higher annual pension instead?

If so, what would be the increase in annual pension as a percentage compared to your annual pension if you DO take the lump sum? 

If you are giving up a portion of your annual pension for a lump-sum and THEN investing the lump-sum to make up a shortfall, you had better ensure that the income you make exceeds the lost annual pension, and/or be able to sleep at night due to the increased risk. I am due a DB pension at some point, but I will NOT be taking a lump-sum as I prefer to have the benefit of a known income. 

dunstonh

Linary said:

should say in addition to above I always reinvest dividends and prefer Investment trusts with good dividends.

Not adding a comment to pick on your strategy as there are multiple ways to invest and each has pros and cons.   However, a dividend focus typically results in lower returns as it means focusing on companies that tend to have lower growth potential, in part because they distribute so much in dividends rather than invest it to improve the company and increase profits.  It also means that there is usually an increased UK bias and that has resulted in lower "total" returns for a long time now.

it also highlights the risk of someone who doesnt know what they are doing following what others are doing despite saying that they would not take that level of risk.

 buying shares monthly is called Pound Cost Averaging and smooths out peaks and troughs and works out better than buying in a lump sum. 

No it doesn't.  In the majority of periods pound cost averaging gives a lower return than investing as a lump sum at the start.

Eco_Miser

Linary said:

 buying shares monthly is called Pound Cost Averaging and smooths out peaks and troughs and works out better than buying in a lump sum.

Not if the market is generally rising, and you could have invested the whole lot at the start at what in hindsight you see to be the lowest price you could have got.

Nor if the market is generally falling, and you could have waited until a lower price was available. Not that the market is generally falling.

On the other hand, if you're investing from income, then investing monthly is the best strategy, investing as soon as you can. 

Notepad_Phil

Linary said:

buying shares monthly is called Pound Cost Averaging and smooths out peaks and troughs and works out better than buying in a lump sum.

If that is the case then are you withdrawing the money that you have already invested to then put back in via Pound Cost Averaging?

Pound Cost Averaging s definitely better when the sums being invested is coming from a salary and may better suit some personalities who may not have had many dealings with investing before, but it doesn't work out better for everyone and the numbers say that investing as soon as possible is likely to be the best way to go.

paddcomp

Thanks for taking the time to comment.
Little bit more info about my pension lump sum, the 25% value is £151,688 for a decrease in annual pension of £8,064 taxable at the lower rate.  Or £6456 net of tax but index linked to one of the inflation rates, RPI or CPI.
If I was to put the lump sum in a savings account at 1% and draw it down over 20 years I could have £8000 pa net.  I use the 20 years as I'm expecting to be spending more between the age of 55-75 than 75+.
As for attitude to risk, whilst I say I don't want to lose my 25% pension investment I'm not trying to maximise the return by going for the highest risk investments, I'm just looking for something greater than 1%, which comes with some risk I know but my question is where's the middle ground?