Investing at 55+ for beginners

JohnWinder

paddcomp said:

...which comes with some risk I know but my question is where's the middle ground?

The best way to answer this, I think, is to look at the long term history of the swings in value or price or gains/losses of some investment choices that you might be considering eg your index equities ETF etc. I think charts convey more information than simple summary statistics like 'annual average return' or 'volatility' or 'maximum fall and duration of fall in a crisis', as useful as they are. So find some websites where you can view, a few decades ideally, of the behaviour of different funds or indices. Portfoliocharts, and porfoliovisualiser, are two you might use; they don't focus on UK investing, but one ought to invest more broadly than just that probably, and they'll give you a sense of how government bond funds behave quite differently from equities for example.

Looking forward to other suggestions for how you find your 'middle ground'.

Bravepants

paddcomp said:

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?

So your £6456 net is equivalent to 4.25% per year of your £151,688, and this would increase each year with inflation...forever, without you ever having to think about it.

paddcomp

Bravepants said:

So your £6456 net is equivalent to 4.25% per year of your £151,688, and this would increase each year with inflation...forever, without you ever having to think about it.

Yes £6456 does look like a good ROI for £151K, my strategy is that I want to increase my first half of retirement funding above the second half (if there is one).  If the £151K was invested and averaged 3% I could drawn down c£9600 pa over 20 years and reduce to zero.  Most investments and annuities seem to assume living forever, which I don't think I'll manage.  
Increasing income for the first 20 years of retirement is part of my early retirement strategy and would dictate how early I can retire ultimately.

Thrugelmir

paddcomp said:

Bravepants said:

So your £6456 net is equivalent to 4.25% per year of your £151,688, and this would increase each year with inflation...forever, without you ever having to think about it.

 If the £151K was invested and averaged 3% I could drawn down c£9600 pa over 20 years and reduce to zero. 

Investments generally don't behave like deposit accounts. More akin to a roller coaster ride (in the dark) of ups and downs. The shorter the time window, the less time there is to make up for the poorly performing periods. 

kidmugsy

Since you have two or three years to do some reading try looking at the Harry Brown Permanent Portfolio.  It's designed to protect the value of your capital through the ups and downs of the markets for equities, bonds, gold, and cash.  Then you could just withdraw a desired amount each year.

You'd want to hold each component tax-efficiently.  For instance Premium Bonds act much like cash but pay a stream of winnings that are free of income tax.  Gold sovereigns are free of Capital Gains Tax (CGT). Bonds pay income and you have a savings allowance of £500 p.a. free of income tax.  Dividends are taxable but you have a £2k p.a. allowance before tax is due.  You would presumably put bonds and equities into Pensions (e.g. a SIPP) and ISAs as quickly as you could.

bostonerimus

OP, there's a good probability that you will live well into your 90s so plan for that. Will you be comfortable on the final salary pension amount minus the 25% lump sum? If so then the flexibility of having the lump sum and the tax advantage of feeding it into an ISA is attractive. You could simply put it in a Target Date Retirement fund and adjust your distributions with circumstances and need.

wiseonesomeofthetime

If it is of any help, I am your age and took the maximum tax-free lump sum from my pension, and now regret it.

If I was given the opportunity to go back in time and make the choice again, I personally would have just taken £50,000 lump sum, parked that somewhere for emergency house repairs, replacement car, a few holidays perhaps, and taken the higher monthly pension.

As it stands, I am financially fine. My monthly pension is sufficient for me as I live alone and am mortgage-free, however, my lump sum is all over the place.

Will be venturing into investing next week, albeit via a S&S ISA.

Long way to go, for me, still.

ZeroSum

dunstonh said:

  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.

If you have a DB pension of say £20k pa then you can convert upto £5k pa into a lump sum (normally its 12x the annual payment).

So in effect you are talking 25% as a lump sum and you're just being overly pedantic 

csgohan4

As you can see, everyone does things differently. Some I've seen use wealth preservation funds, income funds and equity as a 3 way split which is reasonable.

Key thing is finding something that works best for you. Take more lump sum and lower monthly, will depend on your circumstances and risk appetite for your investment. 

Investments generally are not for 5 years, but generally more than 10 years to ride out the lows and highs

coastline

Everyone has different views but in this case I'm sure the pension itself ( not the lump sum in question ) is fairly substantial regardless of future decisions. 
The lump sum alone is £151k which is just a fraction of the income. Normally commuting part of a DB pension for cash works out around 15-20 times ?. In this case £8K a year for £150k cash so just under 20 times which looks better as income tax takes the £8K income down to £6K.
Put it this way if the income was £20K a year you wouldn't get £150K for £8K.? I'll say the income is at least £30-40K maybe more.? If I've got this correct I'd be off with my £150K and pension with the state pension to come. Many are happy with a lot less.