Investing at 55+ for beginners

CloesUnc

This is a very interesting thred as it throws up some ideas.  I am on the cusp of retiring (53) as I'm fed up with work. i can go now and use a bit of savings to take me to 55. Once I am 55 I will have a net income of just short of £2000 a month, through a combination of personal and DB pension, income from investment trusts and drawdown from an iSA at 3% per year or so. ISA drawdown is optional and I should have enough anyway. my savings an investments will total about £100k. So you are better of than me even if you take your lumpsum! But I still think I will be comfortable 

Thrugelmir

@paddcomp Is your DB pension linked to CPI or RPI? Over a 25-30 year time span the difference in compounding will be considerable. 

joeNZ

This is a bit late but for anyone still interested.
What seems to get missed in these conversations is that a year of life at 55 is very different from a year of life at 75. So when looking at lump sums versus long term indexed income its simply not good enough to just look at the numbers. I was faced with a similar decision and I decided to extract as much of the lump sum as possible. If I had just compared against annuity rates that would never have been the right choice. But I have plans to live well for the next decade and by then the state pension will arrive to supplement the guaranteed portion of the pension. Many of the opinions you will get here will not factor in the lost opportunity cost of not taking the lump sum. If you don't need the cash for your life plans then the prudent thing would be to minimise the lump sum within the constraints of the scheme.

AlanP_2

ZeroSum said:

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 

He is not beinbg overly pedantic he is pointing out a fact.

Schemes have their own commutation rates and as long as these do not end up with a tax free lump sum greater than the HMRC limits that's fine.

I have 2 DB pensions, one deferred which I am taking the CETV for and one active. They both have entirely different scheme rules which define the respective commutation rates.

My wife is in the LGPS and will have an annual DB pension, a statutory tax free lump sum based on pre-2008 service and an additional lump sum via AVC contributions that can be taken tax free within the limits or usef o buy additonal annual pension. She will not be able to commute 25% of her annual pension for even more tax free lump sum,