Vanguard SIPP - Multiple Target Retirement funds

potatobrains

Is it a decent idea to have say a 2050 target retirement fund & a 2060 fund & then when the time comes to take money out I would take money out of the 2050 one first & then the 2060 later? My thinking is that this would let the latter fund grow for a bit longer as it won't have reduced it's equities portion as early.

Good idea?

[Deleted User]

They are designed to be a complete solution.  Nobody takes all money in an instant; your overall proportion of equities is meant to go down over time.

If you need more control then just buy equities and FI separately and vary allocation as you get older.

dunstonh

Is it a decent idea to have say a 2050 target retirement fund & a 2060 fund & then when the time comes to take money out I would take money out of the 2050 one first & then the 2060 later?

Are you planning to draw chunk a at 2050 and chunk b at 2060 leaving nothing else?

The TR funds are not really an ideal solution but could suit some.   You may not need a TR fund for the bulk of the money if you plan to leave it later.  

potatobrains

I wasn't thinking of chunks at all, I don't really know anything about the drawdown side of pensions yet. I'm nowhere near retiring, I'm 40 years old. I was just thinking about having the two pots with the second pot having a bit longer timescale to grow assuming I live 10years after retiring. The equity/bond allocations for the 2nd fund would taper down later. I don't think it would cost any more than having only the one TR fund.

[Deleted User]

potatobrains said:

I wasn't thinking of chunks at all, I don't really know anything about the drawdown side of pensions yet. I'm nowhere near retiring, I'm 40 years old. I was just thinking about having the two pots with the second pot having a bit longer timescale to grow assuming I live 10years after retiring. The equity/bond allocations for the 2nd fund would taper down later. I don't think it would cost any more than having only the one TR fund.

If I were you, I would put everything into a diversified equity fund and ignore bonds altogether. Once you get to within 5-10 years of retirement, revisit asset allocation but for now focus on adding as much money as you can. 

MX5huggy

You’re right the cost is the same. But it’s not a good plan because you’re hopefully looking to live 30 plus years after retirement so you’ll end up with lots of pots in TR causing confusion.

TR worked when you know on a certain date you need the money in one go typically because you were buying an annuity. 

As you retire you don’t need to be Uber defensive because most of your money you won’t be spending  for hopefully 10 or 20 years. 

You don’t want to pay the premium for using TR now because for the next 10 to 20 years it will just sit at 80/20 so might as well use life Strategy now (other multi asset funds are available). 

QrizB

potatobrains said:

I wasn't thinking of chunks at all, I don't really know anything about the drawdown side of pensions yet. I'm nowhere near retiring, I'm 40 years old. I was just thinking about having the two pots with the second pot having a bit longer timescale to grow assuming I live 10years after retiring. The equity/bond allocations for the 2nd fund would taper down later. I don't think it would cost any more than having only the one TR fund.

I would gently suggest that 40 is not "nowhere near retiring". Depending on your personal circumstances and how you play things you could be half-way through your working life, or more. And even if you don't retire until your State Pension Age (68, I think?), you'll have more like 20 years to live not 10.

Edit to add: I'm 51 and wish I'd paid more attention to pension planning when I was in my 30s!

potatobrains

Thanks for all the replies. I shall have a ponder and possibly go full equity instead (I've got equity funds in my S&S ISA with them already). The TR fund fee (0.24%) is much the same as their LS &  FTSE Global All-Cap funds (0.22% & 0.23% respectively), although I'll probably consider using the latter given the above suggestions.

And, yes, maybe I'm not nowhere near retiring, but it feels like it!

MX5huggy

If you instead of FTSE All World hold FTSE developed world which is 0.12 and a small percentage in FTSE Emerging Markets at 0.22% to have similar coverage but less fee. 

potatobrains

I have wondered about that sort of thing, I'll have a look. 11% of emerging looks like what the All Cap contains. But my first thought is that your plan misses the small caps from the developed world.

zagfles

Why do people assume the TR funds target buying an annuity or drawing a chunk at a certain date? They don't, as it clearly states here, they are designed to keep you invested during retirement:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/why-your-pension-likes-a-target-retirement-fund