ii SIPP

Notepad_Phil

Justso65 said:

QrizB said:

Justso65 said:

This is why I love this site.  So many great respondents and quick too.  Thank you.

So are you saying crystallise £40k per year and take £10k from that each time? Then the remaining uncrystallised continues to grow?  Would I then take my £12700 personal allowance from the crystallised funds totalling around £22.7k per year tax free?  Then top up from my non-pension pot with £14k making £36.7k tax free per year.

If this is you’re idea it wasn’t something I considered possible but sounds a good option if it is. 

My main concern in any option is some kind of market downturn affecting my plans for the 10 years until DB and state pension start.

Thank you again for your input. 

Yes, that's pretty much it. In principle your SIPP investments can be the same ones you would have chosen for a S&S ISA, leaving you free to use your existing £140k if you want some of your assets in cash or PBs.

A downturn would affest a S&S ISA in the same way as a SIPP, so you won't avoid that risk even with your original plan.

Could I ask what would your strategy would be in retirement to ensure your plans aren’t affected by an big downturn in UK or world markets?  I can see that when I’m younger I can accept a big downturn and hope investments recover, as they have, over a longer period.  But when you’re actually drawing on investments in retirement how do you mitigate a big downturn that may cause you to have to rethink what you can take from the funds?

I had considered crystallising 5 years of required funds at day one and then add another year each year to keep a 5 year cash buffer.  So in any downturn I could pause the withdraws and still have 5 years to work with in the hope the investments recover in that period.  Maybe 5 years is too much of a buffer or maybe the idea is just silly anyway.  I’m interested in people’s strategies for downturns especially in these covid times.

If your plan can afford it then a multi-year cash buffer currently makes perfect sense to me when your retirement is based predominantly on DC pensions and investments .

I retired in my mid-fifties and hence had a long time before I could look forward to the helping safety of state pensions so we kept a very large cash buffer just in case there was a large and prolonged stock market fall. We're now coming up to half way to receiving state pensions and haven't needed to touch the buffer once, but I'm not regretting that as I've been able to sleep peacefully every night without worrying about what the financial markets were doing. Though I am starting to put some of our cash into 60/40 type funds as we've now much more cash then I would have had if I had retired now.

The only time I currently wouldn't agree with keeping a large cash buffer is when you have to invest the rest of your money beyond your risk tolerance to meet the amount of income that you need, or where you would not take the time to get your cash into the best paying FSCS accounts and simply left it in 0.01% type accounts.

Inflation is of course the enemy of large amounts of cash so you would need to keep a close eye out for it and have some kind of plan of what to do if it ever returned in anger - hence my use of 'currently' in my paragraphs above.

Justso65

Based on the comments here I’m now thinking of the following plan.

From my £450k combined DC pots move £200k to crystallised funds and take £50k TFLS.
Since I only plan to draw the personal tax allowance each year that comes to around £64k over 5 years.  So I can leave £250k uncrystallised and £86k crystallised but still invested.  That gives me a 5 year buffer while still being able to leave a combined £336k still invested and hopefully appreciating above inflation.  I may then maintain that 5 year buffer each year or maybe run it down to 3 years, adding to it each year, and taking 25% TFLS each time.  That gives me a balance between having guaranteed funds for a few years but still maintaining more than I initially planned in investments.  Assuming the invested funds appreciate over the 10 years to 67 I will have a significant fund still available to top up my DB and state pensions.  I have no doubt I could take a bit more risk and get more from investments but this plan sits well with my risk averse attitude.  

Albermarle

Assuming the invested funds appreciate over the 10 years to 67 

Different opinions abound as usual, but if there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years . Due to the last few years being so positive in equities and bonds .

Alexland

Albermarle said:
there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years

I am starting to wonder if a balanced portfolio would even do that well...

ex-pat_scot

Alexland said:

Albermarle said:
there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years

I am starting to wonder if a balanced portfolio would even do that well...

Nowhere else left to invest! 

Keep in there. Hold on. Watch the waves crash. See the calm eventually on the other side.

There's no other way, without erosion of capital against inflation.
There are no safe assets.

ukdw

Whilst keeping drawdowns below the personal allowance for a few years is a nice thing to be able to do, and may have some IHT benefits,  any future drawdowns out of the remaining pension pot will still in almost all cases be subject to at least 20% tax irrespective of whether they are done before or after age 67.  

I personally considered keeping my withdrawals below £12.5k - but decided that I didn't want to risk having to pay 40% (or more) tax in the future if I ever needed to access a lump sum of more than about £30k of the pot pre SP, and less post SP.

Also I am not convinced that the 20% rate will not increase in the future.

Albermarle

Alexland said:

Albermarle said:
there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years

I am starting to wonder if a balanced portfolio would even do that well...

I was relying on your previous comments that one or two % above inflation was the most likely outcome 

Anyway as ex Pat Scot says , there are no obvious alternatives , unless you fancy being a landlord or having a gold vault !

Notepad_Phil

ukdw said:

Whilst keeping drawdowns below the personal allowance for a few years is a nice thing to be able to do, and may have some IHT benefits,  any future drawdowns out of the remaining pension pot will still in almost all cases be subject to at least 20% tax irrespective of whether they are done before or after age 67.  

I personally considered keeping my withdrawals below £12.5k - but decided that I didn't want to risk having to pay 40% (or more) tax in the future if I ever needed to access a lump sum of more than about £30k of the pot pre SP, and less post SP.

Also I am not convinced that the 20% rate will not increase in the future.

And to add to this there's also the possibility that the LTA remains fixed for longer than is currently promised, which could be an even bigger issue if inflation does trend higher over the next few years.

Personally I'm drawing down at a much higher rate than I originally planned and putting it away into similar investments, preferably in S&S ISAs - I'm intending to keep doing this at least until the LTA returns to inflationary indexing.

granta

Alexland said:

Albermarle said:
there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years

I am starting to wonder if a balanced portfolio would even do that well...

What asset allocation would a balanced portfolio be (roughly)?

Albermarle

granta said:

Alexland said:

Albermarle said:
there is a consensus it is that a medium risk portfolio will probably only just about beat inflation over the coming years

I am starting to wonder if a balanced portfolio would even do that well...

What asset allocation would a balanced portfolio be (roughly)?

Traditionally it is 60% equity and 40% bonds .

Although to widen the scope you could say 50% to 60% equity and 40 to 50% of non equity , which could include bonds or cash or gold or property for example.