Cash or bonds in retirement?

DT2001

michaels said:

Suppose you have 50:50 Cash and Equities

Suppose the equities half in value, your portfolio is now 67% cash, 33% equities.

If you don't re-balance the you are saying, before when equities were 'high' I wanted to weight them more highly in my portfolio than I do now when they are 'low' - effectively a buy high / sell low strategy which will not be effective long term for sure.

The scenario I was thinking about was a portfolio 600/200/200 at start of year. You draw 5% which is 25% of your cash and the market drops 20% for equities and 10% for bonds. So ending at 480/180/150. You could then rebalance by selling bonds which have dropped so new figures are 480/165/165. Year 2 sees another drop in markets to 400/150 and cash 125 (5% of reduced total).
Rebalance to 400/140/135. Year 3 sees a recovery of 20% for equities to 480/150/100. At this point you would ‘normally’ sell equities to top up cash BUT then that would be selling low (compared to where you started although maybe higher than actually purchased for).

In your scenario you haven’t drawn down but ignoring that whilst I accept the logic of taking the opportunity to buy ‘low’ you are using cash which might allow you to ride out the storm or a greater part of it.

My question is ‘how should the cash pot be used most effectively?

NannaH

cfw1994 said:

Just one (maybe irrelevant) point about buckets….

My main DC pot is with Aviva, & I have a number of funds inside it, ranging from relatively safe (eg, “pre-retirement fixed interest”) to the recklessly adventurous (eg, “BG American” 🤣).
Right now the BG American is painfully down.
Aviva don’t have an easy way I am aware of in my particular scheme for me to say “only drawdown from the safe fund for now please, I don’t want to touch BG American” 👀

So when you think of cash ‘buckets’, you might want that in either another pension, or indeed outside pensions in premium bonds, savings accounts, ISAs: somewhere you can easily get yours hands on it should you decide to pause drawing down on the DC pot (as I have done for now).

As I say, just a thought…

Surely you must be able to sell from individual funds then draw from the cash ‘bucket’? 
One of ours is with Aegon ,  tis a horrible clunky platform but when you can eventually find the right section,  you can sell funds/apportion cash etc. 
If you can’t do this with Aviva, it must be from the dark ages! 

DT2001

SouthCoastBoy said:

AlanP_2 said:

I can honestly say I do not envy those who have larger investment pots than us but are totally dependent on them.

Totally agree, I have a relatively large pot but no DB and am envious of people with DB pensions. If I had taken notice of pensions at an earlier date I would have moved to the public sector to ensure I was one of the DB brigade, unfortunately I think that boat has sailed for me.

Presumably the pay was better in the private sector so your pot is bigger?
With the extra you could create an income portfolio (IT’s plus cautious bonds) to provide at least some ‘quasi guaranteed’ income stream.

[Deleted User]

DT2001 said:

SouthCoastBoy said:

AlanP_2 said:

I can honestly say I do not envy those who have larger investment pots than us but are totally dependent on them.

Totally agree, I have a relatively large pot but no DB and am envious of people with DB pensions. If I had taken notice of pensions at an earlier date I would have moved to the public sector to ensure I was one of the DB brigade, unfortunately I think that boat has sailed for me.

Presumably the pay was better in the private sector so your pot is bigger?
With the extra you could create an income portfolio (IT’s plus cautious bonds) to provide at least some ‘quasi guaranteed’ income stream.

There is a documentary called “Yes, Minister”.  It spells out why that is not the case. 

AlanP_2

Deleted_User said:

DT2001 said:

SouthCoastBoy said:

AlanP_2 said:

I can honestly say I do not envy those who have larger investment pots than us but are totally dependent on them.

Totally agree, I have a relatively large pot but no DB and am envious of people with DB pensions. If I had taken notice of pensions at an earlier date I would have moved to the public sector to ensure I was one of the DB brigade, unfortunately I think that boat has sailed for me.

Presumably the pay was better in the private sector so your pot is bigger?
With the extra you could create an income portfolio (IT’s plus cautious bonds) to provide at least some ‘quasi guaranteed’ income stream.

There is a documentary called “Yes, Minister”.  It spells out why that is not the case. 

Yes Minster was an 80s comedy programme in the UK, never heard of a documentary with the same title.

Any UK based evidence for your assertion?

Best I could find was https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/publicandprivatesectorearnings/2019

which seems to conclude that basic pay is higher in public sector for low-skill jobs and lower for high-skill and managerial jobs.,

Certainly for me as an IT Project Manager the public sector pay I was on until retirement last year was much lower than in my previous private sector roles.

The DB pension was the compensatory factor in my mind.

[Deleted User]

Yes, Minister was a documentary which pretended to be a comedy program.

It spelt out why you can’t trust any stats on civil service salaries. 

AlanP_2

Deleted_User said:

Yes, Minister was a documentary which pretended to be a comedy program.

It spelt out why you can’t trust any stats on civil service salaries. 

Ah, I see.

In the same way Only Fools and Horses spelt out why all South Londoners are slightly dishonest but carry it off with a cheeky grin and that the Royale Family spelt out that all Scousers are skiving layabouts.

so, no evidence for the comment then.

[Deleted User]

No, not like Only Fools and Horses at all.  Nor did the latter make any claims about all South Londoners.  

cfw1994

NannaH said:

cfw1994 said:

Just one (maybe irrelevant) point about buckets….

My main DC pot is with Aviva, & I have a number of funds inside it, ranging from relatively safe (eg, “pre-retirement fixed interest”) to the recklessly adventurous (eg, “BG American” 🤣).
Right now the BG American is painfully down.
Aviva don’t have an easy way I am aware of in my particular scheme for me to say “only drawdown from the safe fund for now please, I don’t want to touch BG American” 👀

So when you think of cash ‘buckets’, you might want that in either another pension, or indeed outside pensions in premium bonds, savings accounts, ISAs: somewhere you can easily get yours hands on it should you decide to pause drawing down on the DC pot (as I have done for now).

As I say, just a thought…

Surely you must be able to sell from individual funds then draw from the cash ‘bucket’? 
One of ours is with Aegon ,  tis a horrible clunky platform but when you can eventually find the right section,  you can sell funds/apportion cash etc. 
If you can’t do this with Aviva, it must be from the dark ages! 

It is possible that is true….I did say no “easy way I am aware of”.  

That said, our plan in the event of any early market dips was always to pause that and draw on the cash we have outside of the DC pot if needed, so we followed our plan.  

Have a plan & follow it: feels like a fair mantra for this stuff!

GazzaBloom

NannaH said:

cfw1994 said:

Just one (maybe irrelevant) point about buckets….

My main DC pot is with Aviva, & I have a number of funds inside it, ranging from relatively safe (eg, “pre-retirement fixed interest”) to the recklessly adventurous (eg, “BG American” 🤣).
Right now the BG American is painfully down.
Aviva don’t have an easy way I am aware of in my particular scheme for me to say “only drawdown from the safe fund for now please, I don’t want to touch BG American” 👀

So when you think of cash ‘buckets’, you might want that in either another pension, or indeed outside pensions in premium bonds, savings accounts, ISAs: somewhere you can easily get yours hands on it should you decide to pause drawing down on the DC pot (as I have done for now).

As I say, just a thought…

Surely you must be able to sell from individual funds then draw from the cash ‘bucket’? 
One of ours is with Aegon ,  tis a horrible clunky platform but when you can eventually find the right section,  you can sell funds/apportion cash etc. 
If you can’t do this with Aviva, it must be from the dark ages! 

That's been my understanding, sell funds to cash and drawdown from the cash. My employer has just switched our pensions to Aviva so I think I will need to check with them if drawdown can be targeted. The problem with setting up cash outside the company pension is losing the benefits of salary sacrifice.