What is your trigger point to start spending from cash buffer?? + QE, Does it change the game?

Mothman

I do a pension drawdown at the start of each tax year to my personal allowance. My growth target is 2.7%+RPI and if I haven't acheived that (like this year) then I will then immediately re-invest the money in the S&S ISA and will use my cash buffer for expenditure. Can probably last 4yrs doing this after which time I will be forced to start selling investments. Fingers crossed we are not into a lost decade of real returns.

k_man

Obviously the point of the cash buffer is to give you the flexibility.

To then be able to make the wrong choice 😉

With current drops, continuing to DD isn't going to make a massive difference.

rjmachin

Mothman said:

I do a pension drawdown at the start of each tax year to my personal allowance. My growth target is 2.7%+RPI and if I haven't acheived that (like this year) then I will then immediately re-invest the money in the S&S ISA and will use my cash buffer for expenditure. Can probably last 4yrs doing this after which time I will be forced to start selling investments. Fingers crossed we are not into a lost decade of real returns.

When doing a pension drawdown at the start of the tax year, do you get charged a large amount of tax and then have to claim it back?

For example, if taking the personal allowance (with no other income), the MSE Income Tax Calculator shows that tax would be £4,403, where as £1048 per month would have no tax

Sea_Shell

k_man said:

Obviously the point of the cash buffer is to give you the flexibility.

To then be able to make the wrong choice 😉

With current drops, continuing to DD isn't going to make a massive difference.

Ah yes...The flexibility to make a complete Horlicks of it all.   

You've hit the nail on the head. 😉


Sadly, but obviously, the best course of action (or inaction) will only ever be known with hindsight. 😇

Audaxer

Sea_Shell said:

Audaxer said:

Sea_Shell said:

Notepad_Phil said:

Sea_Shell said:

Notepad_Phil said:

Sea_Shell said:

...
However, with the rises in interest rates of late, do we put this is a 1 year fixed to guarantee ~2.5%, or put in our ISA in a fund with a similar risk profile from whence it came and hope it makes at least that back over the same period.
...

Well personally I'm moving any cash that comes in during a month into funds as I've got more than enough cash for the next umpteen years, which I think you may have too, so that would be my personal opinion on what's best to do - though if there was a specific need for the cash in a year's time then that might persuade me otherwise.

Is that "new" cash?  Wages?   Or drawdown?

Our "new" cash is literally a few £s of interest here and there.

It predominantly comes from a couple of small DB pensions and the drawdown of the natural yield from my DC pensions, so we're talking about a four figure sum a bit bigger than your's. Personally I'm putting them into VLS60 and HSBC Global Strategy Balanced as I consider them my low risk cash alternative to the other 100% equity funds that I hold.

That HSBC fund looks similar to our 7IM AAP balanced C, with slightly better performance, which would probably be the fund we'd add to.

It would be brave (or stupid?) to put more in our Rathbones Global Opp fund!! 😉.   But then it could be the shrewdest move ever!!! 

As you already have a substantial investment in Rathbone Global Opportunities, and if you still think it is worth holding, I don't think it is stupid to invest another £1,100 in that fund when prices are low. If you were suggesting putting a significant amount of your cash reserves into it, to hopefully benefit from the recovery, that might be considered stupid or risky if going above your risk level.

I'm thinking of reinvesting some accumulated dividend cash into a 100% equity fund or IT rather than one of my multi asset funds.

I see what you mean.      We have 3 years of cash (or 4 years, depending on how tight we wanted to be!)

And yes, if we were happy to buy more 100% equities when they were at 192p & 174p, we should be happy to buy at a "discount" of only 143p.   They topped out at 203p in November.   30% drop. 

But then isn't the idea to put ourselves the the "same" position we'd have been in if we HADN'T begun drawdown, ie keeping the money in a fund similar to the pension.  (its an Aviva fund, so can't buy the exact one through Fidelity)

If it wasn't for using the PA this tax year, we'd have simply suspended DD.

Although, I suppose there is nothing to stop us doing that, and then just upping the remaining monthly payment so we still pull the total out by year end?    -  I've only just thought of that!!!   - If the market has dropped further by then, we haven't actually lost anything, have we?

I think suspending drawdown is a good option if it is not needed for spending, but I understand you want to take it out to use up your personal tax allowance and reinvest it. So suspending and upping the remaining monthly drawdown if markets pick up seems a good option.

I agree the best idea normally if drawing down and not spending would be to reinvest out of the pension into the same type of fund. However as you have the option of buying more Rathbones cheaply, and as I assume your overall equity percentage is down on your original weighting I don't really see much risk in putting the £1,100 in a 100% equity fund if/when you do drawdown. It is a relatively small percentage of your total so I think you will be okay wherever you decide to invest it.

Mothman

rjmachin said:

Mothman said:

I do a pension drawdown at the start of each tax year to my personal allowance. My growth target is 2.7%+RPI and if I haven't acheived that (like this year) then I will then immediately re-invest the money in the S&S ISA and will use my cash buffer for expenditure. Can probably last 4yrs doing this after which time I will be forced to start selling investments. Fingers crossed we are not into a lost decade of real returns.

When doing a pension drawdown at the start of the tax year, do you get charged a large amount of tax and then have to claim it back?

For example, if taking the personal allowance (with no other income), the MSE Income Tax Calculator shows that tax would be £4,403, where as £1048 per month would have no tax

Yes you do get a big tax hit, but I do a P55 tax reclaim straight away. This year I submitted the form online on 24th April and the refund was in my account on 9th June, so not really an issue.

Sea_Shell

We had less luck.  Last tax year, in taking a taxable lump sum but within PA, had tax deducted which took just under 7 months to get back ☹️

Will avoid doing that again if we can.

Mothman

Yes I think you were unlucky as my previous reclaims have taken around 6 weeks, though I must admit I didn't do a drawdown last year as I used my PA for something else.

Prism

Sea_Shell said:

There's always the "do nothing" plan!!

But then what's the point of a cash buffer??   If not now, when? 

I think this highlights part of the problem with having a cash buffer. There is very little guidance on when to use it beyond 'when markets are down'

Now might be a great time to use it as the markets have dropped and it will help until they recover in a couple of years.
Now might be a poor time to use it as the markets are going to get much worse over the coming years, and it would be better to wait until they are much lower.

Its a pure call on what to do. Personally I would rather have fewer decisions like that during retirement. I plan on holding some cash but only as a diversifier to rebalance across, not as a separate pot.

SouthCoastBoy

If I was now in retirement I would be using my cash buffer, as currently inflation is eroding its real value and markets are down. Having said that I currently hold a 40% buffer so quite a sizeable chunk. If my cash buffer is smaller I may have a different strategy. Each to his own, its not one size fits all.