Use Savings or draw on falling SIPP?

rosierunner

Hi all,  I am really facing a dilemma here.  I am due to fully retire (after going part time for a while) in September (aged 59) and was hoping to use my SIPP to bridge the gap until my state pension.  Currently have a defined benefit pension in drawdown worth £22k  per year after tax so was relying on further £9.5k per year after tax to 'top me up' to my ideal income level.  Currently have c50k in ISA/cash savings but was going to be using c£10k of that for home improvements.  

Question is, SIPP not doing too well given current state of affairs (fallen about 9%) since last year.  In a quandary as to whether to leave the SIPP intact for a further year and see how things go and draw on my savings in the meantime.   Don't know which way to jump, feels like a bit of a gamble either way.

What would others do?

draiggoch

I would say use the cash savings for a while as their buying value will fall with inflation this year. Since you pay tax already then there is no issue with losing the personal tax allowance by not using the SIPP.
Leave the SIPP to try and regain some losses over the next few years.

dunstonh

Question is, SIPP not doing too well given current state of affairs (fallen about 9%) since last year.

Your investments are going to fall at various points throughout your retirement.   So, your planning should include an element of cash held in the pension to cover short-term withdrawals. 

In an ideal world, you would have prepared for this about 2-3 years ago. However, with investment values back to where the were about a year ago, you are probably still better off than had you held some cash.

Don't know which way to jump, feels like a bit of a gamble either way.

Neither way is a gamble.    Both ways are a judgement call that could go either way but only time will tell.

You have mentioned your overall plan to fund the gap to state pension but what is your actual strategy to achieve that?  are you using a cash float in the pension or outside of the pension?  Are you using yield or total return?     Or is there no strategy yet and you need to decide on one?

jim8888

I'm using cash savings at the moment, as I had decided to always try and hold 3 years of expenses in cash. The markets have dipped and I'd admit it's unnerving to see the SIPP pot diminish while the cash pot is going down as well! I'm only a year into retirement at 58 and the psychological impact of going from almost thirty years of monthly saving and investing to actually having to spend those funds is something I do struggle with. 

Albermarle

rosierunner said:

Hi all,  I am really facing a dilemma here.  I am due to fully retire (after going part time for a while) in September (aged 59) and was hoping to use my SIPP to bridge the gap until my state pension.  Currently have a defined benefit pension in drawdown worth £22k  per year after tax so was relying on further £9.5k per year after tax to 'top me up' to my ideal income level.  Currently have c50k in ISA/cash savings but was going to be using c£10k of that for home improvements.  

Question is, SIPP not doing too well given current state of affairs (fallen about 9%) since last year.  In a quandary as to whether to leave the SIPP intact for a further year and see how things go and draw on my savings in the meantime.   Don't know which way to jump, feels like a bit of a gamble either way.

What would others do?

Nobody knows the correct answer, as to do so would mean being able to see into the future. Clearly 2022 is not a great year for investments and savings in general, so it comes down to taking the least worst option, which will vary from person to person.

However worth reiterating that 9% loss is about average and is not that high by historical standards. Probably over the last few years this SIPP will have grown healthily. It just feels worse because inflation has shot up at the same time.

zagfles

I think people need to look at longer term performance, if instead of worring about the SIPP being down over the last 6/12 months, you zoom out and look back 5 or 10 years, the global equities market actually looks high, and the dip over the last 6 months or so is hardly noticeable.

Having said that, anyone who can successfully use the current state of the market as a predictor of short term market direction can use those skills to become a billionaire. So, don't listen to anyone who tells you "now is a good time to buy/sell" unless they show you a picture of their luxury yacht taken from their private island

In summary, it's all guesswork, you're probably best sticking to a strategy of either maintaining a balanced portfolio or using a dynamic strategy like prime harversting (discussed here a few times), rather than trying to second guess the market

squirrelpie

You haven't told us how much you have in your SIPP, so we don't know whether you're thinking about exhausting it over the next seven years, or making withdrawals at a 'safe' rate of say 3.5% or something else. Nor do we know whether your desired £9.5k is essential or just a nice to have and what your plans are beyond that etc.

So it's quite difficult to make any suggestions.

Alice_Holt

rosierunner said:

Currently have a defined benefit pension in drawdown worth £22k  per year after tax so was relying on further £9.5k per year after tax to 'top me up' to my ideal income level.  
What would others do?

          I'd review that "ideal" income level. Budget to keep spending within that £22k DB pension, rather than draw on savings.  After home improvements you have £40k in savings. Is that sufficient to cover you through a c.25 yr retirement?

        
      Since you haven't told us your SIPP valuation, it is difficult to comment on that option. 

      Have you already maximised your SP - or will you need to make voluntary contributions?

rosierunner

draiggoch said:

I would say use the cash savings for a while as their buying value will fall with inflation this year. Since you pay tax already then there is no issue with losing the personal tax allowance by not using the SIPP.
Leave the SIPP to try and regain some losses over the next few years.

Thank you, it makes sense to do that and that is what I thought on balance.  It just feels difficult psychologically to start eating into my savings when I was all set up for using the SIPP drawdown until state pension and keeping my savings intact.  But then then 'what if' creeps in and I think 'what if' the SIPP doesn't regain over the next three years.  Difficult decision but mathematically your advice makes total sense

Audaxer

rosierunner said:

Hi all,  I am really facing a dilemma here.  I am due to fully retire (after going part time for a while) in September (aged 59) and was hoping to use my SIPP to bridge the gap until my state pension.  Currently have a defined benefit pension in drawdown worth £22k  per year after tax so was relying on further £9.5k per year after tax to 'top me up' to my ideal income level.  Currently have c50k in ISA/cash savings but was going to be using c£10k of that for home improvements.  

Question is, SIPP not doing too well given current state of affairs (fallen about 9%) since last year.  In a quandary as to whether to leave the SIPP intact for a further year and see how things go and draw on my savings in the meantime.   Don't know which way to jump, feels like a bit of a gamble either way.

What would others do?

As you will have £40k in cash savings after the home improvements, that amounts to a four year cash buffer. That is a good position to be in so I would be using the cash when markets are down. If you qualify for a full state pension in 8 years time that would currently amount to just over £7,700 per year after tax, so you won't need to draw much from your SIPP after that to get your desired level of income. I don't know what percentage of your SIPP the £9.5k withdrawals represent, but I assume it is not much more than 4%? If that is the case, then you should have more than enough left in your SIPP at State Pension age to increase your spending levels if you needed to at that time. 

In summary I think you would be okay either way, but if it was me I would prefer to draw from my cash savings when markets are down.

rosierunner

dunstonh said:

Question is, SIPP not doing too well given current state of affairs (fallen about 9%) since last year.

Your investments are going to fall at various points throughout your retirement.   So, your planning should include an element of cash held in the pension to cover short-term withdrawals. 

In an ideal world, you would have prepared for this about 2-3 years ago. However, with investment values back to where the were about a year ago, you are probably still better off than had you held some cash.

Don't know which way to jump, feels like a bit of a gamble either way.

Neither way is a gamble.    Both ways are a judgement call that could go either way but only time will tell.

You have mentioned your overall plan to fund the gap to state pension but what is your actual strategy to achieve that?  are you using a cash float in the pension or outside of the pension?  Are you using yield or total return?     Or is there no strategy yet and you need to decide on one?

Thanks,  I appreciate that investments rise and fall over a period of time but they do go up in the long term.  problem is that the timing is bad for me for such a fall just before I was hoping to draw down the SIPP to take me to state pension age.  I didn't really have a strategy other than to draw it all down over the next 7 years, it isn't a 'big' pot in the scheme of things