Bridging for 14 years

numpty_dumpty

Currently 53 and considering a significant reduction in working hours from now till 60 for both myself and wife. We have a couple of DB pensions kick in at 60 and another at 67, which with 2xSP means after 67 our requirements are covered by DB and SP.

With P/T hours from now to 60 and the DB's which kick in at 60, we need an extra £27.5k per year from now to 67. We have a pot of £700k (DC pension/S&S ISA/Cash) just now to cover this.

My calcs so far, using my own spreadsheet and using Firecalc/Ficalc, all say it will work but I'm still a bit nervous and in 'one more year' mode, I was just looking for other peoples views. So will £700k last 14 years at a drawdown of £27.5k and how risky is it?

Linton

£700K/14=£50K/year.  So I see very little risk.  Assuming you wanted  to increase the drawdown in line with inflation just keeping the money in cash with zero interest would last out unless inflation averaged 8.5% per year or more.

So in my view if you invest the money fairly cautiously with perhaps £100K in cash you should be fine with probably a large pot left when you reach 67.  WIth a 4% return on investments and 8.5% average inflation (so return at half inflation)  I work out that the pot would be about £355K in current £ terms at 67.

Audaxer

numpty_dumpty said:

So will £700k last 14 years at a drawdown of £27.5k and how risky is it?

Presumably you mean you £27.5k plus inflation per year. Still comfortable with a pot of £700k if you are prepared to run down your pot fully in the next 14 years. Keeping it all in cash would probably cover you, even allowing for high inflation, but maybe that would be too cautious which I can understand. Still being cautious you could have say £350k in cash to draw from for the first 10 years, with the other £350k invested and probably not needing to be touched for the first 10 years. That should still leave you with a good bit invested at 67, for any extra spending you may need or want after SP age.  

In years gone by the suggestion might be 50% equities and 50% bonds for the whole £700k, but I'd be reluctant to invest a significant amount in bonds at present. That is why if it was me I would keep a good number of years in cash instead of bonds.

Marcon

numpty_dumpty said:

Currently 53 and considering a significant reduction in working hours from now till 60 for both myself and wife. We have a couple of DB pensions kick in at 60 and another at 67, which with 2xSP means after 67 our requirements are covered by DB and SP.

With P/T hours from now to 60 and the DB's which kick in at 60, we need an extra £27.5k per year from now to 67. We have a pot of £700k (DC pension/S&S ISA/Cash) just now to cover this.

My calcs so far, using my own spreadsheet and using Firecalc/Ficalc, all say it will work but I'm still a bit nervous and in 'one more year' mode, I was just looking for other peoples views. So will £700k last 14 years at a drawdown of £27.5k and how risky is it?

However comfortable the position might look now, nobody can see the future. Huge cash drains can crop up from unexpected sources - having to pay privately for medical treatment either because the NHS can't provide it, or can't do so in a reasonable timeframe; children having crises, wanting to get the property ladder...

If you're in 'one more year' mode, then probably wise to listen to yourself rather than reassurances from strangers who have next to no information, and certainly know nothing at all about your attitude to risk, your family circumstances how well you'd sleep at night if...

How about a halfway house - reduce your hours somewhat now, and possibly go for a more dramatic reduction in a year or two, assuming that's an option?

NannaH

The biggest issue with assuming 2 full DB and 2 SP,  is if one of you dies.   I’ve lost count of the number of couples we know where a spouse has died at or before SPA.
Depending on the DB amounts,  you or your wife could see yourself £15k+ down from the income you had planned for.
When we hit 50, we took out extra life insurance (written in trust) to the age of 70 and 75,  so if one of us dies there is £100k at 70 and £60k at 75 to help with the loss of the other’s income.   It’s especially important for me as I would lose £3k a year from his DB plus his SP. I would have £13k guaranteed plus whatever was in our DC pensions at the time and I would want at least £7k a year. 
  In hindsight I wish we’d taken out higher cover but it would be cost prohibitive now.
 He also has another £100k of cover but that runs out at 60. 

numpty_dumpty

Thanks all, the intent would be to keep up with inflation. Current investment split is roughly 65% stocks/25% bonds/10% cash, I had intended de-risking a little bit more before the current dip but am holding for now and will de-risk a bit when (if) it recovers to where it was. I sway between feeling its too cautious and too risky so probably in the right ball park.

I may end up going with Marcon's approach though a drop more hours, I do four day weeks just now, wife does three day weeks and employer is amenable to dropping further so a gradual phase out may work well.

Albermarle

numpty_dumpty said:

Thanks all, the intent would be to keep up with inflation. Current investment split is roughly 65% stocks/25% bonds/10% cash, I had intended de-risking a little bit more before the current dip but am holding for now and will de-risk a bit when (if) it recovers to where it was. I sway between feeling its too cautious and too risky so probably in the right ball park.

I may end up going with Marcon's approach though a drop more hours, I do four day weeks just now, wife does three day weeks and employer is amenable to dropping further so a gradual phase out may work well.

Your current investment split would be reasonably typical for someone your age, with two caveats
As already mentioned bonds are out of favour ( or have been).
You are looking to start withdrawing from it quite soon.
Put the two together and as already mentioned some more cash and less bonds might be an idea.
Also do not forget, it can be an idea to diversify around the edges, with things like property, gold, infrastructure funds etc - just a thought.

Nor sure of your family situation/plans for inheritance/potential to pay inheritance tax. 
Pension pots can be useful in certain situations, in which case might be best not to run it down to far.

If you're in 'one more year' mode, then probably wise to listen to yourself rather than reassurances from strangers who have next to no information, and certainly know nothing at all about your attitude to risk, your family circumstances how well you'd sleep at night if...

I agree with the above. IF OMY lets you sleep easier at night then seems like a good idea, especially as you are only 53. 

DT2001

Statistically your plan will work out well however to cover the small % chance of it failing do you have the option of working p/t longer? You get to reduce hours soon but with the peace of mind that you can cover a poor SOR.

Audaxer

numpty_dumpty said:

Thanks all, the intent would be to keep up with inflation. Current investment split is roughly 65% stocks/25% bonds/10% cash, I had intended de-risking a little bit more before the current dip but am holding for now and will de-risk a bit when (if) it recovers to where it was. I sway between feeling its too cautious and too risky so probably in the right ball park.

I may end up going with Marcon's approach though a drop more hours, I do four day weeks just now, wife does three day weeks and employer is amenable to dropping further so a gradual phase out may work well.

Fair enough, with that portfolio you could draw £27.7k per year (just under 4%) rising with inflation, and possibly still have most of the £700k left in 14 years time. I was suggesting a much more cautious approach with a large cash holding as your first post and title indicated you just wanted the £700k to last the 14 years, rather than try to maintain your capital. However I do understand why you want to keep most of it invested, rather than keep so much in cash.

ukdw

Ignoring your DB pensions between 60 and 67 and assuming investments keep somewhat up with inflation, or you don't fully increase drawdowns in line with inflation then in simple terms 14x27.5k = £385k.    

This leaves another £315k contingency - or you could perhaps draw another £12.5k (4%) from that more or less indefinitely.  

Therefore if I was you I would retire now and draw up to £40k a year from my investments, reducing this down to £12.5k once I hit 67.

OldScientist

According to https://www.2020financial.co.uk/pension-drawdown-calculator/ the worst UK historical case would leave you with just over £250k (this is in nominal £ with this calculator) for an inflation-adjusted withdrawal of just under 4% using your portfolio of 65% stocks, 25% bonds, and 10% cash.

A rather messier alternative would be to build a cash/bond ladder (assuming you are in a position to buy individual bonds). Assuming a 2% yield (and cash accounts give a bit more than this) and an annual 6% income escalation would require about £500k to be placed in the ladder. Using inflation-linked gilts it would cost about £450k (assuming -2% yield).