Recession, Inflation, War, Energy Crisis, Rising Interest Rates - should I stop or reduce drawdown?

ader42

GazzaBloom said:

Your plan sounds very much like mine!

I can’t be that crazy then

One other thing I will be doing is paying off the mortgage at 55 - I know the interest saved will (hopefully) be less than what I could earn in growth but I want that security.

I’m in a decent position as when pension freedoms came in I looked at my pension plans and decided I could do better for less in a SIPP than what the fund managers were doing - how right I was. Made a few mistakes as I went but learnt to keep it simple in things I knew about and believed in. I don’t think there were too many tracker products about back then - that is what I will be primarily using for my son’s SIPP - after reading the Tony Robbins book “Money”. 

ader42

thriftytracey said:

I take a monthly drawdown (from tax free fund £350 and non tax free fund £750).  

I take it you didn’t take a 25% tax-free lump sum?
I’m puzzled by the £350 and £750 as it takes you over the £12,570 tax free personal allowance band.
It’s probably a type of pension I don’t know much about.

As mentioned above by michaels it’s a good idea to make sure you use your tax free personal allowance in full even if it’s simply to take funds from a pension into a 100% non-taxable wrapper such as an ISA.

AlanP_2

thriftytracey said:

AlanP_2 said:

Deleted_User said:

Asset allocation should be your first question, before getting into withdrawals and taxation.

And that includes all assets and incomes you and your husband have.  

Once you have clarity on that, the easiest and most “hands off” approach, involving the least human emotion is to keep asset allocation constant, say 60/40 between equity and bonds/DB.  If you do that, then you’d be automatically withdrawing from your fixed income whenever stocks underperform and from your equity, whenever stocks do well. No “thinking” involved, so no mistakes and regrets.

As noted above, you appear to have 100% in various forms of fixed income. Thats fine if you are ok with far lower expected growth and therefore withdrawal amount (but also less short term volatility). 

A separate issue is reduction in expenditure whenever your overall portfolio shrinks (variable  percentage withdrawal). That makes sense. Google for VPW and you’ll find a spreadsheet which would automate the decision making process for you.

In general, try to design a plan so you don’t have to think “how much to take from which pot” every time the market makes a move. 

Putting aside views on whether IFAs add value or not, this was put together by an IFA and so there would have been some underpinning for the asset allocation and allowance for risk appetite.

More like 72% fixed income and 28% in equities (RL Global Managed). A lot more cautious than I would, and have, opted for but that doesn't make it wrong for the OP. 

OP is the IFA who set this up still involved or are you know operating on a DIY basis?

What was the value of the pot in June? I have essentially the same range of RL funds as you but my equities are at about 53%. At the end of June it was down 4.7% YTD. By the end of July that had reduced to being 2.5% down and it is up again in August so far.

Alan,

I stopped checking it so often as it was getting obsessive!  However the nearest total fund value to June 2022 was £299,458 on 19 May.  I don't believe there is the facility online to check values/individual fund values at a point in time.

No, I did keep the IFA on for approximately 18 months but when it lost value at the start of the pandemic I decided to dispense with the service as it cost £1500 pa.  We weren't in the position to make new investments and no changes were ever recommended to the RL products (plus it is an off the shelf product and not managed by IFA).  So a slim booklet once a year and one visit stating what I could work out for myself did not seem worth it.

Today the total fund value is £297196 so it has increased slightly which is good.

I am thinking of just drawing down the £350 monthly tax free element from the tax free lump sum - or is it better not to touch this and just use savings/other income instead?

The China/Taiwan conflict is worrying.  

I wouldn't mind doing the £4000 odd pension contribution per year but would I get the tax relief on it as I don't pay tax?

So if you adjust the £314.5k it was valued at in November by what you have withdrawn since and then compare it to the current value I would be surprised if you have lost much more than 3% and we now seem to be on an upward path (that could change on Monday).

When you sorted things out with your IFA what sort of "drop" levels did you tell them you were comfortable with?

Have you looked at your overall situation, is your OHs pot in the same investments and therefore the same volatility? As I said I have a similar RL portfolio in one pot but I tend to look at where we are across investments / savings as that is how much "cake" we have in total. 

Personally I would be utilising my personal tax allowance at least, even if I then reinvested it inside an ISA as it is a Use It or Lose It allowance.

There sin't a China / Taiwan conflict at the moment - there are tensions and lots of rhetoric I agree, and who knows where it might end up.

A couple of years ago those fears were focused on North Korea kicking things off, a few years before that it was Iran etc. etc.

In a couple of years time it will be someone else, and being blunt, if China / Taiwan really kicks off and the US / Nato get dragged in then the value of your RL pot will probably not be at the top of your concerns list.

Makes sense to ditch the IFA for a managed portfolio like the RL one but if they were still there you could be asking them these questions. One of the biggest benefits of an IFA from what I have seen and heard from friends and family who use them is the reassurance they provide when things are bumpy.

Pension - As a non-earner you can contribute £2880 net / £3600 gross not £4k. Worth doing.

[Deleted User]

AlanP_2 said:

Deleted_User said:

Asset allocation should be your first question, before getting into withdrawals and taxation.

And that includes all assets and incomes you and your husband have.  

Once you have clarity on that, the easiest and most “hands off” approach, involving the least human emotion is to keep asset allocation constant, say 60/40 between equity and bonds/DB.  If you do that, then you’d be automatically withdrawing from your fixed income whenever stocks underperform and from your equity, whenever stocks do well. No “thinking” involved, so no mistakes and regrets.

As noted above, you appear to have 100% in various forms of fixed income. Thats fine if you are ok with far lower expected growth and therefore withdrawal amount (but also less short term volatility). 

A separate issue is reduction in expenditure whenever your overall portfolio shrinks (variable  percentage withdrawal). That makes sense. Google for VPW and you’ll find a spreadsheet which would automate the decision making process for you.

In general, try to design a plan so you don’t have to think “how much to take from which pot” every time the market makes a move. 

Putting aside views on whether IFAs add value or not, this was put together by an IFA and so there would have been some underpinning for the asset allocation and allowance for risk appetite.

More like 72% fixed income and 28% in equities (RL Global Managed). A lot more cautious than I would, and have, opted for but that doesn't make it wrong for the OP. 

OP is the IFA who set this up still involved or are you know operating on a DIY basis?

What was the value of the pot in June? I have essentially the same range of RL funds as you but my equities are at about 53%. At the end of June it was down 4.7% YTD. By the end of July that had reduced to being 2.5% down and it is up again in August so far.

Good point that the RL portfolio does have stocks (as well as more exotic asset classes) but its just one pot out of several that the OP’s family has. By the sound of it, the rest is in DB pension and cash (not to mention State Pension), so the overall portfolio is a bit less but rather close to 100% FI. 

Considering allocation based on a slice of the overall pie seems counterintuitive.  Seems strange that we are talking about the value of one fund changing by X and ignoring the overall portfolio when the question relates to a withdrawal strategy.

The other salient point is inflation.  Even if the withdrawals in GBP terms stayed constant, this would translate into a noticeable reduction in expenditure in real terms.

Albermarle

ader42 said:

thriftytracey said:

I take a monthly drawdown (from tax free fund £350 and non tax free fund £750).  

I take it you didn’t take a 25% tax-free lump sum?
I’m puzzled by the £350 and £750 as it takes you over the £12,570 tax free personal allowance band.
It’s probably a type of pension I don’t know much about.

As mentioned above by michaels it’s a good idea to make sure you use your tax free personal allowance in full even if it’s simply to take funds from a pension into a 100% non-taxable wrapper such as an ISA.

I think it is pretty clear that the OP has not taken the full 25% tax free up front and is taking it in small stages.

 from which I take a monthly drawdown (from tax free fund £350 and non tax free fund £750).  

So £750 X 12 = £9,000- well below the personal tax allowance

thriftytracey

Albermarle said:

ader42 said:

thriftytracey said:

I take a monthly drawdown (from tax free fund £350 and non tax free fund £750).  

I take it you didn’t take a 25% tax-free lump sum?
I’m puzzled by the £350 and £750 as it takes you over the £12,570 tax free personal allowance band.
It’s probably a type of pension I don’t know much about.

As mentioned above by michaels it’s a good idea to make sure you use your tax free personal allowance in full even if it’s simply to take funds from a pension into a 100% non-taxable wrapper such as an ISA.

I think it is pretty clear that the OP has not taken the full 25% tax free up front and is taking it in small stages.

 from which I take a monthly drawdown (from tax free fund £350 and non tax free fund £750).  

So £750 X 12 = £9,000- well below the personal tax allowance

Yes, that is correct.

thriftytracey

When you sorted things out with your IFA what sort of "drop" levels did you tell them you were comfortable with?

Have you looked at your overall situation, is your OHs pot in the same investments and therefore the same volatility? As I said I have a similar RL portfolio in one pot but I tend to look at where we are across investments / savings as that is how much "cake" we have in total. 

Personally I would be utilising my personal tax allowance at least, even if I then reinvested it inside an ISA as it is a Use It or Lose It allowance.

There sin't a China / Taiwan conflict at the moment - there are tensions and lots of rhetoric I agree, and who knows where it might end up.

A couple of years ago those fears were focused on North Korea kicking things off, a few years before that it was Iran etc. etc.

In a couple of years time it will be someone else, and being blunt, if China / Taiwan really kicks off and the US / Nato get dragged in then the value of your RL pot will probably not be at the top of your concerns list.

Makes sense to ditch the IFA for a managed portfolio like the RL one but if they were still there you could be asking them these questions. One of the biggest benefits of an IFA from what I have seen and heard from friends and family who use them is the reassurance they provide when things are bumpy.

Pension - As a non-earner you can contribute £2880 net / £3600 gross not £4k. Worth doing.

IFA never asked me what percentage fall I would be comfortable with.  He contacted me just after Covid started when everything started falling and advised me to stop taking income until markets had recovered.  I was pretty hacked off as I thought that was unreasonable and thought I had bought a fairly stable product....  I posted on here at that time and nobody else was doing this (or wouldn't say).

Yes, OH has same risk profile as me so practically identical portfolio.

China/Taiwan - thx for common sense reply.  Yes, always something going on and as you say, if that took off it would be a pretty dire scenario.

The £3600 contribution - I don't really want to start a self select SIPP as I have no knowledge or interest in investments (despite pre-retirement, working in the Financial Markets IT sector).  Could I put it into the RL product?  I can ask them, being lazy!

Many thanks

AlanP_2

I think they only accept advised contributions i.e. by an IFA but no harm asking.

How long would it be in SIPP for? If all you want to do is pay £2880 in and a few weeks later withdraw £3600 then no need to even chose an investment just leave it as cash.

Vanguard platform would be reasonable for this and very cheap (they charge a 0.15% fee per annum).

Albermarle

Alternatively if you wanted the £3600 to be invested each year for the longer term and RL will not accept and you do not want to self select. Then you could open a SIPP with a robo advisor/one with a very small and simple choice of investments.
Nutmeg is probably the best known, but there are others.

[Deleted User]

thriftytracey said:

When you sorted things out with your IFA what sort of "drop" levels did you tell them you were comfortable with?

Have you looked at your overall situation, is your OHs pot in the same investments and therefore the same volatility? As I said I have a similar RL portfolio in one pot but I tend to look at where we are across investments / savings as that is how much "cake" we have in total. 

Personally I would be utilising my personal tax allowance at least, even if I then reinvested it inside an ISA as it is a Use It or Lose It allowance.

There sin't a China / Taiwan conflict at the moment - there are tensions and lots of rhetoric I agree, and who knows where it might end up.

A couple of years ago those fears were focused on North Korea kicking things off, a few years before that it was Iran etc. etc.

In a couple of years time it will be someone else, and being blunt, if China / Taiwan really kicks off and the US / Nato get dragged in then the value of your RL pot will probably not be at the top of your concerns list.

Makes sense to ditch the IFA for a managed portfolio like the RL one but if they were still there you could be asking them these questions. One of the biggest benefits of an IFA from what I have seen and heard from friends and family who use them is the reassurance they provide when things are bumpy.

Pension - As a non-earner you can contribute £2880 net / £3600 gross not £4k. Worth doing.

IFA never asked me what percentage fall I would be comfortable with.  He contacted me just after Covid started when everything started falling and advised me to stop taking income until markets had recovered.  I was pretty hacked off as I thought that was unreasonable and thought I had bought a fairly stable product....  I posted on here at that time and nobody else was doing this (or wouldn't say).

IFAs are there to hold peoples’ hands and to stop people panicking. An IFA who panics in response to short term market movements is particularly useless.  When markets do crazy things and I feel like making changes to my investment and withdrawal strategy, I sleep on it.  The urge always passes after a good snooze. 

Having said this, your funds are in the market and the market is by definition unstable.  So you need to plan for things moving up and down. Some reduction in withdrawals and expenditure could be sensible as long as its part of a plan rather than a knee jerk reaction.  I wouldn’t focus too much on the growth/loss over a few months.