How much U.S. percentage?

Albermarle

We are both aged 56, working full time, will retire at 60 – maybe a year or two earlier. We also have DB pensions at 60 which will cover our living expenses, plus £450k across S&S ISAs and cash.

I would think that the US% in your wife's pension is less important than making sure you have a suitable asset allocation, across your various investments.

Also you are planning to change her pension from 80% to 100% equity. Normally at your ages most people are moving in the other direction, although if the DB schemes are good then this is less of an issue.

bostonerimus

Arguments can be made for whatever percentage you like. They might get increasingly silly as you go to the extremes, but there's always someone who is willing to make them. Just go with something close to the global cap weighting ie +/- 10% and don't worry about it, there's no single answer. This is another example of being paralyzed by choice.

Hector66

Many thanks to all for replying. Even with internet anonymity, it always feels a bit intimidating asking for views. I suppose our starting point in asking was that there seemed no real basis for erring from 60% US, other than gut instinct, but maybe that's not so unusual. Before posting, I was thinking that 40% felt a bit more comfortable and so it's interesting to hear that number come up from others. That may be where we land. On @Albermarle's point about moving the pension from 80% to 100% equity at our age, we are very lucky that our DB pensions combined will give us around £40k pa from age 60 which we know is a big safety net. Once again, it's much appreciated that you've taken the time to share your thoughts with us. 

bostonerimus

Hector66 said:

Many thanks to all for replying. Even with internet anonymity, it always feels a bit intimidating asking for views. I suppose our starting point in asking was that there seemed no real basis for erring from 60% US, other than gut instinct, but maybe that's not so unusual. Before posting, I was thinking that 40% felt a bit more comfortable and so it's interesting to hear that number come up from others. That may be where we land. On @Albermarle's point about moving the pension from 80% to 100% equity at our age, we are very lucky that our DB pensions combined will give us around £40k pa from age 60 which we know is a big safety net. Once again, it's much appreciated that you've taken the time to share your thoughts with us. 

I'm retired with a DB pension and rental income that easily cover my expenses and I'm about 90% equities, but that doesn't include a couple of year's of cash spending I keep in a saving account. So I think it's fine to go with a very high equity percentage once you have your basic income from other reliable sources - you can essentially afford to lose money and you might well end up with a bigger balance to pass on to heirs or to spend on luxuries. However, hear are two pieces of advice:

1) Be prepared to see large variations in you investment balances and make sure you are ok with large losses.
2) Keep a decent amount of accessible cash in the bank to help with emergency spending and just general cash flow.

AlanP_2

Albermarle said:

We are both aged 56, working full time, will retire at 60 – maybe a year or two earlier. We also have DB pensions at 60 which will cover our living expenses, plus £450k across S&S ISAs and cash.

I would think that the US% in your wife's pension is less important than making sure you have a suitable asset allocation, across your various investments.

In my opinion, that is the best piece of advice on this thread.

My wife's pension is very heavy in UK equities and a large slice of bonds. We use other pots to try and get to the overall position we want to be at in the next couple of years:

UK - 15%
Europe - 9%
US - 35%
Japan - 3.5%
Other Asia - 3.5%
EM - 4%

Total Equities - 70%

Bonds - 20%

Property / Private Equity / Infrastructure - 10%

Mutton_Geoff

One of the issues I see with these asset class splits is that UK authors of "advice" often follow US models for pension investments. It's important to consider cash & equivalents in the UK, eg state pension. At roughly £10k a year and the recognised 20x multiple of "valuation", this is "worth" £200k. If you then had a £500k S&S SIPP, you could argue that you already have 28% "cash" in your portfolio.

Add on a small £20k DB scheme from the Big Nut Corporation you worked for some years ago and now your SIPP effectively forms less than half of your pension funding and you could, if you wished, push it's risk factor up a bit.

Plenty of UK material I read still promotes this % bonds increasing towards 100% at retirement without taking into account the value of state pension, background DB schemes, property equity release (downsizing or loan), ISA investments etc.

My own self selected SIPP has more UK (20%) and less US (25%) than standard although the other classes I have will lift those figures a bit by way of their own content.

Albermarle

Mutton_Geoff said:

One of the issues I see with these asset class splits is that UK authors of "advice" often follow US models for pension investments. It's important to consider cash & equivalents in the UK, eg state pension. At roughly £10k a year and the recognised 20x multiple of "valuation", this is "worth" £200k. If you then had a £500k S&S SIPP, you could argue that you already have 28% "cash" in your portfolio.

Add on a small £20k DB scheme from the Big Nut Corporation you worked for some years ago and now your SIPP effectively forms less than half of your pension funding and you could, if you wished, push it's risk factor up a bit.

Plenty of UK material I read still promotes this % bonds increasing towards 100% at retirement without taking into account the value of state pension, background DB schemes, property equity release (downsizing or loan), ISA investments etc.

My own self selected SIPP has more UK (20%) and less US (25%) than standard although the other classes I have will lift those figures a bit by way of their own content.

I agree with the above except

1) The 20X is an arbitrary low figure. With full inflation linking it is in reality at least X25, and if annuity rates drop again, probably X 30 
2)Add on a small £20k DB scheme . I would not consider this small. For many people it could cover most of regular expenses on its own .

bostonerimus

Mutton_Geoff said:

One of the issues I see with these asset class splits is that UK authors of "advice" often follow US models for pension investments. It's important to consider cash & equivalents in the UK, eg state pension. At roughly £10k a year and the recognised 20x multiple of "valuation", this is "worth" £200k. If you then had a £500k S&S SIPP, you could argue that you already have 28% "cash" in your portfolio.

Add on a small £20k DB scheme from the Big Nut Corporation you worked for some years ago and now your SIPP effectively forms less than half of your pension funding and you could, if you wished, push it's risk factor up a bit.

Plenty of UK material I read still promotes this % bonds increasing towards 100% at retirement without taking into account the value of state pension, background DB schemes, property equity release (downsizing or loan), ISA investments etc.

My own self selected SIPP has more UK (20%) and less US (25%) than standard although the other classes I have will lift those figures a bit by way of their own content.

Maybe the recommendation for a high fixed income percentage as you approach retirement in the UK is a hang over from when you had to buy an annuity. Factoring in things like state pension is important when developing a retirement income plan and, if anything, on average the US retiree will have larger cash equivalent sources of income from the US Social Security (the equivalent of UK state pension) because it's a larger benefit than UK SP.

[Deleted User]

I have not come across materials advising 100% bonds towards retirement.  But if they do, availability of state pension becomes irrelevant; it would not change the recommended 100% number.  But as Boston says, US state pension/social security is larger than UK’s.

If its a reference to target date or “lifecycle” funds, then such funds tend to keep a meaningful allocation to stocks. 

Mutton_Geoff

Deleted_User said:

I have not come across materials advising 100% bonds towards retirement.  But if they do, availability of state pension becomes irrelevant; it would not change the recommended 100% number.  But as Boston says, US state pension/social security is larger than UK’s.

If its a reference to target date or “lifecycle” funds, then such funds tend to keep a meaningful allocation to stocks. 

My apologies for the exaggeration, but I had in mind things like the Aviva retirement fund where their "My Future Universal Investment Programme" moves you from "My Future Growth" to "My Future Consolidation" over the 15 years to retirement date when you'd be 100% in the latter fund, the lions share of it consisting of bonds & gilts.

This default planning would cater for someone who wanted to purchase an annuity, but, in my opinion, derisks you too early in your retirement with the very high risk then of running out of money.

https://www.trustnet.com/factsheets/P/i6zg/aviva-pension-mym-my-future-consolidation-pn/