Retirement and SIPP 5 December 2022 at 4:01PM in Savings & investments 7 replies 405 views

nxdmsandkaskdjaqd

I would appreciate some thoughts from those that have just a SIPP (and emergency cash) to fund their retirement and how you manage the flow of money during retirement.  I am not sure of the best strategy, I have a SIPP and receive the State Pension, but need to top this up.

Do sell stock every monthly/quarterly/yearly, irrespective of market conditions.

Use the emergency cash whilst the market is down, such as now.  But how do you top this up when conditions are more favourable.

Currently all my SIPP funds are Accumulation, do I need to go for some Income funds?

Other thoughts, what’s the best strategy?

Mothman

I do one UFPLS drawdown at the start of each tax year to use my personal allowance. Due to the way the PAYE system works I do get deducted a large amount of tax, but this is reclaimed using form P55. This has not been an issue in the past but given the current delays people are reporting at HMRC I may do next years drawdown at the end of the tax year to avoid the large tax deduction. If the value of my portfolio is down then any drawdown amount gets reinvested immediately into ISA's and that years expenditure is taken from the 4-5 yr cash buffer which I hold. Only guaranteed income is the other half's state pension. 
edit: Should have mentioned I only use accumulation funds in my SIPP

ColdIron

There are many ways to skin a cat

Selling sounds attractive pre retirement (regardless of the pros and cons involved) but in practise many appreciate the automatic and hands off nature of income funds/ITS/ETFs etc. Selling regularly in all market conditions is not my idea of a stress free or comfortable retirement

Personally I don't sell at all, and haven't for 6 years retired, I simply top up cash from dividends but this will depend on the sums involved. GIAs/ISAs are easy, just take the dividends. With just a SIPP and drawdown you will usually specify a fixed amount and how often, so you will need to figure out how much to take monthly, quarterly or whatever. This is easier if you have a decent cash float in the SIPP

But you can slice and dice that poor cat in many ways. Another approach could be to identify how much you need in a year and use a mixture of dividends from income investments plus annual (or at least infrequent) sales from growth ones to create that cash buffer sufficient for your annual needs

Albermarle

For info there is a specific Pensions Forum.
Pensions, annuities & retirement planning — MoneySavingExpert Forum

To some extent this and that forum are quite closely linked ( many of the same regular posters for example), but if you read through the pensions forum regularly you will see this kind of topic being discussed.

dunstonh

There are different retirement income strategies and pros and cons with each.   If the person doesnt have cash outside of the pension, I will hold a greater amount in the pension.   If they do have cash outside of the pension, i will hold less.      

I personally like the 3 years worth as income as cash, income units used on the funds with income paid into cash.    Then an amount that covers years 3-8 of withdrawals in a low-volatility portfolio segment and then the rest in a portfolio reflecting the longer term.      It helps reduce sequencing risk.

Do sell stock every monthly/quarterly/yearly, irrespective of market conditions.

It is another method and some providers only support that method.   Howver, you should never let a provider dictate the method you are using.  You should use the best for your circumstances.

Currently all my SIPP funds are Accumulation, do I need to go for some Income funds?

If you are using cash float method or a yield method then income units are best.  Acc units dont really work on a yield method as you would need to manually sell units to reflect the yield.  Its less of a problem on the cash float method but inc units would be my preference.

For reference, the vast majority of retirement income cases we arrange use monthly UFPLS as that option seems to match objectives the most.

Linton

There are 2 ways of taking drawdown.  One is to sell funds as and when you need the cash, the other is to use INC funds.  Or of course you could use a mixture of the two,

The main problem with drawdown and SIPPs is that it could be a hassle to get monthly income.  You may need to ensure that cash is available in the SIPP ready perhaps 2 weeks before the regular monthly payroll run and if it's not there you dont get your money.   The provider is likely to want a fixed drawdown amount each month, which cannot easily be achieved from INC funds. Different providers may have different regular payment procedures.

Another approach which I use is to take a single lump sum once a year as part of the annual rebalancing of the funds. This is done at the end of the tax year so I have a good idea how much can be drawn down whilst avoiding a higher tax band. Once drawn the money can be put into ones current account, held in a cash buffer, or reinvested, perhaps in an S&S ISA.  What I then do is to hold INC funds in an S&S ISA  and my provider (II) pays all dividends/interest directly into my current account.  So no hassle at all.

dunstonh

The main problem with drawdown and SIPPs is that it could be a hassle to get monthly income.  You may need to ensure that cash is available in the SIPP ready perhaps 2 weeks before the regular monthly payroll run and if it's not there you dont get your money.   The provider is likely to want a fixed drawdown amount each month, which cannot easily be achieved from INC funds. Different providers may have different regular payment procedures.

Expanding on that point, natural income would be a pain as mentioned.   However,  to get it to work, you would maintain a cash float of x years worth of income and check it once a year to keep it floated or reinvest any surplus.

The natural yield of a portfolio is returning to levels that are broadly similar to a sensible draw rate after years of being too low to rely on without a specific yield focus (and even then pretty restrictive).

As mentioned higher up, there are many ways to skin a cat.

gm0

There is no perfect strategy that is in any way guaranteed to be optimal in the future.  Various options which tradeoff convenience, precision etc. There is the right answer for you. With the admin level that suits.

>Do sell stock every monthly/quarterly/yearly, irrespective of market conditions.

I don't do it monthly.  Pound cost averaging through volatility with monthly salary is fine on the way in.  Selling automatically monthly not so much. Think Feb-April 2020. Selling the dip.  Why ?

But some people do this to keep the maximum in the market at all times.  I don't like the selling every month approach and prefer putting aside cash for income each time I rebalance (12-18 months).  My drawdown plan is quite dependent upon the pension so the sequence risk matters a lot.  This is not the discretionary income top up.  So a cash buffer / lower volatility segment matters to me.  Somebody using it for a top up might well take a different view.

Wrapped cash buffer set ahead for income loses the return on the buffered cash but avoids the selling of the volatility dips issue as you control when or if the sale is done at all.  And I can set and forget a base income paid monthly/quarterly. 
And then do a one off true up payment at year end if that suits (market return, other income, tax planning).  And not if it doesn't suit.

>Currently all my SIPP funds are Accumulation, do I need to go for some Income funds?

First inc vs acc units. 

No - all that matters is total return. (Capital growth + dividends/other income).  inc units are convenient as they retop up a cash buffer/income float without any effort but you can do more or less exactly the same drawdown with the same underlying investments with acc units. Albeit you have to sell them to refloat the wrapped income buffer.

The charging structure for rolling up dividends into acc units (and FX) vs paying it to you in sterling (also FX) is opaque and complex in many instances.  For US investments the dividend size is often low so the impact of the difference is comparatively small anyway so you may or may not choose to dig into it.  I use some of both based on picking the funds for their holdings and them being acc only.  Where I have a choice in my SIPP I use inc.

The logic chain goes - what portfolio shape.  Building blocks. Which specific funds to build out.  Availability with inc/acc units on my platform(s).

Income funds

I assume you mean the investing style.  I don't have enough experience with income funds to comment with much conviction.  But I don't use "income" funds in the "high dividend focused short list of stocks picked for that specific criteria sense. 
Because this is often a mixture of sound traditional and UK listed/dividend paying consumer goods stuff but then tobacco and some high risk companies which currently are high dividend payers.  But which are risky in other ways.  And which I don't want concentrated investments in - not above the level they show up in a whole of market geographic tracker anyway