How much cash in pension

Albermarle

SouthCoastBoy said:

In response to ablermarle, re 4% fixed, I have just moved to some 12 mth fixed rate bonds, mixture of isa and non isa and can get 4.5% for some of these, so over the next 12 mths hopefully not too far from inflation. Issue is tax on some of the cash, but either I won't be earning money, or more likely, as I've just accepted a new job, I will be a 40% tax payer and therefore will make additional contributions to my sipp so will offset the tax liability

Your long awaited decision to retire, seems to have gone into reverse very quickly !

SouthCoastBoy

Albermarle said:

SouthCoastBoy said:

In response to ablermarle, re 4% fixed, I have just moved to some 12 mth fixed rate bonds, mixture of isa and non isa and can get 4.5% for some of these, so over the next 12 mths hopefully not too far from inflation. Issue is tax on some of the cash, but either I won't be earning money, or more likely, as I've just accepted a new job, I will be a 40% tax payer and therefore will make additional contributions to my sipp so will offset the tax liability

Your long awaited decision to retire, seems to have gone into reverse very quickly !

Yes, decided to try a new position rather than retire, just don't have confidence to walk away from earning money. Looking forward to a new challenge.

michaels

SORR is not about equity market fluctuations, it is about total returns which includes inflation which cash has traditionally been a very poor hedge against

For example if you had been holding 100% cash for the last 24 months, far form having protected yourself against risk, you would have looked in a 15% lower income for life. 

GazzaBloom

bostonerimus said:

Everyone needs cash, but I would not have it inside a pension wrapper as cash should be easily available to spend. So keep it in a cash ISA or the bank. You should have at least 6 months spending in cash for emergencies and in retirement you probably should have more like a couple of years that you can spend rather than having to sell assets in down markets. For example many retirees with Target Date retirement funds are invested in long duration bonds and the size of their pot has dropped by 10% or even 20%. If they don’t have spare cash to spend they will have to sell at a loss and they will probably never recover.

I agree that a cash “emergency fund” is best outside a pension wrapper so it can instantly be accessed, but, additional cash being accumulated over and above the emergency fund, like the 2-3 years living expenses several people have referred to, to give peace of mind during retirement, to be used as source for pension drawdown during market downturns, should be fine inside a pension wrapper.

if you are in a salary sacrifice workplace pension and a 40% tax payer, it's far more advantageous to accumulate cash inside the pension, than using after tax/NI deductions take home pay, to build a retirement cash pile. For me, personally, it's 2 for 1. For every £1 given up in take home pay I see £2 go into the pension.

Pat38493

It’s commonly stated that everybody should have an emergency fund of instantly accessible cash at least several months of outgoings.

However like many other common statements this is dependent on circumstances.  If you have significant lines of instant credit available with credit cards, bank overdraft and so on, and you also have pension assets which can be drawn down within a few weeks, I am struggling to see what disaster could not be met already by this - worst case you pay a bit of interest but it probably won’t be as much as you lost be constantly keeping 6 months cash indefinitely.  Any disaster that couldn’t be covered would involve the collapse of all society which then money would be the least of the issues.  Of course if you have no such lines of credit and you cannot yet access pension assets or other assets it’s a different matter 

MK62

There's a reasonable chance of this being the better way........but there is more risk.
That said, if this "emergency fund" is only a few % of the total portfolio value, as is common, then it's probably not going to make that much difference either way in the end.

Linton

Pat38493 said:

It’s commonly stated that everybody should have an emergency fund of instantly accessible cash at least several months of outgoings.

However like many other common statements this is dependent on circumstances.  If you have significant lines of instant credit available with credit cards, bank overdraft and so on, and you also have pension assets which can be drawn down within a few weeks, I am struggling to see what disaster could not be met already by this - worst case you pay a bit of interest but it probably won’t be as much as you lost be constantly keeping 6 months cash indefinitely.  Any disaster that couldn’t be covered would involve the collapse of all society which then money would be the least of the issues.  Of course if you have no such lines of credit and you cannot yet access pension assets or other assets it’s a different matter 

ISTM If your financial plans are so tight that holding 6 months cash makes the difference between success and failure you are taking on far too much risk. The idea of the 6 months cash is to be able to instantly meet any short term problems without selling assets  or taking on debt to minimise any immediate money worries. This gives yourself the time to develop a longer term solution.