How many years before retirement to start moving pension savings out of shares?

[Deleted User]

Assuming you plan to get an annuity, the standard approach of gradually shifting to bonds and cash 10 years before retirement looks to early for me. Looking back at previous stock market crashes, there have only been a few of them, and not any that we haven't recovered from in about 7 years.

And on the subject of bonds/gilts, these funds have been disastrous in recent years, cash funds are the only ones that haven't gone negative. Why would anyone invest in bond funds?

Brie

I set mine to be phased over 5 years before retirement rather than 10.  

Albermarle

And on the subject of bonds/gilts, these funds have been disastrous in recent years,

They have been disastrous in the last couple of years, but had performed pretty well before then for some years. The unwinding of QE and higher interest rates have caused what is probably a once in a lifetime crash in their value, and probably will  be back to business as usual from now on.

lisyloo

Albermarle said:

And on the subject of bonds/gilts, these funds have been disastrous in recent years,

They have been disastrous in the last couple of years, but had performed pretty well before then for some years. The unwinding of QE and higher interest rates have caused what is probably a once in a lifetime crash in their value, and probably will  be back to business as usual from now on.

For this reason I think it’s hard to come up with a hard and fast rule, but a couple of years feels right to me.

NedS

lisyloo said:

Albermarle said:

And on the subject of bonds/gilts, these funds have been disastrous in recent years,

They have been disastrous in the last couple of years, but had performed pretty well before then for some years. The unwinding of QE and higher interest rates have caused what is probably a once in a lifetime crash in their value, and probably will  be back to business as usual from now on.

For this reason I think it’s hard to come up with a hard and fast rule, but a couple of years feels right to me.

If you are aiming to buy an annuity though, bond price falls have been offset by rising annuity rates so the net affect should be neutral. Hence, for those intending to purchase an annuity, bonds should preserve your wealth in the lead up to retirement even if the pot value may have fallen, as opposed to equities which could halve in value in a crash, thus buying half the annuity income. Gradually rebalancing towards an ever increasing bond weighting should help capture and preserve equity gains in the lead up to retirement. I guess at what point you start looking to preserve wealth depends on how much you have, how much you need, and how much risk you need to take. If you've already won the game 10 years out, why take more unnecessary risk?

retiringtoosoon

I put mine 20 years after retirement 

OldScientist

[Deleted User] said:

Assuming you plan to get an annuity, the standard approach of gradually shifting to bonds and cash 10 years before retirement looks to early for me. Looking back at previous stock market crashes, there have only been a few of them, and not any that we haven't recovered from in about 7 years.

And on the subject of bonds/gilts, these funds have been disastrous in recent years, cash funds are the only ones that haven't gone negative. Why would anyone invest in bond funds?

My own calculations using historical backtesting for the UK have shown there isn't a lot of difference (~5% of the final pot size) in the worst cases starting the transition anywhere between 10 years before retirement and about 2 years before retirement (note that there were a lot of assumptions that went into those calculations that might not match your situation and the usual caveat about historical results may not hold true in the future).

In terms of gilt funds you should ensure that your choice reflects
1) Whether the annuity will be inflation linked or nominal - for the former case to get the best match the bond funds ought to be inflation linked and in the latter case, nominal
2) The maturity of the bond fund should be approximately equal to your life expectancy since this will be a reasonable approximation to the effective maturity of the annuity and hence, as others have said, the fund would, approximately, buy a constant amount of income.

An alternative (if available on your pension platform) is to buy an individual gilt that matures in the the year of your life expectancy.

QrizB

[Deleted User] said:

And on the subject of bonds/gilts, these funds have been disastrous in recent years, cash funds are the only ones that haven't gone negative. Why would anyone invest in bond funds?

Gilts/bonds held to maturity will be worth just as much as they ever were.

GazzaBloom

QrizB said:

[Deleted User] said:

And on the subject of bonds/gilts, these funds have been disastrous in recent years, cash funds are the only ones that haven't gone negative. Why would anyone invest in bond funds?

Gilts/bonds held to maturity will be worth just as much as they ever were.

less fees, taxes and inflation...in real terms.