Pension Investment Returns

Spivo46

By selecting a Legal & General Fixed Term Income product i will receive a 4.4% annual return on my current pension investment. In your opinion, do you think the stock markets will pick up and offer a better return than that in that same period? 

Prism

What is the time period that you are thinking about?

The stock markets have produced a better return than 4.4% this year so you could argue that they have already picked up.

Bostonerimus1

Historical average returns in developed stock markets have been around twice the 4.4% of the income product you mention, but with far greater volatility and risk. You should have a mix of investment types from riskier equities to safer fixed income and saving accounts tailored to your circumstances.

Notepad_Phil

Spivo46 said:

By selecting a Legal & General Fixed Term Income product i will receive a 4.4% annual return on my current pension investment. In your opinion, do you think the stock markets will pick up and offer a better return than that in that same period? 

Personally I'd stick with the stock markets, but I can see the case for holding some percentage of a pension in such a product if you were going to need access to that specific value within the next few years - e.g. you were planning to go into drawdown and take the value out for your retirement income.

Spivo46

Prism said:

What is the time period that you are thinking about?

The stock markets have produced a better return than 4.4% this year so you could argue that they have already picked up.

I am looking at 3 years. During that time you can access the fund if really needed. It is guaranteed to pay a fixed sum monthly and all of the original investment after 3 years. It is a guaranteed whereas the stock market isn't. I am 64 and looking to bridge gap from now till state pension at 66.

HappyHarry

If you are only looking at three year period then cash deposits are the way to go. 

Prism

Spivo46 said:

Prism said:

What is the time period that you are thinking about?

The stock markets have produced a better return than 4.4% this year so you could argue that they have already picked up.

I am looking at 3 years. During that time you can access the fund if really needed. It is guaranteed to pay a fixed sum monthly and all of the original investment after 3 years. It is a guaranteed whereas the stock market isn't. I am 64 and looking to bridge gap from now till state pension at 66.

Ah well in that case I wouldn't even worry what the stock market is doing. If you want your original investment back in three years plus an income then savings accounts or this L&G product is a decent way to go. 

However if you don't need the whole lump sum in three years but stil want an income you can do that with equities and bonds. You simply withdraw what you need monthly. 

MEM62

HappyHarry said:

If you are only looking at three year period then cash deposits are the way to go. 

Absolutely, I am retiring next year and have put my first five years income into cash. 

Spivo46

MEM62 said:

HappyHarry said:

If you are only looking at three year period then cash deposits are the way to go. 

Absolutely, I am retiring next year and have put my first five years income into cash. 

Putting into cash? is that the same as taking some tax free allowance and putting it in the bank?

MEM62

Spivo46 said:

MEM62 said:

HappyHarry said:

If you are only looking at three year period then cash deposits are the way to go. 

Absolutely, I am retiring next year and have put my first five years income into cash. 

Putting into cash? is that the same as taking some tax free allowance and putting it in the bank?

No, I am not taking any of the tax free lump sum as I would rather the first 25% of my drawdown income each year be tax free. (No point in taking the TFLS unless you have good reason to do so)  The cash remains within my pension wrapper and has been placed into five, four, three, two and one year fixed term deposits with an aggregate interest rate of just under 6%.  This provides my first five years of retirement income without reliance on how my equities are performing.  (They have five or six years to just sit there and do their thing.)  I'll review again towards the end of the five years but at that point I will have a small (circa £3.5K) DB pension kicking in as well as the state pension so all my basic living costs are covered anyway.  The DC pension will be for all the fun things - high days and holidays :-)       

Bostonerimus1

Spivo46 said:

Prism said:

What is the time period that you are thinking about?

The stock markets have produced a better return than 4.4% this year so you could argue that they have already picked up.

I am looking at 3 years. During that time you can access the fund if really needed. It is guaranteed to pay a fixed sum monthly and all of the original investment after 3 years. It is a guaranteed whereas the stock market isn't. I am 64 and looking to bridge gap from now till state pension at 66.

One rule of personal finances is that if you have a well defined and immediate plan for your money then don't risk it in things like the stock markets. As you need that money for income to bridge the gap to SP starting I would not risk any of your capital and use something like a saving account that pays interest l and allows easy access so you can spend your money - so it sounds like you have the right idea.

FYI I retired 3 years before my DB pension started and I put 3 years spending in an easy access account that was paying just 2% back then because I didn't want the hassle or worry of any risk.