Distribution of savings for retirement

sally_lc

Hi, hoping for some advice please. My husband and I are both in the fortunate position of having DB pensions, which we are living on. However we also have a lump sum which we plan to use both to supplement early retirement, and for other irregular extras over the longer time frame,  like cars, roof falling in, children property deposit, health etc etc . So expected pattern of spend, say 1/3 over next 5 - 10 years, thereafter a chunk now and then. We're young to retire, so I guess can take more risk but need some to last longer, hopefully. 
My question is - what balance of assets should we be aiming at between shares / cash / bonds etc ? We're also a bit anxious about inflation as our DB pensions aren't quite keeping up. Thank you for any advice..

Linton

You could allocate your assets based on your requirements.  If you intend to  spend 1/3rd the money over the next 10 years you could put that into a cautious investment, say 40% shares.  with perhaps 10% cash and the rest in safe bonds.

The remaining 2/3 for long term inflation matching could be held in a riskier and higher return fund, up to 100% equity if your nerves can stand it or 60%-80% for a more gentle ride.

When you are appoaching the end of the 10 years you may wish to reconsider your allocations.

dunstonh

My question is - what balance of assets should we be aiming at between shares / cash / bonds etc ?

Have you already decided your tax wrappers?  e.g. pension wrapper, ISA wrapper, unwrapped etc

The split in asset classes should reflect your needs, objectives, knowledge, behaviour, and capacity for loss.  What is right for one person could be wrong for another.    Timescale weightings are likely to be a suitable consideration here as well.  i.e. segmenting your spending need from that capital over multiple time periods and using different asset classes for each bucket.

xylophone

How old are you and your spouse?

You are not working at all?

Have you both obtained a state pension forecast?

https://www.gov.uk/check-state-pension

If so, have you each accrued at least a full NSP or is there an indication that you need to continue to contribute to reach your forecast maximum?

If neither of you have any relevant earnings, had you each considered opening  a pension which would enable you to contribute up to £2880 net  per annum and receive tax relief of up to £720?

Are you both using your ISA allowances?

sally_lc

Hi, thanks for the responses
Linton - thanks for this - appreciate you giving a feel of what you feel constitutes cautious vs risker in terms of % share allocation. This is exactly the kind of thing I was after.  Though of course it;s different for everyone. Also you've got me thinking that we need to be stretegic about this and split it up into say 10 year time frames with a different risk profile for each. 
Dunstonh - around half is in pension wrappers, though asset allocation is tweakable within them. Around 1/4 in ISAs, currently. I guess there may be some tax advantage of taking the stuff inside the pension wrappers early (before we get state pension also). 

Albermarle

sally_lc said:

Hi, thanks for the responses
Linton - thanks for this - appreciate you giving a feel of what you feel constitutes cautious vs risker in terms of % share allocation. This is exactly the kind of thing I was after.  Though of course it;s different for everyone. Also you've got me thinking that we need to be stretegic about this and split it up into say 10 year time frames with a different risk profile for each. 
Dunstonh - around half is in pension wrappers, though asset allocation is tweakable within them. Around 1/4 in ISAs, currently. I guess there may be some tax advantage of taking the stuff inside the pension wrappers early (before we get state pension also). 

If you retire from work before SP age and have no other taxable income, then you should make sure you withdraw enough taxable income from your pensions, so you do not waste your personal allowance.
One tactic is to take one UFPLS payment each year which is 25% tax free and 75% taxable.
So you get £12570 taxable ( but not taxed ) and £4190 tax free cash.

Bostonerimus1

How much of your income is covered by DB and state pensions? I'm retired and DB pension and rental income cover my spending so I keep a couple of years spending in cash for emergencies and cash flow and the rest is in equities  as with my income covered I can take lots of risk. So your asset allocation decision could be very different from someone who is trying to generate income from their investments or looking to preserve capital at all costs.

sally_lc

As I said, we're living on our Defined Benefit pensions, so already paying tax. The savings allocation I am asking about is for a lump - 1/3 of which we will probably want to dip into over next few years to top things up before getting state pension , 2/3 of which we want to keep by for long term use for emergencies / unexpected events etc, so will then be in a  similar position to Bostonerimus . I think we'll take the approach that Boston and Linton are using - 40% equities for 1/3, more risk for the rest.  Thanks.