Cruising through (old) LTA

Ciprico

I know I am fortunate to be in this position, but it is as a result of a lifetime's saving, so not luck. I pride myself on never having paid higher rate tax, and maxed out of TESSAs, PEPs, ZDPs, Salsac and everything else I was aware of along the way

My SIPP is just over £1M, I'm still working (just, aged 61, was going to retire last year but ran into some health issues so am thinking if I'm to be incapacited, I might as well be paid for it. I work from home and job is very cushy...). We have no loans/mortages.

I'm struggling to convince myself to accept much risk now, and SIPP is currently 80% gilts and MM funds, and 20% in City of London. HMWO was my fund of choice before I derisked

Even taking no risk it will soon pass £1.07M, where the TFLS stops. This will be several years before I think about withdrawing any except maybe £12k pa tax free allowance.

I do have 2 kids so IHT planning is a consideration, but not a priority, which is myself and wife. They will get what's left, I do give them 4k pa in a LISA, and contribute to their Uni fees.

We have no DB to look forward too, though we both will get full SP, and we have other savings to use before drawing on pensions. 

My dilemma is should I remove risk from SIPP, and accept the inflation risk. The alternative being exposure to market risk, gaining money I'd probably struggle to get out without paying HRT, and not benefiting from TFLS. Any changes future govmts make to pensions are unlikely to be helpful.

This shifts the risk/reward level, and I'm struggling to find my new level, which I do appreicate is a personal issue. 

I'd appreciate any views on this from other people in a simlar position, or if there is anything I've missed in my thinking...

Marcon

Ciprico said:

I know I am fortunate to be in this position, but it is as a result of a lifetime's saving, so not luck. I pride myself on never having paid higher rate tax, and maxed out of TESSAs, PEPs, ZDPs, Salsac and everything else I was aware of along the way

My SIPP is just over £1M, I'm still working (just, aged 61, was going to retire last year but ran into some health issues so am thinking if I'm to be incapacited, I might as well be paid for it. I work from home and job is very cushy...). We have no loans/mortages.

I'm struggling to convince myself to accept much risk now, and SIPP is currently 80% gilts and MM funds, and 20% in City of London. HMWO was my fund of choice before I derisked

Even taking no risk it will soon pass £1.07M, where the TFLS stops. This will be several years before I think about withdrawing any except maybe £12k pa tax free allowance.

I do have 2 kids so IHT planning is a consideration, but not a priority, which is myself and wife. They will get what's left, I do give them 4k pa in a LISA, and contribute to their Uni fees.

We have no DB to look forward too, though we both will get full SP, and we have other savings to use before drawing on pensions. 

My dilemma is should I remove risk from SIPP, and accept the inflation risk. The alternative being exposure to market risk, gaining money I'd probably struggle to get out without paying HRT, and not benefiting from TFLS. Any changes future govmts make to pensions are unlikely to be helpful.

This shifts the risk/reward level, and I'm struggling to find my new level, which I do appreicate is a personal issue. 

I'd appreciate any views on this from other people in a simlar position, or if there is anything I've missed in my thinking...

But the fact it is such a personal issue means that 'views' from others aren't going to help much, since they are unlikely to change attitudes which have been entrenched (clearly very successfully!) for a lifetime. As you say, removing one risk simply exposes you to another. 

You do seem to be a bit obsessive about avoiding HRT, whereas accepting that paying some might help your planning, even if it does go against the grain.

Pat38493

Do you have an idea of what your spending requirements will be in retirement?  

It might be an idea to focus in on what you actually need to live your required lifestyle in retirement.  Once you know that, you are in a better position to know what your target fund should be and what level of risk you would need to take to meet your goals.

If you already have enough to cover all your needs in retirement even with no real terms growth, then for sure you can in low risk investments, especially if you are naturally very risk averse.  However this is very unlikely to deliver the best theoretical outcome as you need to have some higher risk (broadly diversified) investments to realize the rewards.

If it's borderline whether you have enough, then for sure having at least some more of your pot in higher risk investments could be a good choice.  Keep in mind that when pension providers talk about "high risk", they are not really saying you could lose all your money, they are saying that it may be volatile and you might see a loss for a year or two, but it will then recover. 

For what it's worth, there is no way I would put a million pound pot 80% in MM and bonds.  I would have at least half of it in equities and that would be if I was feeling very risk averse.  Personally I would probably have it 80/20 equities/bonds.

You also should keep in mind that if your retirement lasts 30 or 40 years, it's only the money you are going to touch in the next few years that needs to be protected from volatility.  Money that you are not going to touch for more than a decade out, you don't really need to worry if it has a bad few years as it's very likely to grow more on average across the entire long term.

leosayer

By going to 20/80 you haven't de-risked.  Instead you have pretty much guaranteed a loss to inflation which can do far more damage to your future wealth than any stock market volatility.

Have you considered an annuity with some of your pot?

gm0

If you would like to understand the relationships between income (and indexing of it),  portfolio mix, and drawdown methods.  You could do a lot worse than pick up a copy of McClung - Living off your money which covers this ground exhaustively (and some would say exhaustingly)

Outside of fixing an income up front (annuity purchase), or self annuitisation via a personal ladder of index linked bonds each held to term.  All other designs involving market investment are subject to a range of investment returns and volatility and bring other issues in - sequence risk etc.

One (of many investigations) in the book referred to is into the way % equities (portfolio shape) interacts with overall income achieved over the life of the retirement and its failure probability

Perhaps unsurprisingly if there are too few equities - income levels after inflation that are supportable become disappointing unless the starting pot is much larger than is typical vs a desired income.  Below 20 to 30 zone .
And at the other end as 70% becomes 80% and beyond the "volatility" and sequence risk failures rise.  And so these unwelcome possibilities of mid retirement emptying of the pot are best avoided.  Even though most people in most cohorts and start dates with the high equity % would get a large payday for heirs at the end of retirement.  If you are on the wrong path from the wrong start date - that is no comfort when you run out.  Your sequence.  Not the average.

If you have a very big pot vs income requirement then in practice you can do more or less anything.  Ladder of index linkers = cashflow.  Or stick it all in the market and your draw rate is so low as not to really matter.  If it drops 60% and takes 10 years to grow back.  Still not a problem

This is a more pressing concern for the majority of people who need to stretch capital and returns from a DC retirement pot to achieve a comfortable and lengthy retirement.  So the ratio of income to pot matters a great deal.

Good luck figuring it out

Ciprico

Thanks for the helpful comments, I'm in the process of moving it to HL for the £3k5 cashback. I will increase the risk once its there. (Percentage wish 3.5 isn't huge, but it feels good getting a free summer holiday courtesy of HL. I just hope City don't plunge during the transfer and reduce the cashback...

Albermarle

Ciprico said:

Thanks for the helpful comments, I'm in the process of moving it to HL for the £3k5 cashback. I will increase the risk once its there. (Percentage wish 3.5 isn't huge, but it feels good getting a free summer holiday courtesy of HL. I just hope City don't plunge during the transfer and reduce the cashback...

If you transfer it 'in specie' it does not matter what the market does during the transfer.

Ciprico

It does if it dips below £1m before the transfer completes, which will be several weeks minumum.

I checked, they use the amount that finally arrives, not the amount that is there "now"...

Albermarle

Ciprico said:

It does if it dips below £1m before the transfer completes, which will be several weeks minumum.

I checked, they use the amount that finally arrives, not the amount that is there "now"...

OK, For info I have just transferred a > £100K ISA to HL and it took 6 days 'in specie'