Moving into Drawdown & TFLS & safely does it where possible

Skinnydad

Hi folks once again looking for thoughts on the direction I'd like to take.  I'm moving into official retirement this year.  Get my full state pension and need to decide what to do with my SIPP.  This is currently sitting in VLS60, valued at approx. 260K. My thoughts are I want to take the 25% TFLS (or 60K) as we want to consolidate cars, new roof and couple of other things. that'll leave a pot of approx. 195K-200K in my SIPP. From this fund I want to start drawing down. Say approx. £600 PM. Based on this, the fund should last approx. 25 years.  By this time I'll be in my 90's or brown bread, I'm solely concentrating on this SIPP as we have other assets and funds. Some questions if you please:

Should this fund remain in VLS60 during this drawdown period, or should it be moved to a safer fund? IMHO this has been a volatile fund over the last few years, gaining some traction recently.  Just not sure what a safe fund is, or as safe as you can get?

I know funds can go down as well as up and money in cash loses its value with inflation. However if I moved this fund to cash only then I'd get the guaranteed 600PM for 25 years, but no real growth. And I believe you get interest from the provider, though a pittance.

If I decide to drawdown 600PM, am I better taking the cash out yearly.  i.e. will there be less charges to do this rather than monthly? 

My main goal here is to try and ringfence this 200K as safely as possible to enable me to get the required drawdowns needed throughout this 20-25 year period. So a modest increase in the fund would be beneficial. 

basically I'm in a bit of a quandary here as I'm unsure how to proceed. I don't believe I need financial advice to complete this process, but as always, I'm all ears.

Thanks in advance..   

 

dunstonh

If I decide to drawdown 600PM, am I better taking the cash out yearly.  i.e. will there be less charges to do this rather than monthly? 

Most providers don't charge for drawdown.

Should this fund remain in VLS60 during this drawdown period, or should it be moved to a safer fund? 

What is your definition of safer?     i.e. lower investment risk would increase shortfall risk and inflation risk.   Whereas lower shortfall risk and inflation risk would increase investment risk.

IMHO this has been a volatile fund over the last few years, gaining some traction recently.  Just not sure what a safe fund is, or as safe as you can get?

VLS60 can improved upon but it hasn't been that volatile.   Again, safe would depend on what risks you are talking about.

And I believe you get interest from the provider, though a pittance.

Some platforms are paying over 5%.  3-5% is typical.

Albermarle

You are looking for some growth but also to be 'safe'
It is a kind of Holy Grail that does not exist.

To get consistent growth over inflation long term you need to invest. So you will see some ups and downs over the years.
VLS 60 is a middle of the road type product. Normally VLS40 will be less volatile but with lower growth whilst the opposite with VLS 80. 
Many hold investments and some cash, it does not need to be all or nothing.

Skinnydad

Thanks Dunstonh I appreciate your feedback as always. I understand the quandary I'm in. As Albermarle stated the Holy grail doesn't exist. I think the issue is, unless your familiar with pensions and pension products then your kinda stuffed. This is the situation that about 90% of pension holders are probably in. They are in a fund that is driven by their employer and managed on their behalf. So they get what they get when they hang their boots up. Personally the industry has always been bias towards the providers and the need to engage IFAs. Everyone wants a cut of your money and in return. Returns are average. I understand the need to take more risk to make more money. With the exception of Annuities, the providers need to come up with better returning funds. I suppose asking a company to make a 5% annual return is fraught with difficulty.

Thanks 

zagfles

If you want "safe", then get an index linked annuity, otherwise you are going take a risk. There's no magic funds only known to insiders that will get you better than an indexed linked annuity and also be "safe". There's loads of discussion here and places like monevator on drawdown strategies. Drawdown providers should now offer "investment pathways" which may be of interest. 

dunstonh

Personally the industry has always been bias towards the providers and the need to engage IFAs.

Historically, it was biased towards insurance agents and salesforces.  Over 300,000 FAs, agents and IFAs back in the day.  Today its just over 20,000.    Data sources vary but its about 50/50 between advice and DIY nowadays.

With the exception of Annuities, the providers need to come up with better returning funds. 

Returns will be what returns will be.  Providers have little scope in that respect.   A modern pension can offer over 30,000 investment options and have absolutely no say in any of them.   Returns are down to market sentiment and events.   Returns have actually been pretty good on equities.   They have been dire on bonds, which have had their worst period in over 100 years.   Again, that is not down to providers.

I suppose asking a company to make a 5% annual return is fraught with difficulty.

Its impossible.

Pat38493

If you are going to be drawing down gradually over 25 years, just keeping everything in VLS60 is not a crazy approach - it's perfectly acceptable.  I think that as DunstonH said you could probably do better if you want to put more effort and research into it, but VLS60 will probably give you about 80% of the benefits for 20% of the efforts or something along those lines.

The other thing you might consider that a lot of people do is maybe taking out 2 years of drawdown at the start, and always keeping 2 years in cash like assets.  Each year you would top up this bucket form your VLS60 or other investments.  This way, you always know you will be ok for 2 years and you have the option to pause the drawdown from the invested funds for up to 2 years if there is a big crash (markets usually recover, or at least partially recover, within 2 years).

Personally if I was doing that then I would go higher risk like VLS80 on the investment fund, but that depends on your attitude to risk and whether you will lose sleep if your fund goes down a lot in one or other year.

Also worth noting that even if you want a 60/40 multi asset fund, there are plenty of others available other than Vanguard and some of them have performed better than the Vanguard ones in the last decade.  I think this is partly because Vanguard are weighted heavier in UK investments which have not performed brilliantly in the last 10 years or so.