Proximity to Retirement Jitters

theblueflash

This recent rally is giving me the jitters . I’m in lucky position to be considering retirement in 2 years time - Age 54. The recent rally and maximum pension contributions past couple of years have got us to a good number in DC pension + SS ISA + Cash ISA.  Despite being pretty financially savvy , and knowing that “number” needs to see us through 30+ years - I keep being tempted by what I’m calling “proximity risk” to retirement and moving the lot to Money Market Funds and almost guaranteed returns for the years leading up to it - it’s like a feeling of “right, that bits done, anything else is a bonus” 

Across all the buckets I’m already in 50% Equities, 20% Bonds and 30% Cash but I keep running the number, adding 5% for MM returns and saying “that’s a great risk free’ish return”   

It’s probably nuts given I suspect I’d need to re-invest across whatever investment profile supports drawdown once actually retired but can’t shake it. Anyone else in similar boat ? 

Triumph13

It is by no means certain that inflation has been tamed, so I would definitely see that as a high risk strategy.

When it comes to investing new money in stocks though, I will admit that I have been holding a lot of cash on the simple logic that, if stocks are fairly valued, then I already have enough of them.  If they're not, then better to stay in cash and buy after the crash.  Note this only works if current valuations are saying you have enough.
.  

kempiejon

I've been investing for several decades, been about 90% equities all that time. I'm still of that opinion. But I took risks to grow my pot to retire early. If it doesn't pan out I'll stay employed longer.
For me a blend of something like 80:20 global stocks vrs gilts/bonds/gold is a fair starting point for the protection of asset diversification. Adjustments for less stocks nearing retirement will probably cost the investor money. But it will also give some people peace of mind.
I have an absolute cash amount, it is what I can live on for 3 years. My thoughts being that with 3 years of expenses I could probably ride out stock market down turns for at least 4 years. If the markets do not recover I'll have to start a whole new plan.
For the nervous an index-linked annuity gives a good base line but the guarantee comes with a cost. The state pension for those that can get a full measure is also a great standard but the young shouldn't count on it.
My investments have had lots of peaks and troughs but the trend is upwards over the decades.
5% risk free does look good, my returns have averaged more and this year has seen a good upturn.
Covid reduced both my pot and investment income by around 40% but it's recovered and I was able to keep buying while the markets tumbled. 
One's temperament, attitude to risk and dependants will change where you feel comfortable so invest appropriately. One'll miss out on potential profits and experience more volatility with stocks than going all money market but if you have enough capital and 5% beats inflation it's a good place for the cautious to pop the cash.

Albermarle

Unless you currently have quite a high risk portfolio, the usual advice is to ignore your retirement date and just stick with the same, as it should be a long term strategy.

However we have a relatively unusual situation where interest on cash/ STMM funds is above inflation, and will probably remain that way for a year or two. So clearly there is a temptation to be a bit more cash rich than you would normally. I do not think there is anything wrong with that up to a certain level, but probably best not to let it sway you too much from a longer term strategy.

BoxerfanUK

My OH has just done similar with her newly opened SIPP.  Not taken the tax free up front and just started drawdown to her personal tax allowance by crystallising enough for next 12 months and have put all of the rest (465k) into a STMMF for now.  The thought being that if the MMF can provide enough safe-ish growth (3.6%+) that exceeds what she takes out then for now we are happy with that.  Obv’ if rates drop then we will re-evaluate when needs be.

we have the advantage that in 4 years her SP kicks in and with my DB and SP we don’t really need to rely on her SIPP at all so at that point will prob be happy to take more risk with her SIPP.  

I guess for the OP at 54 that’s quite a few more years to bridge than us, so not such an easy decision!!

kempiejon

And I suppose the handy thing about MM is that the returns are published. If you know your own rates of inflation and the MM returns more the risk free investing is handy for the cautious with plenty of capital reserves.
I have to sweat my money quite a bit harder to get through 30, 40 or 50 years without permanent full time employment and a fair way to wat for SP.
I have a couple of decades of investing experience and the past suggests equities are the place for my pot. Or back to the office for another decade.

BoxerfanUK

kempiejon said:

And I suppose the handy thing about MM is that the returns are published. If you know your own rates of inflation and the MM returns more the risk free investing is handy for the cautious with plenty of capital reserves.
I have to sweat my money quite a bit harder to get through 30, 40 or 50 years without permanent full time employment and a fair way to wat for SP.
I have a couple of decades of investing experience and the past suggests equities are the place for my pot. Or back to the office for another decade.

I wouldn’t say we are over cautious, but with equity markets seemingly at or near all time highs, and the world the way it is right now, we are certainly erring on the side of it, and why not, if MMF’s can still outstrip her drawdown amount.  Of course if there’s a crash tomorrow we’ll be wading into equities again without much hesitation!

kempiejon

BoxerfanUK said:

kempiejon said:

And I suppose the handy thing about MM is that the returns are published. If you know your own rates of inflation and the MM returns more the risk free investing is handy for the cautious with plenty of capital reserves.
I have to sweat my money quite a bit harder to get through 30, 40 or 50 years without permanent full time employment and a fair way to wat for SP.
I have a couple of decades of investing experience and the past suggests equities are the place for my pot. Or back to the office for another decade.

I wouldn’t say we are over cautious, but with equity markets seemingly at or near all time highs, and the world the way it is right now, we are certainly erring on the side of it, and why not, if MMF’s can still outstrip her drawdown amount.  Of course if there’s a crash tomorrow we’ll be wading into equities again without much hesitation!

Well I didn't say over cautious. Markets spend more time going up than going down.
One has to invest to suit their mentality and attitude to risk. If you feel safe reducing stock market exposure that's a good move, and especially if you have enough money and safe pensions in reach to cover your basic needs. I just looked at a 5 and 10 year graph of the global stock market as tracked by Vanguard ETF VWRL yeah there are wobbles but it has trended upwards that time. I invest to capture that direction of travel as otherwise I couldn't retire early. Global equities broadly does better than MM over time so it suits me to invest there.

Albermarle

BoxerfanUK said:

My OH has just done similar with her newly opened SIPP.  Not taken the tax free up front and just started drawdown to her personal tax allowance by crystallising enough for next 12 months and have put all of the rest (465k) into a STMMF for now.  The thought being that if the MMF can provide enough safe-ish growth (3.6%+) that exceeds what she takes out then for now we are happy with that.  Obv’ if rates drop then we will re-evaluate when needs be.

we have the advantage that in 4 years her SP kicks in and with my DB and SP we don’t really need to rely on her SIPP at all so at that point will prob be happy to take more risk with her SIPP.  

I guess for the OP at 54 that’s quite a few more years to bridge than us, so not such an easy decision!!

Regarding the comment in bold,
It is not actually possible to take taxable income without also taking some tax free cash. Presume you mean that she has not taken all of her tax free cash upfront, just some of it.

I wouldn’t say we are over cautious, but with equity markets seemingly at or near all time highs, and the world the way it is right now,

If you look back over the last 50 years, there have been numerous global issues and crises and there always will be. Stock markets are only indirectly linked to what you see in the news.

BoxerfanUK

Albermarle said:

BoxerfanUK said:

My OH has just done similar with her newly opened SIPP.  Not taken the tax free up front and just started drawdown to her personal tax allowance by crystallising enough for next 12 months and have put all of the rest (465k) into a STMMF for now.  The thought being that if the MMF can provide enough safe-ish growth (3.6%+) that exceeds what she takes out then for now we are happy with that.  Obv’ if rates drop then we will re-evaluate when needs be.

we have the advantage that in 4 years her SP kicks in and with my DB and SP we don’t really need to rely on her SIPP at all so at that point will prob be happy to take more risk with her SIPP.  

I guess for the OP at 54 that’s quite a few more years to bridge than us, so not such an easy decision!!

Regarding the comment in bold,
It is not actually possible to take taxable income without also taking some tax free cash. Presume you mean that she has not taken all of her tax free cash upfront, just some of it.

I wouldn’t say we are over cautious, but with equity markets seemingly at or near all time highs, and the world the way it is right now,

If you look back over the last 50 years, there have been numerous global issues and crises and there always will be. Stock markets are only indirectly linked to what you see in the news.

Sorry yes I meant she’s not taken the full tax free, just 25% of the crystallised amount.

yes I agree with you re’ last 50 years but with MMF’s giving a reasonable return for now we are happy with that and will review as needs be.

Pat38493

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

My OH has just done similar with her newly opened SIPP.  Not taken the tax free up front and just started drawdown to her personal tax allowance by crystallising enough for next 12 months and have put all of the rest (465k) into a STMMF for now.  The thought being that if the MMF can provide enough safe-ish growth (3.6%+) that exceeds what she takes out then for now we are happy with that.  Obv’ if rates drop then we will re-evaluate when needs be.

we have the advantage that in 4 years her SP kicks in and with my DB and SP we don’t really need to rely on her SIPP at all so at that point will prob be happy to take more risk with her SIPP.  

I guess for the OP at 54 that’s quite a few more years to bridge than us, so not such an easy decision!!

Regarding the comment in bold,
It is not actually possible to take taxable income without also taking some tax free cash. Presume you mean that she has not taken all of her tax free cash upfront, just some of it.

I wouldn’t say we are over cautious, but with equity markets seemingly at or near all time highs, and the world the way it is right now,

If you look back over the last 50 years, there have been numerous global issues and crises and there always will be. Stock markets are only indirectly linked to what you see in the news.

Sorry yes I meant she’s not taken the full tax free, just 25% of the crystallised amount.

yes I agree with you re’ last 50 years but with MMF’s giving a reasonable return for now we are happy with that and will review as needs be.

Probably you know this already but MMF are specifically designed to track the SONIA metric which is basically following the BOE base rate - as soon as the base rate goes down, the MMF return will go down by the same amount.  The market is expecting it to start going down later this year (in the UK at least).