Proximity to Retirement Jitters

BoxerfanUK

Pat38493 said:

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).

Thanks Pat, yes I am aware of that and it’s something we will monitor and change strategy when we feel we need to. 👍

Workerbee999

Pat38493 said:

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).

Please can I just check for my understanding - does this just mean the rate of growth would start to reduce when interest rates start to drop, or could the absolute value of the MMF drop? (Outside of a distressed “run on the bank” type one-off event). I don’t have the option of cash in my SIPP so the MMF is as close as I can get. Thanks 

saucer

Workerbee999 said:

Pat38493 said:

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).

Please can I just check for my understanding - does this just mean the rate of growth would start to reduce when interest rates start to drop, or could the absolute value of the MMF drop? (Outside of a distressed “run on the bank” type one-off event). I don’t have the option of cash in my SIPP so the MMF is as close as I can get. Thanks 

MMFs are funds that are closely tied to base rate. When interest rates go down the rate of return will reduce, so grow less quickly. We’re about 2 years out from retirement (all things being equal) and have started investing into MMFs (albeit not moving existing investments). We’ve missed out on a good chunk of the recent rally, but safe inflation-beating growth has been reassuring.

Notfarfromtheborder

Interesting thread on a subject I've been thinking about.

Currently 3 years away from retirement aged 54 now, hoping to be able to retire in April 2027

Overall pension fund (currently £550K) with around £15K per year being invested between now and retirement into current scheme with L&G (target retirement date fund 25-30). Total split of existing pensions around 70% equity, 30% fixed and is spread over numerous providers, was thinking of transferring an old Aegon pension (£115K) heavy in UK and Pacific equity to a cash style fund to my current workplace pension with L&G to give some pace of mind and security between now and retirement date as up to 3 years drawdown would by the transferred amount, in total 6 years peace of mind from now. Appreciate returns on these funds are likely to reduce over this timeframe

This move would also leave my total portfolio light on UK equity, currently around 23%, would reduce to 11%. Pacific equity would reduce to negligible levels also

I think my logic is sound, would welcome comments though

Also, I have 2 options on cash funds I could transfer to, L&G LMC Cash 3 and L&G PMC Sterling Liquidity Fund 3, what is the main difference between these 2 funds?

GazzaBloom

Fear of the 3 times a century 50% market crashes?

I guess Charlie Munger sums it up:

“If you're not willing to react with equanimity to a market price decline of 50% two or three times a century,” Munger declared, “you’re not fit to be a common shareholder and you deserve the mediocre result you're going to get.”

I would substitute the word “able” for “willing”, “accept” for “deserve” and “lower” for “mediocre” in his typically hard edged statement.

Set your mix of risk-on to risk-off including any fixed income such as DB pensions or state pension and keep buggerin' on.

I go into retirement at the end of this year with 17% of living expenses covered by DB pension and an 83/17 mix of equity index funds (global, US, Tech) / cash in DC pensions and ISAs. I plan to drawdown proportionally and rebalance annually.

Historical back testing using Timeline suggests my portfolio would have survived 100% of the time until age 100 even in the worst of past market performance (including those 50%+ crashes). If I drop it all to cash/MMF, it won't survive the worst of history:

The worst-case scenario:

"The worst-case scenario occurred between January 1915 and January 1962, during which you would have run out of money by the age of 64. However, this scenario can be avoided with some simple adjustments along the way."

What do I fear more? The 50% crash or running out of money at age 64 just 8 years after retiring?

LHW99

I am using an MMF to gather dividends at the moment, as that gives a better "interest" than offered by my platform. I shall use that first for any yearly UFPLS withdrawal and rebuild afterwards. As long as the rate stays above the platform provider's it's beneficial.

If its not used for UFPLS, then it can be easily used for topping up holdings if there is a crash.

Pat38493

Workerbee999 said:

Pat38493 said:

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).

Please can I just check for my understanding - does this just mean the rate of growth would start to reduce when interest rates start to drop, or could the absolute value of the MMF drop? (Outside of a distressed “run on the bank” type one-off event). I don’t have the option of cash in my SIPP so the MMF is as close as I can get. Thanks 

It's the rate of returns that would drop.  I would expect an short term MMF to increase every day, but that rate of increase will go down as soon as interest rates go down.

There has been a couple of clickbait scare stories about the potential for MMFs to have a run on them - this wouldn't necessarily cause the value of your investment to go down, but they were trying to claim that some MMFs don't carry enough of their investments in pure cash (as opposed to gilts or other instruments) to satisfy the situation if everyone tried to take their money out at the same time.

I'm not worried about it and I am still happy to use MMF today.

That said, I have just liquidated my MMF holdings as I am in the process of taking out my tax free cash as part of my retirement financial planning, but this is nothing to do with any concerns over liquidity.

I was trying to look at whether to put the money that I don't need soon into an MMF in an ISA/GIA combination, or whether to just use a best buy cash ISA.

Back of a napkin calculations on the best buy Plum ISA from this site, says that the annual return on the cash ISA is very slightly better than the MMF after taking into account charges and transaction fees.  However as soon as you look at using better known ISAs from mainstream providers, I think the MMF will work out better.  I used AJBell fees as the example to figure this out. (the difference was only about £30 on a 20K investment over a year so not big amounts)

peterg1965

I am within two years of retirement, and have become completely risk averse when it comes to investing in stocks/oeics etc.  A complete contrast to where I was 4/5 years ago.

I just want complete certainty, even if it does cost me some investment returns. I have sufficient RPI linked DB pension + SPA to come to cover that risk.  all of my current calculations to take further income from my DC pensions are based on staying in cash, via deposit accounts, and with the option of taking fixed term annuities if they remain competitive. I am probably bonkers but it makes sense to me

theblueflash

Timely article on this very subject - thank you for all the views so far. 

https://www.fidelity.co.uk/markets-insights/personal-finance/personal-finance/why-ive-switched-half-my-pension/?utm_term=pi_markets_insight&utm_campaign=pulse_0524&utm_medium=email&utm_source=marketo&utm_content=pulse_lead_story_W_SippN_ISAN_C.%2045-54&mkt_tok=MTQzLUpSTS0wMzIAAAGTAhnI6z7nXgZsl5OZ20bpwX3u5_a8XYizF9kI9869WRIcveb_1jgAthSBe-pbjL7eTJOQKYfR1Iz2iZ8WVM_OPCk3rmuYHbTc9pI3drTekI8R

nicknameless

Been trying to do the opposite and commit to higher % equities as know that increases probability of long term success.  Of course that's difficult psychologically with approx. 18 months to go.  With some DB pension which I will take early to reduce sequence of returns risk for the DC portion using planning software this gets me to a good probability of success without adjustments.  Lowering the equity portion reduces probability of success.