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Strategies for protecting against pre-retirement stock market crash

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  • Pat38493
    Pat38493 Posts: 3,336 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    dunstonh said:
    based on the tables in this document, your 2 years cash bucket might become exhausted at the exact worst time to start drawing from equities again!

    Yield goes into cash float.   If the yield is around 3% and the draw is around 3.5%, then the 2 year cash float takes longer to run out.   And during positive periods, you maintain the float.  You don't refloat it during negative periods.

    No method is going to be perfect 100% of the time.  Markets do not act within expected volatility 100% of the time.    Most modelling shows 90% or 95% range of variables.   Ultimately, most people are looking for a solution that does what they want it to do with the least risk possible.     Some will unnecessarily push it up the risk scale, and they may get lucky or not.  

    Meaning that with this approach you would use income funds and the income would continue to go to the cash float even during a fall in equity prices?
  • Thanks all, I'm not too worried about this https://earlyretirementnow.com/2019/10/30/who-is-afraid-of-a-bear-market/ because I've been paying in monthly for years so it's not like I'm buying 'at the top'.

    What I'm getting is that whether I was looking for drawdown or annuity, having 25% of the pot in cash seems prudent - to ride out bear market years. Leaving the other 75% in stocks in the final years leading up to retirement is more personal I suppose, would I be happy to get a 4% return on cash funds instead of 8% in stocks during those final years as the price to pay to not have to worry about the risk of a crash? Also what is my health going to be like, what is my wife's pension situation?

    I do know one unfortunate person who was forced to retire in 2010, and yes, they had all their fund in stocks during the 2008 crash - so lots of grumbling about "should have stuffed it under the mattress" from them - I don't want this to be me.


  • Albermarle
    Albermarle Posts: 27,963 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    edited 11 June at 11:01AM
    Thanks all, I'm not too worried about this https://earlyretirementnow.com/2019/10/30/who-is-afraid-of-a-bear-market/ because I've been paying in monthly for years so it's not like I'm buying 'at the top'.

    What I'm getting is that whether I was looking for drawdown or annuity, having 25% of the pot in cash seems prudent - to ride out bear market years. Leaving the other 75% in stocks in the final years leading up to retirement is more personal I suppose, would I be happy to get a 4% return on cash funds instead of 8% in stocks during those final years as the price to pay to not have to worry about the risk of a crash? Also what is my health going to be like, what is my wife's pension situation?

    I do know one unfortunate person who was forced to retire in 2010, and yes, they had all their fund in stocks during the 2008 crash - so lots of grumbling about "should have stuffed it under the mattress" from them - I don't want this to be me.


    Leaving the other 75% in stocks in the final years leading up to retirement is more personal I suppose, would I be happy to get a 4% return on cash funds instead of 8% in stocks during those final years as the price to pay to not have to worry about the risk of a crash? 

    As said already there are various theories about this, but for most the answer is probably not to keep it all in stocks or all in cash, but something inbetween. For example-
    50% equities
    20% bonds/gilts
    20% cash
    10% other ( gold , property, infrastructure etc ) 

    It is not a particular recommendation and plenty of scope for juggling those figures,  but shows that you can maybe rest reasonably easy at night, whilst still seeing some growth.
    Also cash may or may not be earning 4% in 5 years time.
  • Gary1984
    Gary1984 Posts: 370 Forumite
    Part of the Furniture 100 Posts Name Dropper
    edited 16 May 2024 at 10:05PM
    It's not just a stock market crash you need to worry about if you're buying an annuity but a bonds boom. If interest rates drop again to what we had for the 15 years following the 2008 crash then annuity prices will skyrocket but so will bond values. That's why buying bonds as you approach retirement will hedge the risk of lower annuity rates.

    Cash won't do the same job as it's value won't increase like a bond fund would if interest rates fall.
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