At what age do you grab your life savings and head for cover?

incus432

Bobziz said:

 In red/brown....the now unfashionable CGT

CGT?  I only know Capital Gains Tax

Bobziz

incus432 said:

Bobziz said:

 In red/brown....the now unfashionable CGT

CGT?  I only know Capital Gains Tax

Capital Gearing Trust. The chart looks very different if you look at the last 10 years. Question is what will the next 10 years bring....

Bostonerimus1

Being secure in retirement isn't just about your savings/investments. There are many things that can be done to make things easier. They include having a budget so you can control your spending, maybe having paid off a mortgage so you don't need to generate income to pay that each month, understanding how your income sources align with your spending; so how much will your state pension, any DB pensions and annuities and interest and dividends cover. As an example here's what I've done:

1) DB pension/annuity and rental income cover my spending. Dividends, interest and state pensions will be extra above that.
2) I keep 2 years-ish cash in the bank/money market fund for cash flow and easy access.
3)  90% of the rest of my money is in global equities. 

I don't worry about "time buckets" or asset allocation and don't manage my money in any way other than to think about tax and inheritance issues. My "cover" are the guaranteed income sources I have in place and a paid off home which allow me to leave the rest of my money in equities where it has a chance to grow over the long term. If it doesn't it's not an issue.

boingy

Five years in cash seems a bit excessive to me. There is such a thing as being too cautious. One or two years cash should be enough for all but the most extreme of scenarios.

agent69

Many thanks for the comments.

When I got to 65 I took my DB pension, including the 25% tax free element, part of which I used to purchase £50k of premium bonds (my rainy day fund). My SIPP is administered by an IFA, and they suggested keeping £20k within the SIPP in cash to cover 2 - 3 years of withdrawls at my current level.

I don't have a mortgage (or any significant outstanding bills) and I could get by just on the state and DB pensions. I use the SIPP and premium bond winnings to fund my exotic holidays, and I currently have more money now than I did 3 or 4 years ago.

I can't think of any scenario where my money would run out, but having spent 40 years saving up a nice little nest egg, it would be a shame to see too much of it disappear.

Takedap

boingy said:

Five years in cash seems a bit excessive to me. There is such a thing as being too cautious. One or two years cash should be enough for all but the most extreme of scenarios.

A few years ago, I would have said the same thing.  Now however, not so sure...

Bostonerimus1

There's no age when you grab "your life savings and head for cover". You should always be in control of your finances and managing them appropriately. Your asset allocation might become more defensive as you approach retirement, but most people are going to need their capital to grow to keep up with inflation and they might want to leave something to their heirs. Many studies have shown that being too defensive ie cash and bonds is a poor and risky strategy and that relatively high equity allocations lead to the best chances of retirement income success. Of course you need to factor in annuities, DB pensions and the size of the portfolio relative to the income requirements and expected life span, but you should never be running for the sidelines and standing there with a pile of cash or a non indexed annuity rapidly losing value to inflation.

Linton

boingy said:

Five years in cash seems a bit excessive to me. There is such a thing as being too cautious. One or two years cash should be enough for all but the most extreme of scenarios.

“Should be enough” does not sound sufficient to avoid sleepless nights assuming your drawdown income represents a significant % of your ongoing expenditure. Furthermore the near to cash holdings can also cover short term one-off emergency and discretionary expenditure.

With a 3.5% SWR and a lifespan of 35 years one or two years of cash really is a very small % of your pot, especially if you regard it, from an overall point of view, as part of the 40% of a 60/40 portfolio.  Even 5 years is not a great restriction on being able to generate the growth required.

kempiejon

Back in 2008/9 my investments and the income I generated from them fell about 40%. Selling to cover my income short fall would have diminished the pot even more. It took about 5.5 years for capital and income to pull level. Covid had a similar halving of my income and capital, recovery was about 2 years. I was still growing my pot at the time so was able to make the best of low prices. I would have had to reduce my standard of living dramatically living of the equity. A cash pot of 3 years of money could be drawn upon for over 6 years topping up from a halving of investment income. Assuming the halving begins to recover over that 6 year period.
My retirement income stream was of course bolstered by my buys following the GFC and Covid but when you've just seen your investment halve buying more when it looks like the end of the investment universe is hairy.

OldScientist

agent69 said:

I'm late 60's and took early retirement about 6 years ago. I currently have state and DB pensions that I could just about live off of if disaster struck. I also have savings split between SIPP (£260k), investment accounts (£170k) and 'cash' (£60k mostly premium bonds).

One potential way forward is to build on the floor that your state and DB pensions provide by buying a lifetime annuity with RPI protection with some of your investments. For example, a single life RPI annuity bought with £100k (i.e. roughly your current bond holdings) would currently (https://www.williamburrows.com/calculators/annuity-tables/ ) provide between £4.8k (at 65yo) and £5.7k (at 70yo) income per year for life. A joint life annuity would provide less.

This would a) allow you to live more comfortably in very poor market conditions and b) might allow you to take variable withdrawals from your portfolio (there are a large number of different strategies out there), i.e. more when times are good and less when times are bad. It will also mean that the asset allocation, and volatility, in your portfolio becomes less critical to your overall income.