Strategy for accumulating cash bucket prior to retirement

4500_Donavan

Hi. Thanks to everyone that posts on this forum. Your opinions have been really useful to me.

My scenario; all my retirement funds are within a SIPP. Global Equity and Tech accumulation funds. Best case: 6 years away from retirement, worst case: 8 years (depending on Global Equity performance!). I plan on 4 years of income in cash pot at point of retirement (asset types tbc) .

I was wondering:

1. How far in advance of retirement have you started building cash pot?
2. Cash pot inside or outside SIPP?

3. What strategy have you used to build it?

4. What considerations influenced your strategy?

5. How much of equity bucket in accumulation and how much of it in income type funds at point of retirement?

Phossy

Perhaps not answering your question fully, but, my 'cash-pot' is an offset savings account lined to my (offset) mortgage (nett is Zero). When I decide to take my pension, I will take a lump sum and a portion of that will be placed in an easy access CASH ISA and some fixed rate products.

Storcko14

Hi,
1) I started to shift into cash about 3-4 years ahead of planned retirement (June this year) although before that, I gradually shifted out of some higher risk equities (mainly tech) that had done well to lower risk.  So, I suppose you could say I started de-risking about 5-6 years out although I did pause during the Covid drawdown in H1 2020 (in fact shifted some back to equities in the aftermath).
2) Cash pot (mainly STMM for now) is all inside the SIPP although I have 2 years' expenses in cash savings outside.  Short-med dated bond holdings (3-10 years to maturity roughly) have increased slightly too.
3) Covered in 1.
4) I'm largely dependent on DC and ISAs for about 80% of post retirement income up until SP age (currently 58) and had reached The Number so preservation became the priority.
5) Probably about 40-45% equities but not necessarily in income funds - I prefer to think total return and sell down as needed.  I've also adjusted equities slightly away from US.

SVaz

I started building a cash pot ( Money market fund)  in my Sipp last year.  I’ll start taking it in 2028.   I’ve currently got 4 years cash parked and need another year.   The rest is split between equities and mixed assets. 

Once I start taking the cash I will start selling funds to start another pot to probably buy an annuity in my 70’s, probably a 5 or 10 year fixed term joint one.  

My Wife is in the process of getting all her Sipp out tax free in the next 5 years and into her Stocks ISA.  

Hoenir

Market corrections are unpredictable in nature. How much can you afford to lose ? 

Linton

I put all income into near to cash portfolio and take all expenditure from it.  So the pot steadily increases over time,  income being generally higher than expenditure.  This approach was started well before retirement.

Working in this way gives two advanatges...
 - variable income and expenditure is not a short/medium term problem
 - no difficult decisions about when a crash is sufficiently deep to stop selling long term growth funds, and when has it recovered sufficiently to start selling again.

gm0

1. How far in advance of retirement have you started building cash pot?

1-2 years. In a couple of big steps.  Vs 10 years of small steps.  Worked out OK for me.  Markets vary making either approach better.

2. Cash pot inside or outside SIPP?

Mixture.  MMF / short bonds for sequence inside.  Fixed term deposit and similar outside.

3. What strategy have you used to build it?

Tactics not strategy.  I drifted at 100% equities towards early retirement

4. What considerations influenced your strategy?

Realising that I needed to revisit sequence risk when I switched to deaccumulation.  And needed to calculate my asset allocation for in retirement.  Which it turned out wasn't 100% equities as it had been prior.

5. How much of equity bucket in accumulation and how much of it in income type funds at point of retirement?

All equities funds.  Mostly acc units in accumulation.  I never used "income" as in high dividend yield stock selective funds for my portfolio.

In de-accumulation I use inc units to spit cash into the income buffer along the way.  On part of my pension.  And acc on other parts at other providers. It is a minor consideration as buffers are easily reset at rebalancing.  I still don't use "income funds" in the high yield portfolio or high dividend stock sense.

cfw1994

4500_Donavan said:

Hi. Thanks to everyone that posts on this forum. Your opinions have been really useful to me.

My scenario; all my retirement funds are within a SIPP. Global Equity and Tech accumulation funds. Best case: 6 years away from retirement, worst case: 8 years (depending on Global Equity performance!). I plan on 4 years of income in cash pot at point of retirement (asset types tbc) .

I was wondering:

1. How far in advance of retirement have you started building cash pot?
Built funds over several years….
2. Cash pot inside or outside SIPP?
Outside pension pot.  

Used mostly PBs. 

Also had some inheritance and put into NS&I 1yr bonds

3. What strategy have you used to build it?
Save!  

Also - perhaps foolishly - had a 5yr cash ISA: added those to maximise PBs when it mature, which was a couple of years prior to stepping away from the wage

4. What considerations influenced your strategy?

Mostly a desire to have 2-3yrs literally in easily accessible cash to draw on

5. How much of equity bucket in accumulation and how much of it in income type funds at point of retirement?
DC pot currently remains in equity.  

Considering a shift down, but our cash assets remain 2-3yrs worth of income, & despite a woeful political environment across much of the world, the funds continue to grow.

Answers above.

I would suggest it is most important to understand how and under what conditions you would access it.  
Obviously a cash pot untouched will be losing out to inflation every year, dwindling in effective value….but it is our safety blanket regardless.

My DC pot took a 20% dive 3 months after I had started to drawdown 😳
Classic SOR challenge 🫣

We had a chat, discussed our plan, and stopped the draw, living off the cash until it bounced back.  Luckily it did 😜
That is the hard part - deciding what to do, and DOING IT 👍

4500_Donavan

Thanks for all your comments.