on verge of retiring - rebalancing portfolio in volatile times

starving_artist

So I posted on this board a little over a year ago about the affordability of retiring with the savings and pensions I had.  Someone gently suggested that although perhaps doable at the bottom floor of my desired income range I might be better waiting a couple more years.  My situation now is: 

Just over 6 years to SRA (I qualify for the full SP).  No debt, no partner/dependents. Own my property which I think of as my care home fee backstop.

Desired net annual income £20,000 although could manage on as little as £13,000.  I plan to use a mixture of tax free lump sums, draw down, ISA withdrawals in combination with a small annuity.

My investments have done really well in the last year but of course around half of my gains have been wiped out now due to reasons we all know.  I totally get the cyclical nature of these things but given that I am in the dreaded situation of being on the verge of retirement at an adverse time in the market I have significantly derisked and now have:

£135,000 in stocks and shares ISAs (of which £86,000 in SMM).

£225,000 in various DC pensions (of which £36,000 in SMM). 

Overall equity exposure is now around 24%. 

I am likely (if possible) to pull the trigger at any point in the next year or so during which I expect there will be continuing volatility in the stock market.  My question is:  Is this a sensible level of equity exposure?

QrizB

I'm not you and I don't know your risk tolerance, but if you're planning to remain invested for the next 30+ years id have thought that 24% equity was too low?

Of course if you're planning to spend £250k of your DC pension imminently on a £10k pa RPI linked annuity, I could understand having that sum in short-dated gilts, bonds or STMM funds.

squirrelpie

starving_artist said:

£135,000 in stocks and shares ISAs (of which £86,000 in SMM).

£360,000 in various DC pensions (of which £36,000 in SMM). 

Overall equity exposure is now around 24%.

I don't understand these numbers. There seems to be a significant fraction of your holdings that you haven't mentioned. Which might be property, or bitcoin, or gold or whatever?

El_Torro

I agree with QrizB in saying that 24% is too low, unless you plan to buy an annuity. If you're planning to draw down rather than go the annuity route I would have at least 40% in equities. Some people would go a lot higher. 

I personally think you don't need more than 5 years worth of cash (£100k in your situation) in cash and money markets. Once you start taking your state pension I guess that will relieve the pressure on your investments since you won't be drawing down as much.

starving_artist

squirrelpie said:

starving_artist said:

£135,000 in stocks and shares ISAs (of which £86,000 in SMM).

£360,000 in various DC pensions (of which £36,000 in SMM). 

Overall equity exposure is now around 24%.

I don't understand these numbers. There seems to be a significant fraction of your holdings that you haven't mentioned. Which might be property, or bitcoin, or gold or whatever?

The vast majority is invested in diversified multi asset funds - I used the breakdown details for each fund to work out how much is actually going in to equities.  The rest is the mix of bonds, gilts, property, cash those funds use to make up their multi asset profile.

starving_artist

QrizB said:

I'm not you and I don't know your risk tolerance, but if you're planning to remain invested for the next 30+ years id have thought that 24% equity was too low?

Of course if you're planning to spend £250k of your DC pension imminently on a £10k pa RPI linked annuity, I could understand having that sum in short-dated gilts, bonds or STMM funds.

My risk tolerance has been quite high and I have been happy to sit out previous dips but I think market volatility is going to continue for quite some time and I can't see Trump changing his strategy until at least the Mid Terms.  The time it takes for the markets to recover could end up eating up a lot my retirement years.  I'm not ruling out going back in equities to the future but the start of retirement is a particularly vulnerable time.

starving_artist

El_Torro said:

I agree with QrizB in saying that 24% is too low, unless you plan to buy an annuity. If you're planning to draw down rather than go the annuity route I would have at least 40% in equities. Some people would go a lot higher. 

I personally think you don't need more than 5 years worth of cash (£100k in your situation) in cash and money markets. Once you start taking your state pension I guess that will relieve the pressure on your investments since you won't be drawing down as much.

That's really what I was asking - what the typical level of equity exposure in a DC retirement portfolio is.  I take your point about the cash.

Hoenir

starving_artist said:

QrizB said:

I'm not you and I don't know your risk tolerance, but if you're planning to remain invested for the next 30+ years id have thought that 24% equity was too low?

Of course if you're planning to spend £250k of your DC pension imminently on a £10k pa RPI linked annuity, I could understand having that sum in short-dated gilts, bonds or STMM funds.

My risk tolerance has been quite high and I have been happy to sit out previous dips .

Many people don't know what their own risk tolerance is until they face the reality of a full blown bear market. Nor the value of diversified portfolio's. Which help negate the worst of the storm. 

MetaPhysical

I am 57, retiring next March (2026) and hold 15% MM cash, 50% in global equities and 35% bonds.  The equities are down this last month but the cash is my buffer against that from where I will draw my income and replenish it when markets are up.

I don't do anything special with my equity allocation and I just split them for a bit of provider diversity across two cheap global trackers (Fidelity and Vanguard LS 100%).

Equities will come back in a few weeks IMO.  Trump will negotiate, this is his opening salvo.

Albermarle

starving_artist said:

El_Torro said:

I agree with QrizB in saying that 24% is too low, unless you plan to buy an annuity. If you're planning to draw down rather than go the annuity route I would have at least 40% in equities. Some people would go a lot higher. 

I personally think you don't need more than 5 years worth of cash (£100k in your situation) in cash and money markets. Once you start taking your state pension I guess that will relieve the pressure on your investments since you won't be drawing down as much.

That's really what I was asking - what the typical level of equity exposure in a DC retirement portfolio is.  I take your point about the cash.

For a drawdown that could last 30 years or more, the classic mix is around 50% equities +/- 10%.
The rest being mainly bonds , with some cash and maybe a sprinkle of gold.

However I have to say that opinions will vary.

starving_artist

I'd be happy to increase to that level in the future but may if necessary wait until I have the annuity and am closer to SP.