Anyone in high equity allocation whilst retired?

Smudgeismydog

Similar to MetaPhysical, I have a cash buffer (ISA) and high equity content for my SIPP, which I can’t access for another 5 years. However, my Dependents pension provides sufficient income to cover my bills. It is this safety net which has provided me with enough security to maintain the equity position.

However, following the proposed change of legislation to include pensions in your estate, my thinking about how to access my pension has changed. I now plan to drawdown sufficient income to remain just inside the 20% income tax bracket from 57 to 67, and then correspondingly reduce the drawdown amount once my State Pension kicks in (which will be in excess of the amount I need). I will make a concerted effort to spend and enjoy it (or gift it), as a dear friend has said, she’s viewing all her spending as having 40% off!

When I ran through my amended figures, it became apparent that I no longer ‘need’ to take the investment risk. So, as Leo sayer said, why add in unnecessary stress.

For me a lot of this is around the real psychological change in mindset from being someone who saved hard and focused on taking an adventurous stance in order to accumulate, to giving myself permission to spend money and be comfortable with decumulating wealth.

Albermarle

phlebas192 said:

We're a little over 85% in equities, mostly investment trusts with strong track records for paying dividends. Of the rest, 6% is in gilts (held within a SIPP) and the rest is in cash (premium bonds and easy access savings accounts).

I've got a modest DB pension and the dividends are more than sufficient to meet the rest of our normal spending. The cash is there as much to cover large purchases as anything else, but if necessary could meet over 3 years of spending.

You can look at this from another angle, taking into account all your finances. ( not just you but anybody)
As you have cash savings and a DB pension ( which you can give a nominal cash value) and presumably a state pension as well at some point, ( in cash terms worth at least £250K )  you are not really anywhere near 85% equities overall for your retirement income.

Albermarle

kempiejon said:

I hold some cash in my stocks and shares ISAs and in my SIPPs.
Unsheltered cash can cause a liability, with comparitively high interest rates and small allowances, for tax payers. For unsheltered cash-like I use premium bonds, prizes are tax free and short-dated low-coupon gilts trading below par, to minimise interest as capital gains on UK gilts are tax free.

Not wanting to get political at all, but the ability to earn savings interest tax free in the UK is a very generous system in a global comparison. Your average Irish or German would be ecstatic to be able to put £20K a year in a cash ISA, or get any significant tax break at all. 
Less sure about this but I think our savings market is more competitive than most as well. For example the rates available in Ireland are abysmal. 

MetaPhysical

Albermarle said:

phlebas192 said:

We're a little over 85% in equities, mostly investment trusts with strong track records for paying dividends. Of the rest, 6% is in gilts (held within a SIPP) and the rest is in cash (premium bonds and easy access savings accounts).

I've got a modest DB pension and the dividends are more than sufficient to meet the rest of our normal spending. The cash is there as much to cover large purchases as anything else, but if necessary could meet over 3 years of spending.

You can look at this from another angle, taking into account all your finances. ( not just you but anybody)
As you have cash savings and a DB pension ( which you can give a nominal cash value) and presumably a state pension as well at some point, ( in cash terms worth at least £250K )  you are not really anywhere near 85% equities overall for your retirement income.

That is very true and an alternative angle to look at it from.

Ciprico

Gilts can provide a secure 4% return.

If you extrapolate this and find your Sipp will "cruise" to above £1.07M
Why take the extra risk. Above such a level you lose the 25% tax element, and you'll probably struggle to get the pension out all at lower rate tax 

So the risk / reward ratio substantially shifts....

GenX0212

MetaPhysical said:

Albermarle said:

phlebas192 said:

We're a little over 85% in equities, mostly investment trusts with strong track records for paying dividends. Of the rest, 6% is in gilts (held within a SIPP) and the rest is in cash (premium bonds and easy access savings accounts).

I've got a modest DB pension and the dividends are more than sufficient to meet the rest of our normal spending. The cash is there as much to cover large purchases as anything else, but if necessary could meet over 3 years of spending.

You can look at this from another angle, taking into account all your finances. ( not just you but anybody)
As you have cash savings and a DB pension ( which you can give a nominal cash value) and presumably a state pension as well at some point, ( in cash terms worth at least £250K )  you are not really anywhere near 85% equities overall for your retirement income.

That is very true and an alternative angle to look at it from.

But I believe @MetaPhysical is young like me  and looking to bridge a 9-10 year gap to SP? So it could be a slightly different sort of question than for someone who has already reached SP age?

I have been playing around with the Voyant software for the last few days attempting to model spending up until at least age75 at the same level as our current take home earnings and it looks like I need to aim for an overall return of around 7% (incl. inflation) to achieve this (stress tested via Monte Carlo and Market Crash models). So for me the question is probably more geared towards what sort of investment mix is most likely to achieve this 7% for me? 

At the moment, as a result of 'liberation day', both of my main managed funds (70% invested in a diversified growth fund {which itself includes a % of equities} and 30% pure equity) are still behind where they were six months ago but currently still outperforming 7% for the year as a whole and comfortably exceeding this over the longer term. Rather than try and 2nd guess myself I will probably stick with this unless returns drop below the target over a sustained period.

Sarian

MetaPhysical said:

Sarian said:

I'm in the process of doing similar...1/3 in DB and State Pension 2/3 in funds but I'm mid-sixties. Looking to have 2years income in cash (for downturn) and then try to move funds to cash when market is above trend to avoid crystallising losses/poor performance. Of course guessing when market is above trend is the challenge!

Indeed.
I really need growth of about 5-6 % ideally to prevent withering away the capital.  My plan is that at any time growth is over 5% for the year (hope springs eternal!), I will cream off the excess into the cash buffer.  That means on good years I can grow the equity pot a bit as well as the cash buffer.  If there is less than 2% growth I will leave the equities alone that year and live off of the cash to avoid damage to the equities pot.  There is no science behind that lower percentage - just a gut feel.  Of course, plenty of unknowns and a lot of damage could be done by a run of 4-5 bad years.  However, we'd all be screwed in that situation.

I'm not interested in trying to "beat" the market as for me that's a fools game (not really any different to betting). I'm generally using trackers and hoping to just achieve the overall market rate - it's done pretty well over the last 300 years. "Usually" markets recover to within a few percent within six months of a crash. A more difficult assessment is the effect of international exchange rates if you are diversified and exposed to international markets.

Hoenir

Sarian said:

 "Usually" markets recover to within a few percent within six months of a crash. 

How many of these "crashes" have you personally experienced ? 

Sarian

Hoenir said:

Sarian said:

 "Usually" markets recover to within a few percent within six months of a crash. 

How many of these "crashes" have you personally experienced ? 

Well I guess that depends on the definition of a "crash" and whether having money purchase pensions invested for over forty years counts as personal. In the early days (1980's) I was oblivious to it! I'm no investment guru (far from it) but I did look back over the last 50 years of the FTSE to see what happened after "sharp" falls. I'm happy to be educated...

Hoenir

Sarian said:

Hoenir said:

Sarian said:

 "Usually" markets recover to within a few percent within six months of a crash. 

How many of these "crashes" have you personally experienced ? 

Well I guess that depends on the definition of a "crash" and whether having money purchase pensions invested for over forty years counts as personal. In the early days (1980's) I was oblivious to it! I'm no investment guru (far from it) but I did look back over the last 50 years of the FTSE to see what happened after "sharp" falls. I'm happy to be educated...

Corrections are part and parcel of economic cycles. Did the GFC pass you by?  

Never found the FTSE to be a reliable indicator as not an index that's been a must have for retail investors. Virgin tried launching a tracker in the late 90's in the Vanguard model. Eventually was closed due to lack of interest. 

Take a look at the S&P500 post the 2000 Dot Com boom and the GFC post 2007. Very easy to see the trends. 

At the time of the collapse of the Nikkei 225 in 1990. Japan accounted for 40% of the global world index. The USA just 30%.