Pension (SIPP), ISAs and Retirement

the_medium_bear

Hello people,

UK here and would appreciate peoples thoughts on the following

Age 51 here & aiming to retire at around 57

I currently hold:

490k in my SIPP (Vanduard LifeStrategy Acc 100)

165k in ISA (88k in Vanguard LifeStrategy Acc & 76k Vanguard FTSE Global All Cap - Acc)

75k in premium bonds

I have a mortgage of 160K (15 years left) - currently 4.02% fixed for 2 years

my wife (retired) has a police final salary pension of 20k (inflation index linked)

I also have about 25k in my current work place pension

Its occurred to me that if (or rather when) we do have a AI bubble burst that im at quite a high risk with the equities I have. I have considered moving some to other LifeStrategy 20/80 , 40/60 60/40 or 20/80

I am award however that some of those producs (even the lowest equities exposure) could still take a massive hit when the bubble bursts. As for the FTSE Global All Caps this is going to have a huge exposure to the Mag7

Just wondering what peoples thoughts are given retirement plans of about ~6 years (and what is potentially around the corner)

I know having bonds is probably safe too given my age but i would suspect they could take a hit too in a big market downturn.

I was considering paying off my mortgage (well just shy of it, so i would not hit an early repayment fee) from my ISA holding

Was also considering de-investing some of the equities and leaving in cash (not withdrawing, i cant take out of the SIPP anyway until 57) and keeping them to buy at a potential dip but this could obviously result in the low cash interest rates (~ 3%) being eroded by inflation.

I am keen on the low hassle of LifeStrategy & FTSE Global All Cap as i am not a seasoned investor and used them as a set and forget type investment.

Would appreciate some thoughts are given my finances and where you folk what put their investments ?

Appreciate there are a lot of questions here, but advice and thoughts would be appreciated

Cheers

the_medium_bear

I should add ref to "impending crash" i appreciate the online algorithms etc sending me this type of stories, however its starting to appear in the mainstream news (BBC, guardian, telegraph, BoE warning about AI crash etc.....)

Also appreciate the time in the market, just wondering if i should be more diversified with time in the market not being on my side potentially if there is a huge crash (2008 crash took S&P ~15 years to recover)

masonic

What are your plans for your SIPP when you retire? If you were planning to live off the ISA for a while then buy an annuity with the SIPP, then your time horizon is quite short for 100% equities. There has been recent talk elsewhere on the forum of buying an index linked gilt fund to hedge annuity rate movements and lock in a secure inflation linked income, so that may be one consideration. At a minimum you would want to have some component of your portfolio you could turn to in order to meet your financial needs if your retirement coincides with a market downturn.

I don't think selling equities just to give you the option to buy them back of they fall is a very wise move - this is just an attempt at market timing. Any change should be justifiable as a long term move.

Linton

I am unclear why you are focussing on the FTSE All Cap as a crash risk when the  much larger holdings in Life Strategy 100 will be at an equal risk.

The way I suggest you look at your situation is to estimate what expenditure you will need to take from your investments in the next 10 years (including tax) and put that in a range of bond funds.  They should have maturity dates of up to about 10 years, so medium or short dated. The rest could be kept in the global equity funds.

In this way you are ensuring you can meet your obligations whilst retaining sufficient equity to more than match long term inflation.

I agree with masonic ^^^ that selling equity purely to buy back later would be foolish and that you need to be thinking of your long term strategy. A crash could happen at any point in the next possibly >40 years of your life.

jimjames

VLS100 is very underweight in the USA so would be the ideal holding to balance against an AI crash you'd suggested. 
What did you do when the markets crashed in April? Did that worry you too or were you not aware because it wasn't predicted in the news?

dunstonh

Just wondering what peoples thoughts are given retirement plans of about ~6 years (and what is potentially around the corner)

Unless you are buying an annuity or planning to withdraw the lot and spend it on your first day of retirement, then your timescale is not ~6 years 

Also appreciate the time in the market, just wondering if i should be more diversified with time in the market not being on my side potentially if there is a huge crash (2008 crash took S&P ~15 years to recover)

a) You are mistaken.  The peak was May 2007.  The trough was March 2009.  It recovered in 2010 to previous peak but a couple of short term drops in the following years meant that August 11 was the final time it was at the 2007 peak.
b) You are a UK investor. So, you don't get S&P500 performance unless you currency hedge.
b) why are you looking at just one index?

A worse period was the first decade of this millennium.  

Albermarle

Everybody is different, but personally I would be a bit nervous being 100% equities after such a good bull run.
On the other hand, you could be looking at a 30/35 year retirement on top of the 5 years before you retire, so you probably do not want to get overcautious.
If you read the pensions forum, you will see regular discussions on different strategies and many threads with similar questions to yours.
Pensions, annuities & retirement planning — MoneySavingExpert Forum

EthicsGradient

No one else has mentioned the option of paying off your mortgage (up to the limit before there's a repayment fee) that you talked about. This seems a reasonable idea to me - it's a payment you'd have to make some time (would you have done it with your tax free cash from the SIPP when you reach 57?), and so doing it now would mean you're not effectively borrowing to be in a market you don't like the look of, and to which you're otherwise exposed (or, if you move some to bonds, then you are effectively borrowing to invest in bonds). 

the_medium_bear

masonic said:

What are your plans for your SIPP when you retire? If you were planning to live off the ISA for a while then buy an annuity with the SIPP, then your time horizon is quite short for 100% equities. There has been recent talk elsewhere on the forum of buying an index linked gilt fund to hedge annuity rate movements and lock in a secure inflation linked income, so that may be one consideration. At a minimum you would want to have some component of your portfolio you could turn to in order to meet your financial needs if your retirement coincides with a market downturn.

I don't think selling equities just to give you the option to buy them back of they fall is a very wise move - this is just an attempt at market timing. Any change should be justifiable as a long term move.

I am just panning to use the SIPP for draw down purposes, i am not taking x% as a tax free lump sum. Defiantly not going to be getting an annuity. As you mentioned I would probably live off ISA/ Premium bonds for a while. 

When you say : "then your time horizon is quite short for 100% equities" it was always my intention to only withdraw a small amount ( i see 4% banded around) thus giving the capital time to grow

Index linked gilt fund was something i just started looking at after i made this post, and am defiantly going to have a little more of a dig into this. 

point taken on selling to time the market (perhaps me overthinking any potential downturn and length of downturn) 

the_medium_bear

Linton said:

I am unclear why you are focussing on the FTSE All Cap as a crash risk when the  much larger holdings in Life Strategy 100 will be at an equal risk.

The way I suggest you look at your situation is to estimate what expenditure you will need to take from your investments in the next 10 years (including tax) and put that in a range of bond funds.  They should have maturity dates of up to about 10 years, so medium or short dated. The rest could be kept in the global equity funds.

In this way you are ensuring you can meet your obligations whilst retaining sufficient equity to more than match long term inflation.

I agree with masonic ^^^ that selling equity purely to buy back later would be foolish and that you need to be thinking of your long term strategy. A crash could happen at any point in the next possibly >40 years of your life.

agreed that i should have stated am focusing on both FTSE All Cap  & LifeStratagy as crash risk (looking at the performance they track each other pretty much)

Ref bonds, yes I think i need to take a bit more of a look and delve into the bond market as its certainly not something i have spent much time looking at and understanding

the_medium_bear

jimjames said:

VLS100 is very underweight in the USA so would be the ideal holding to balance against an AI crash you'd suggested. 
What did you do when the markets crashed in April? Did that worry you too or were you not aware because it wasn't predicted in the news?

looking at the sector split i think its still pretty tech weighted and quite a strong holding in the Mag7. I kn ow its a UK biased (so less to worry about regarding currency though) but ultimatum im not sure in the grand scheme of thing its going to make that much of a difference.

regarding April; ah yes i suspected something was going to happen having read about the tariffs, so I did expect some turbulence - i did not expect it to be quick so disruptive, but i didn't sell anything (and obviously now im glad i didn't; my only regret is not having cash to have brought in the dip !)