Drawdown time and going forward

Aged

I've recently reached state pension age and am now receiving the state pension. I have also put my pension account into drawdown to give myself a decent monthly sum to live on.

The assets in my fund are split between equities, mixed assets and cash. I feel the need to review my holdings at this point to ensure that I'm all good for going forward and don't need to worry any more about running out of money. At the moment I have much more sitting as cash in the account than I would like, given that the interest rates are not great (currently receiving something like 2.4%), so I would like to invest some/most of it to achieve a better return. At the moment, I would like to boost what is invested in mixed assets - my existing funds are Trojan O and Capital Gearing Absolute Return, which obviously don't bring in much in the way of income. What I'm thinking at the moment is to add something like Artemis Monthly Distribution, which is currently split roughly 55/45% between equities and fixed interest. Does this seem like a reasonable and sensible step to take?

SVaz

Are the dividends enough to give you an income without having to regularly sell funds,  or enough to replenish your cash pot as you use it?    

You’ll get a better rate in a short term money market fund for your cash too, currently 
3.97% 

Aged

SVaz said:

Are the dividends enough to give you an income without having to regularly sell funds,  or enough to replenish your cash pot as you use it?    

You’ll get a better rate in a short term money market fund for your cash too, currently 
3.97% 

All my funds are still in Acc versions (I intend to change to Inc soon when I'm rebalancing) but from rough calculations, it appears that my portfolio value has increased by roughly 7% over the past year while my withdrawals are at the rate of just under 4%.

I have recently shunted a bit of the cash into a MMF, but I'm a bit wary of having too much in there because money market funds are not strictly risk-free. Also, that wouldn't be a long term solution if interest rates start to come down.

DRS1

I don't think people put money into a MMF just to draw down the income.  I think they put it there to be drawn down in full over a period of time without worrying whether their investments have taken a sudden dip just before being sold.

The Artemis Fund does not throw off 4% pa (well not quite) but having monthly income which you could draw monthly may be attractive - there are other funds which also pay out monthly (eg Invesco Monthly Income Plus pays out a bit more - although it has not performed as well as the Artemis fund)

DT2001

I think SVaz’s question is quite important, would the income from the funds cover your requirements?

I assist my BIL and we have his portfolio split between investment trusts (10/12) which produce about 5% (all had good record of increasing dividends), a global ETF for longer term growth and a short term bond fund to cover gap to SPA. He is just a few years away from SP in a manual job and unsure of when he wants to retire but with this set up he knows he’ll have a good base of income and some potential for growth.

Linton

Using an income generation strategy as you describe, the key factor is the amount of income you need as a % of your total pot. Getting up to perhaps 6-7% with a focussed but well diversified range of equity and higher risk bond funds is relatively straightforward. But this level of income is unlikely to rise with inflation so you need growth investments as well.

If the 2.45% with some growth from Artemis Monthly Distribution is sufficient and you want to keep your investments simple then your proposed strategy seems reasonable to me. Data on the net shows a yield rather higher than your figure at 3.5-4%.

SVaz

I was talking about having 2-3 years of cash in a STMMF if dividends are not quite enough for income,  not necessarily the cash being drawn, although I don’t see why not.  

My Wife keeps 3 months income in cash,  the rest of her drawdown fund in STMM and her current Sipp contributions also, ready to take next year.  The extra 1.5% interest pays her Sipp fees.  HL don’t pay much interest on cash. 

Aged

Linton said:

Using an income generation strategy as you describe, the key factor is the amount of income you need as a % of your total pot. Getting up to perhaps 6-7% with a focussed but well diversified range of equity and higher risk bond funds is relatively straightforward. But this level of income is unlikely to rise with inflation so you need growth investments as well.

If the 2.45% with some growth from Artemis Monthly Distribution is sufficient and you want to keep your investments simple then your proposed strategy seems reasonable to me. Data on the net shows a yield rather higher than your figure at 3.5-4%.

6-7% seems a bit ambitious to me Linton - is that really easily doable? 

The literature I have for the Artemis fund quotes a historic yield of 3.83%. It seems to be a highly regarded fund so I thought it would be a 'safe' choice. Yes I am aiming to keep things as simple as possible, and cautious too.

Aged

DRS1 said:

I don't think people put money into a MMF just to draw down the income.  I think they put it there to be drawn down in full over a period of time without worrying whether their investments have taken a sudden dip just before being sold.

The Artemis Fund does not throw off 4% pa (well not quite) but having monthly income which you could draw monthly may be attractive - there are other funds which also pay out monthly (eg Invesco Monthly Income Plus pays out a bit more - although it has not performed as well as the Artemis fund)

My reasoning for using the MMF is to get more interest on (some of) the uninvested cash that's in the pension. My withdrawals to date have been coming straight out of the uninvested cash - my reason for that being that it's earning the least amount of interest of all my investments (I also have cash in ISAs). The pension was inherited, so withdrawals are tax-free.

Linton

Aged said:

Linton said:

Using an income generation strategy as you describe, the key factor is the amount of income you need as a % of your total pot. Getting up to perhaps 6-7% with a focussed but well diversified range of equity and higher risk bond funds is relatively straightforward. But this level of income is unlikely to rise with inflation so you need growth investments as well.

If the 2.45% with some growth from Artemis Monthly Distribution is sufficient and you want to keep your investments simple then your proposed strategy seems reasonable to me. Data on the net shows a yield rather higher than your figure at 3.5-4%.

6-7% seems a bit ambitious to me Linton - is that really easily doable? 

The literature I have for the Artemis fund quotes a historic yield of 3.83%. It seems to be a highly regarded fund so I thought it would be a 'safe' choice. Yes I am aiming to keep things as simple as possible, and cautious too.

To get dividends > 6% you would have to go for higher risk corporate or EM  bonds, infrastructure (eg solar), or REITs.   Another option is far east equities - it seems the far east is as keen as the UK on dividend income. Finally there was an European Small Companies IT (EAT) that used growth investments to produce dividends in the same ball park, but this has recently merged with ESCT.  The merger deal included a commitment to the EAT strategy,but we will have to see what happens there. You cannot rely on any of these funds to match inflation.

The risk is higher than lower return funds but I have been investing in such things for many years with a target of 6% and so far have only had one investment that stopped producing high dividends.

You can get significantly higher yields.  Trustnet lists about 30 ITs with yields in the  7% - 15% range though I haven't dared to go that high. 

I suggest that unless you are prepared to spend time and effort to understanding and researching investments you should stick to Artemis Monthly Income or similar.