Vanguard Life Strategy

Veloflyer

dunstonh said:

OK - as perhaps in a previous post - would this be any improvement. When considering retirement, have 4 years in cash as a buffer to see out any potential future equities crash, consider annuity purchase of (say) 30/40% of total pot value as an additional buffer, and keep the rest invested in equities - low cost trackers - drawing down on them when required.

Forget bonds?

Not necessarily forget bonds.  Just use the right type of bonds.

People have different views on the size of the cash float.    Having one is important.  The size is an opinion.    I tend to use 5 years worth of withdrawals and that would be split between platform cash and short term money money market (unless held externally of the pension where it would be replicated outside of the wrapper).

An annuity purchase would allow you to reduce/remove the bond element as bonds are about income provision and not growth.     The annuity gives you the income provision.      That would leave the equities not needing to be touched until very much later and over the years you can always refloast the cash in positive periods.

However, using some short-term bonds could also be used in conjunction with a short-term money market fund.  

Thanks and understood - I think! I have a stocks and shares ISA which I am assuming could be converted into the cash buffer required - via a cash ISA perhaps?

Annuity I'll have to think about - pros and cons for sure.

I'm a little hesitant on leaving the equities untouched for much later  - in effect not triggering drawdown - for fear of losing any lump sum/tax advantages.  

AlanP_2

Veloflyer said:

dunstonh said:

OK - as perhaps in a previous post - would this be any improvement. When considering retirement, have 4 years in cash as a buffer to see out any potential future equities crash, consider annuity purchase of (say) 30/40% of total pot value as an additional buffer, and keep the rest invested in equities - low cost trackers - drawing down on them when required.

Forget bonds?

Not necessarily forget bonds.  Just use the right type of bonds.

People have different views on the size of the cash float.    Having one is important.  The size is an opinion.    I tend to use 5 years worth of withdrawals and that would be split between platform cash and short term money money market (unless held externally of the pension where it would be replicated outside of the wrapper).

An annuity purchase would allow you to reduce/remove the bond element as bonds are about income provision and not growth.     The annuity gives you the income provision.      That would leave the equities not needing to be touched until very much later and over the years you can always refloast the cash in positive periods.

However, using some short-term bonds could also be used in conjunction with a short-term money market fund.  

Thanks and understood - I think! I have a stocks and shares ISA which I am assuming could be converted into the cash buffer required - via a cash ISA perhaps?

Annuity I'll have to think about - pros and cons for sure.

I'm a little hesitant on leaving the equities untouched for much later  - in effect not triggering drawdown - for fear of losing any lump sum/tax advantages.  

As regards an annuity, on an earlier post you considered a "30/40%" of the pot being used for an annuity. Nothing inherently wrong with that but a more focused amount might be calculated by considering how much you need to cover your "essential" spend so giving you an income floor that means you have heat & food etc.

It would need to allow for State Pension and any other income coming in to the overall "economic unit" if you have a partner as well as the index linking you feel is appropriate.

What lump sum / tax advantages might you lose? Budget speculation and some press articles may make you feel that RR is going to take every single penny a pensioner has but, in reality, we can only work within the rules as they exist at the time.

If you believed that having a pension might put you at risk of losing an advantage of some kind, at some point, you would never have started the pension. 

Secret2ndAccount

In my opinion, the solution you are asking for is achieved by directly buying bonds.
When you buy a bond fund, you are leaving it up to the fund manager to decide what/when to buy and sell. Thus a bond fund can lose money just as badly as an equity fund. If you purchase the bonds yourself, you always have the option to hold them until they mature, and get back a known quantity of money on a known date. You can buy a bond that pays out a fixed amount (in today's money) or an index linked amount which keeps up with inflation.
Example, you put 10% of your SIPP into an index linked gilt which pays out in 5 years. 10% into another gilt which pays out in 10 years. And so on. Gilts don't grow like equities, but they can't go down. If you hold them to maturity, the value is fixed. It doesn't matter if the bond market crashes. Your final value is fixed. If you suddenly need all the money, you can sell ahead of time. That is when you might get back less (or more) than you invested, but at least the money is accessible.
TR35 - an index linked gilt is currently paying a guaranteed return of 1.6% above inflation if held for the next 10 years. Roughly, it pays out 1% per year, then your money back, plus 5%, plus inflation, after ten years.
All the index linked offerings are currently beating inflation: there's a 6 year, at +1%. The longer terms are more than 2% above inflaiton.
Sorry that this is more complicated thn you wanted, but it's a good solution for your wants/needs.

If you just want an easy life, take part of the pension and buy an annuity. Rates are currently good, not just in terms of recent history, but in comparison with other low risk approaches. At age 61, you can get 4.7% of your outlay back every year, increasing with CPI. Underpin your plans with the knowledge that you have that income every month come hell or high water, and you can then feel more comfortable with leaving the rest in equities. A sensible approach would be to annuitise enough to pay all the bills. A stock market crash could then spoil your fun, but it couldn't spoil your plans to put food on the table.

Veloflyer

My thanks for all replies - all useful information. I did look into gilts via Bell. Initially I was put off by the buying process, but digging deeper perhaps not as complex as I first thought.

Annuity - agreed that at the moment rates do seem good. I'm not there yet, but could be persuaded.    

Veloflyer

I'll clarify further and state that at retirement, my initial plan was to live off an annual drawdown lump sum plus the 12K/ann I can earn tax free from the crystallised amount and thus minimize tax paid - hopefully a big fat zero. Fag packet calc seems to indicate I could do this for about 9 years or so before the uncrystallized bit is exhausted, and from then to draw more for income purposes from the crystallized amount. My initial question was perhaps more how to preserve funds within the SIPPs until that exhausted date. The thinking being I would still need the value if not the growth so perhaps not an annuity until the uncrystallized is exhausted via drawdown? I'd still have the 4 years cash as a buffer regardless. Does this make sense?    

MetaPhysical

SVaz said:

If you are considering retiring,  what happens if you pull the plug then there’s a crash and you have no cash buffer?
Do you have substantial cash savings outside your pension that you could live on for 2 + years?  
Having to sell funds in a prolonged downturn can massively affect the next 20/30 years. 

Indeed.  I have five years of cash and MM funds - - totalling 25% of my portfolio - available without touching my equities or gilts and I will always maintain that buffer. A drag on growth? Possibly.  But certainly more capable of weathering a crash which is a lot more important to me.  IMO it is important not to be greedy.

MK62

MetaPhysical said:

SVaz said:

If you are considering retiring,  what happens if you pull the plug then there’s a crash and you have no cash buffer?
Do you have substantial cash savings outside your pension that you could live on for 2 + years?  
Having to sell funds in a prolonged downturn can massively affect the next 20/30 years. 

Indeed.  I have five years of cash and MM funds - - totalling 25% of my portfolio - available without touching my equities or gilts and I will always maintain that buffer. A drag on growth? Possibly.  But certainly more capable of weathering a crash which is a lot more important to me.  IMO it is important not to be greedy.

Agreed.......personally I think some don't realise just how good we've had it with equities over the last 10-15 years or so overall....my hope is that it's similar over the next 10-15 years, but my expectation is that it won't be.

Veloflyer

MK62 said:

MetaPhysical said:

SVaz said:

If you are considering retiring,  what happens if you pull the plug then there’s a crash and you have no cash buffer?
Do you have substantial cash savings outside your pension that you could live on for 2 + years?  
Having to sell funds in a prolonged downturn can massively affect the next 20/30 years. 

Indeed.  I have five years of cash and MM funds - - totalling 25% of my portfolio - available without touching my equities or gilts and I will always maintain that buffer. A drag on growth? Possibly.  But certainly more capable of weathering a crash which is a lot more important to me.  IMO it is important not to be greedy.

Agreed.......personally I think some don't realise just how good we've had it with equities over the last 10-15 years or so overall....my hope is that it's similar over the next 10-15 years, but my expectation is that it won't be.

I am of a similar view - hence the thread about how to preserve what I have in my SIPPs -  which is all in equities. I think the cash buffer is a sound idea . Mine is outwith the SIPP  with about 4 years expenditure in a stocks and shares ISA which I guess can be converted to cash ISA easily enough. My worry is that 4 or 5 years cash buffer may not be enough.

As regards the SIPP funds themselves, I had thought a partial move into something like VLS of some sort may offer enhanced protection, but perhaps not reading this thread.   

SVaz

As said upthread, a high percentage of Bonds only offers protection if buying an annuity. 

Is the S+S ISA paying more interest on cash ( or in a MM fund)  than you can get in a cash ISA? 
I’m currently getting 4.55% interest in my HL ( Shawbrook)  Cash ISA and 4.06% on their Active savings platform,  for cash that’s going into the ISA come April. 

Secret2ndAccount

You have to decide how much you want. Do you have enough at this point?
Equities, historically, will provide the best return in exchange for greater risk of loss. Bonds can lock in what you have at a cost of limited growth.
Do you want to lock in what you have, or do you need some risk in order to try to meet your goals. This is a personal choice after you have figured out how your assets match up to your needs and your wants.

Incidentally, your plan to use the ISA for the cash buffer is slightly suboptimal in tax terms. You have already paid the tax on what's in the ISA. If your equities double in the ISA there will be no more tax to pay - you keep it all. If your equities double in the SIPP, it's still nice, but you pay tax on the extra money when you take it out, probably at about 15%.  Ideally, you want the slow growing assets in the SIPP, and the fast growing in the ISA. I recognise there can be other considerations of accessability, but it at least pays to know this.