Equities exposure when approaching retirement age

Mick70

Morning all, hope everybody is in good health.

I am hoping to retire in 2 year , when I will be 57.
Currently I receive a DB of 32k  (long story) whilst still in employment.
I have a S+S ISA of about £80k , which is 60/40  (60% equities)
I also have a works place DC pension which is currently about £370k, I am aware equities are very high at the moment and have seen a large rise this year, some of this rumoured to be AI related which could burst if believe what read.
My question is - the works pension , I came out of the default lifestyle option which constantly de-risks and you end up at about 25% equity.   However you can only select the one Governed portfolio, you cant have a mixture.
Currently on a scale of 1-7 (7 being highest risk) mine is 5 and according to their factsheet it is currently invested at 71% equities.  My wife will retire in March and I am hoping to retire within 2 year (and possibly less).   I am unsure if now is the appropriate time to de-risk slightly, the next portfolio down  shows 59% equities.
I am interested to hear posters thoughts on if this would make sense   i.e not wanting to be quite as exposed as enter retirement 

any feedback is much appreciated
Mick

Keep_pedalling

With £32K pa from a DB pension I would not be thinking of major de-risking at this stage, most  of our needs are covered by DB and state pensions and 80% savings are still in equities in our early 70s, 

dunstonh

 I am unsure if now is the appropriate time to de-risk slightly, the next portfolio down  shows 59% equities.
I am interested to hear posters thoughts on if this would make sense   i.e not wanting to be quite as exposed as enter retirement 

70% equities is not high risk, and your life expectancy is circa 30 years.   So, unless you are planning to spend the money in the pension soon, you haven't mentioned anything that would indicate that a risk reduction is necessary.

bjorn_toby_wilde

At 57 you could be retired for almost as long as you’ve worked if you’re lucky. Derisking too much, too early means sacrificing growth.

You need enough of a cash buffer to ride out a market correction, but it seems your basic needs are covered by the DB.

Triumph13

The key question is what do you intend to do with the DC funds?  If you are planning on buying an annuity as soon as you retire then you would definitely want to fully de-risk. At the other extreme, if you don't really need it at all and your aim is to maximise what you leave to your kids when you die, hopefully many decades in the future, then 100% equities would be the best strategy.

Mick70

my strategy is simply to take out 4% pa - from both the S+S ISA and the DC pension
My wife has very little pension (will be about £14k pa) so as a couple were much more reliant on mine

dunstonh

my strategy is simply to take out 4% pa - from both the S+S ISA and the DC pension

4% level is ok.  4% with indexation is high.  Unless you have other savings that can be used or are prepared to lower the draw in negative years.

You have money in an S&S ISA (you don't mention savings).   Are you maximising your wife's pension contributions? (pension beats ISA in most scenarios)

Mick70

4% and increase that amount by inflation each year, once we both reach SP age that amount can likely be halved.
My wife was/is self employed but low earner, her pension pot wont really increase now and she will retire in march as 2 year older than myself and physical work has started to take its toll lately.

OldScientist

Mick70 said:

Morning all, hope everybody is in good health.

I am hoping to retire in 2 year , when I will be 57.
Currently I receive a DB of 32k  (long story) whilst still in employment.
I have a S+S ISA of about £80k , which is 60/40  (60% equities)
I also have a works place DC pension which is currently about £370k, I am aware equities are very high at the moment and have seen a large rise this year, some of this rumoured to be AI related which could burst if believe what read.
My question is - the works pension , I came out of the default lifestyle option which constantly de-risks and you end up at about 25% equity.   However you can only select the one Governed portfolio, you cant have a mixture.
Currently on a scale of 1-7 (7 being highest risk) mine is 5 and according to their factsheet it is currently invested at 71% equities.  My wife will retire in March and I am hoping to retire within 2 year (and possibly less).   I am unsure if now is the appropriate time to de-risk slightly, the next portfolio down  shows 59% equities.
I am interested to hear posters thoughts on if this would make sense   i.e not wanting to be quite as exposed as enter retirement 

any feedback is much appreciated
Mick

How much are you expecting to spend to support your desired retirement lifestyle?

In the long-term (i.e., post-SP age), you will have guaranteed income of 32+24=56k (i.e., DB pension + 2xSP - is the DB pension fully index linked?).

In the short-term (i.e., pre-SP age) you have guaranteed income of £32k, so would need an additional £24k per year to match your long-term income for about 10 years. It would currently cost about £225k to build an inflation linked gilt ladder of 10 years delayed for 2 years. Equally you could take 5.3% of your portfolio each year either as a fixed percentage of portfolio (which would be variable) or increase it by inflation each year. Historically*, the safe withdrawal rate (i.e, inflation adjusted) peaked at about 7% between 60% and 80% equities for a 10 year period. In other words, your current equity allocation would have been OK (with the usual caveat that future outcomes are unknown).


* I used half UK and half US for equities, and half UK cash and half UK long bonds for the fixed income (asset returns and inflation from macrohistory.net)

LHW99

Mick70 said:

my strategy is simply to take out 4% pa - from both the S+S ISA and the DC pension
My wife has very little pension (will be about £14k pa) so as a couple were much more reliant on mine

So she would have scope to take out a little taxable income from a DC without paying tax (up to her PA) as well as the 25% tax free. She (and you) can add £2880 to a SIPP each year for the tax relief up to 75, even if not earning.

Albermarle

If 60% equities rather than 70% helps you sleep better, then that would be a good reason to do it. 

Or you could look at it another way .
A £32K DB pension at you age is probably worth about £650K .
So if you add £450K to that and maybe you have £100K in cash savings, then your % equity is only around 25%.

Then you can add in your wife's financial position, and the fact you will both get state pensions at some point.

So even if the AI bubble did burst, its effect on your overall finances would be limited,