De-risking before retirement

LateStarter

So, I plan (hope) to retire in about 18 months, when I will be 61. I have a works pension and the state pension from age 67, which seems okay. To bridge the gap of 6 years, I'll need about £150k, which I currently have in a combination of ISAs and a SIPP. I'm working for the next 18 months to build up a cash reserve and pay off a couple of small loans.

Now to the question - my SIPP is about 100K, mainly invested in Vanguard 80% and HSBC All World Index. This year's contributions will go into a MMF, and I'm considering moving everything else into Royal London and a ladder of gilts. Is that too conservative? Considering my last 2 years of retirement are 6 and 7 years away, is that giving up too much potential growth?

Thanks for your thoughts.

Albermarle

What about when you get the state pension and you have used up all the SIPP/ISA?

Are you going to live just on the state pension?

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81886560#Comment_81886560

No, I have a works pension which I plan to draw from age 67 (there's no specific reason I can't draw it earlier. I'm hoping the lessons I learn from managing the SIPP will help me manage this one)..

Storcko14

If what you have for the 6 year bridge is enough and your chosen investments at least match inflation then you're golden. No need to take further risk if you don't need additional growth.

dunstonh

A general guide is to have between 3-5 years of income held as cash or near cash. So, if you are drawing all of the pension out over 6 years, then most of it should be cash or near cash bar for a small amount for the bit over 5 years.

Alternatively, if you intend to use a fixed term annuity, you should be in cash now.

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81886644#Comment_81886644

Thanks. No annuity, just going into drawdown on the SIPP. In terms of cash/near cash, I'm considering years 1-2 in Royal London MMF, and then a gilt ladder.

dunstonh

Have you looked at the fixed term annuity in terms of rate? They are looking very attractive for people with high draw rates, where erosion of capital is expected.

Bostonerimus1

Have you done a budget to determine you retirement income requirement? What are you assumptions for inflation and for your ISA/SIPP/workplace pension growth? How long are you planning for? When you have those numbers and with the amounts you have in your accounts it's possible to develop a informed plan.

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81886732#Comment_81886732

Yes, of course I've done my budget. I'm assuming 3% inflation, and 4% "locked down" growth. My works pension has been about 9% (averaged for the last 7 years), and I'm using 6% in my spreadsheet. My question is specifically about input/advice on de-risking.

kempiejon

As I near living off investments solely I've accumulated cash rather than reinvesting. For spends a few years out cash and PBs; gilts for a little further out which should cover my base expenses for some years. My income portfolio can take quite a hit, 50% cut in income and I can top up for 5+ years from cash/gilts without a hit on my income level. Hopefully time for recovery.

I've other investments for decades out, that might transfer to more gilts, income focus or be annuitized but that's too far out to be relevant just now.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81886821#Comment_81886821

That's good! Many people plan into a vacuum without fully understanding their spending requirements or the impact of inflation.

Most drawdown portfolios will contain some cash and fixed income, but the percentages really depend on the level of income required relative to the pension pot, other potential sources of income like annuities, part time work, rent etc. and attitude to risk. It's certainly not unusual to hold a couple of years worth of spending in cash plus a gilt/bond ladder or annuity to cover some basic income requirements. Don't forget the 20 or even 30 years you have after SP starts and that for that part of your retirement de-risking might be the riskiest thing you can do.