De-risking before retirement

OldScientist

https://forums.moneysavingexpert.com/discussion/6655535/de-risking-before-retirement

To bridge the gap some alternatives are:

1. Index linked gilt ladder: according to https://lategenxer.streamlit.app/Gilt_Ladder the current payout rate on a 6 year index linked gilt ladder delayed for 2 years is 16.9%. In other words, your £150k will provide an inflation protected income of about £25k per year, but there will be nothing left at the end of the period.
2. Cash (MMF or easy access): Historically, in the worst case a 100% cash 'pot' would have provided an inflation protected payout rate of about 11% over 6 years (e.g., see https://www.2020financial.co.uk/pension-drawdown-calculator/ ). In other words, an inflation protected income of about £16.5k per year, but the amount left over depended on real cash returns over the 6 year period. Adding equities didn't make a lot of difference to the worst outcome (i.e., the payout rate was still about 11%), but it did increase the amount left after 6 years in the better historical retirements. I note that this calculator doesn't include the 18 months of potential growth, so the actual payout rate would probably have been slightly higher than 11%.

Of course, the different approaches could be combined.

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81888065#Comment_81888065

Love the gilt ladder link, thank you. I'm considering cash/gilts for essential spend, and keeping some of the SIPP in funds. If the funds grow, I sell them, if they don't I use the cash reserve until the funds recover.

LateStarter

And after the drops this week, I understand why you should de-risk when the world is stable.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81908725#Comment_81908725

Although so far the drops are rather minor.

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81908858#Comment_81908858

Agreed; but it takes away the worry of further falls. And peace of mind is priceless.

NormalNorman

De-risking… don't forget the expensive death bit. Simplify, joint names, wills, POAs, give with warm hands, spend it vs hoarding, don't die with debt etc… Might save more money than say a fund choice.

mrklaw

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

so you’re planning based on 4% real growth on top of inflation or 4% nominal/1% real?

that could be the challenge - if you move into safe cash now you’ll be nowhere near 4% real. If you want 4% real you’ll need equity exposure. Not sure you can have both

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81978647#Comment_81978647

No, I'm way more risk averse in the short term. My ISAs and SIPP are for the short-ish term (age 61-67) and everything is those is now locked down at 4% (cash and gilts), with the exception of 20k in a global tracker, to offset any additional inflation in the last of those years. My works pension is still in the "growth" phase - I'll de-risk some of that in the next couple of years if I'm happy with my approach.

theblueflash

https://forums.moneysavingexpert.com/discussion/comment/81886695#Comment_81886695

Hi @dunstonh I didn’t think you had been a huge fan of Fixed Term Annuities (though not against) - Whats making them look good in this particular situation. ? or is it “events , dear boy, events!”

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/81978949#Comment_81978949

Commercial terms were not great value. However, with rates much improved, they are now viable. So, "events" is correct.

If you think gilt yields are at or near peak and interest rates are likely to stagnate or fall, then locking in a fixed term annuity is a bit like doing a fixed term deposit.