Stick or twist

Veloflyer

An unfair question perhaps but opinion welcome. Both my SIPPs are either (relatively) low risk global/S&P/Far East/Europe trackers, else a few single equities - Shell, Babcock, Brit. Aerospace, and star performer BGEO/Lion Finance. They have all done pretty well and continue to do so. The latter amazingly so.

I am now at the point of retiring at 61. I may get the odd 6 months contract, but I think not another permanent role. The world of my work has changed and I don't care much for it. I will only be doing it for the money unless in the unlikely event the job makes good use of my engineering experience.

Question then - Do I "fix" part of the pot - say 50% - by bonds, possibly annuity or something else or do I just keep the ball rolling and growing the pot very nicely thanks. I think I have enough, but the lure of the filthy lucre is strong and if there is presently an acceptable risk of continuing the present strategy, then why not? If it ain't broke, don't fix it?

I suppose it is fundamentally a question of acceptable risk, and as that is somewhat subjective, only I can decide, but what do others think?

Universidad

I'm not going to offer any investment advice, and most folks won't/shouldn't.

But from a risk perspective… if you're risk averse enough to be considering an annuity, then you should consider how much value you place on knowing that you are unlikely to run out of money. For me, that is a very high value thing.

I've not got a big DC pot, having spent most of my life acquiring DB pensions (out of that precise risk aversion).

But now that I've got just about enough to live on in retirement, my attitude to risk in the investments that I do have is substantially changed.

After that point, anything above my core needs started to look more like an optional upside rather than an existential risk. At least psychologically, it starts to feel more like a game, which is fine as long as you accept that sometimes you do lose (at least in the short term).

cockerWalker

What would you do if there was a 50% market drop? If the answer is nothing, or make a few cuts to discretionary spend and wait it out then you're probably where you need to be.

If not, then look at guaranting some income.

dunstonh

Both my SIPPs are either (relatively) low risk global/S&P/Far East/Europe trackers, else a few single equities - Shell, Babcock, Brit. Aerospace, and star performer BGEO/Lion Finance. They have all done pretty well and continue to do so. The latter amazingly so.

100% equities can never be referred to as low risk. Relative or otherwise.

Question then - Do I "fix" part of the pot - say 50% - by bonds, possibly annuity or something else or do I just keep the ball rolling and growing the pot very nicely thanks. I think I have enough, but the lure of the filthy lucre is strong and if there is presently an acceptable risk of continuing the present strategy, then why not? If it ain't broke, don't fix it?

Asking us what the solution is to an unknown scenario isnt going to help you.

I suppose it is fundamentally a question of acceptable risk, and as that is somewhat subjective, only I can decide, but what do others think?

Insufficient detail to even come close to comment on scenarios.

You choose the solutions to fit the objectives. If we don't know your objectives over the next 30 years, any solution mentioned by anyone is going to be total guesswork and probably wrong.

phlebas192

Without knowing a lot more about your finances it is impossible to give an answer - eg what other savings do you have?, do you have any other income and how secure is it?, do you have a partner and, if so, what are their finances? etc

But some general thoughts. Before retiring, you always have the option of putting off retirement if there is a sudden market reversal. Once retired this becomes much harder since any time out of the job market generally makes you less employable and increasingly so the older you get. Plus if you are only doing it for the money then going back to work will likely feel much less motivating than simply perpetuating the status quo pre-retirement. So, yes, it does make some sense to reduce volatility of returns.

On the other hand, the biggest risk in retirement when you potentially have 30 to 40 years to fund is always going to be inflation. Any form of fixed income such as bonds is going to be eroded by inflation whereas equities should hopefully avoid this, albeit with associated volatility. Index linked gilts avoid the inflation risk but their yield is so small that you are going to mostly be living off the capital rather than income and you now run into longevity risk. The only solution to both of these problems is to opt for an annuity which increases with inflation. This might be worth considering for some of your capital if you don't have other guaranteed income.

DT2001

When I reached the point where we had enough (based on about 3.5% withdrawal rate) I moved more into cash/nr cash and income focused ITs. I then rejigged my spreadsheet and put in an early poor return sequence which showed the plan working without using guardrails etc. Income from funds/ITs seems to fluctuate much less than the capital values. I reckon I am 60% equities but we have £14k DBs, SP x 1 this year and cash covering gap to SPA for OH, which is above our ‘necessity’ budget. We are also willing to flex spending if needed. I will rebalance irregularly.

If you don’t need to take the risk to achieve the retirement you want why do so? Personally we are taking more risk to help our children and I know others who take the risk so they might be able to do/spend more.

Veloflyer

To answer a few points - I am assuming I have retired. Any work I obtain from now is a bonus. I am not counting on it. I have a cash buffer of about 3 years spend. Not enough, but at least there is something. Index linked annuity is certainly a consideration. Objectives - no idea, but I don't intend to splurge. The sums indicate that given current expenses/pot we should be OK for 25 years not including my and missus's SP and assuming 4% growth.

30-50% market dip would be a concern, as it would surely be for many. I could ride it out if short-lived.

Thanks for all replies. Must admit I am tending towards hedging my bets in so far as converting some of the pot at least to a fixed income simply because I don't know what the future holds.

Cobbler_tone

https://forums.moneysavingexpert.com/discussion/comment/81899391#Comment_81899391

I’m in the same boat with only £170k in a SIPP. Even then I’m pretty risk adverse as would rather have modest losses/gains as opposed to any potential plummet. At the high level I’m still investing it makes it feel more tangible when it bobs up and down. Holding a little in cash for the first drawdown in 12 months. It’s still doing OK.

The DB will take care of my desired income.

OldScientist

A few thoughts:

At 61 you have a projected 10% chance of living to 97 (and a 3% to 100). As a couple this means that there is roughly a 20% chance of one or both of you living another 36 years (e.g., see https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 ). So a planning horizon of this sort of time might be useful.

How much income do you need? In the long-term you will have two SP (so about £24k in real terms). At the extremes, if you currently only spend £24k then your portfolio is not that important, while if you are spending £80k, then your portfolio is critical and you might want to consider, as you already appear to be, additional income flooring (e.g., RPI annuity or inflation linked gilt ladder or both). The question would then become how much extra flooring do you want/need?

In the short-term (i.e., between now and SP), to provide an 'SP replacement' you might want to consider a short ILG ladder or use 1/N withdrawals (where N is the number of years until SP) from an MMF, or ladder of fixed rate savings accounts (the MMF and savings account approach will have limited inflation protection).

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81900054#Comment_81900054

Thank you for the above. 80K/ann spend is unrealistic - more like 40K absolute tops. I would imagine more realistically 37K/ann. To cover between now and SP, for sure I have considered an ILG ladder or simply cashing in enough annually in the SIPP - say 100K - to release TFLS of 25K plus 12K income from the crystallised to take advantage of the PA. Assuming I have 500K that methodology should see me OK for 5 years to when SP kicks in - 2031.

The decision I suppose is whether the SIPP funds held in those intervening years are all ILG/MMF from the start or keep them in the current equities, cash 100K in equities in annually, and then turn the increasing crystallized portion of cash into ILG/MMF to inflation protect the remaining drawdown income pot of 315K. What I do then could be a inflation linked annuity. @ 22K/ann perhaps for the 315K from the annuity? plus SP (of forecast 12K/ann) for life could work to meet spend requirements.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81899391#Comment_81899391

I do not think you can describe the OP as risk averse !

 Both my SIPPs are either (relatively) low risk global/S&P/Far East/Europe trackers, else a few single equities - Shell, Babcock, Brit. Aerospace, and star performer BGEO/Lion Finance. 

Although they describe them as relatively low risk SIPP portfolios, they are anything but.