what percentage of equity do you hold in your retirement pension ?

kempiejon

So I have been a bit more than 80% equities much of my investing career. This high equity allocation is because I am going to be dependant on my investments for the majority of retirement income, specifically pre private and state pension access. I probably couldn't have made the returns to retire early without some convenient stock market increases.

Now that the pot is getting about where I think I want it to be I have been looking at less risky/correlated options.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82004659#Comment_82004659

In these highly uncertain times, I'd certainly advocate your last sentence if close to retiring. I too have been heavily into equities - 90 plus % - and they have done OK over the decades. Looking back, it was risky and for sure a sustained drop would not have been good. The lack of a crystal ball kept me awake at night, so I have re-jigged the portfolio to far less risky options to fund my basic spend.

HedgehogRulez

https://forums.moneysavingexpert.com/discussion/comment/82004659#Comment_82004659

i wouldnt say that 80% equities is particularly high for your investing "career". Given much of our employment time is > 10 years from "retirement age" then I'd expect it to be more like 100% equities. (And even when you hit retirment you'd still expect to be invested for 30-50 years…)

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82004715#Comment_82004715

Historically you don't get much more return from 100% equities vs 80/20 or even 60/40 relative to the risk associated with higher equity allocations. This is why the 60/40 rule of thumb took hold. IMO high equity allocations are probably ok over the long term, but can be dangerous if you retire into an equity crash and need to make withdrawals.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82004744#Comment_82004744

To be fair he did say > 10 years from retirement age for something like 100% equities. After then, diversify to mitigate the risk of any crash. I didn't and left it late. I got lucky.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82004817#Comment_82004817

60/40 has long been recommended for portfolios even > 10 years from retirement because you only give up a bit of return, but reduce risk and volatility considerably. For people who would worry about large falls in the value of their portfolio this can be a good long term approach.

If I was approaching retirement right now I would be nervous relying on my equity investments to generate income. Markets seem to be uncoupled from macroeconomic realities and in an AI bubble and after experiencing the dotcom bust and 2008 I know that 50% of value can disappear quite quickly. I would be planning for the short term worst.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/82004891#Comment_82004891

You are confusing income and capital growth. Stock market bubbles do not have any direct impact on the income generated by those stocks. Indeed, those stocks likely to fall by the most during a crash are those that pay little or no dividends and rely on future earnings growth for their inflated valuations.

For sure, if you rely on selling stocks to generate income then you should always be nervous of a market correction. But that's entirely distinct from relying on your investments to generate passive income.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82004948#Comment_82004948

The dividend only approach to income generation is quite old fashioned now. Most people take a Total Return approach that includes capital gains, dividends and interest…and maybe even some capital. If you are using "Investment Trusts" your dividends are actually total return from the managed portfolio. If you can get by on 3% dividends then that's great. If you go down the high dividend route that has it's own risks. When you look at the results of retirement income modeling they usually assume investments in equity and bond indexes and a total return approach to accumulation and withdrawals. If you are living off 3% dividends from a stock portfolio then 100% equity would be relatively low risk, but without capital growth you might have a tough time keeping up with inflation.

daveshep26

We are 63% equities; 22% fixed income and 15% cash; stopping paid employment in Dec 26 (age 58) and, for first 4 years in retirement, pulling significantly from the latter two - along with natural yield from some of the equities & interest earned . I would expect that I'd stay around the 60- 70 level in equities for the foreseeable. From 63 (for me), we have plenty of DB income.

michaels

https://forums.moneysavingexpert.com/discussion/comment/82004337#Comment_82004337

Thanks, useful resource.

But I guess the question is still, if you are aiming for x% equity, y% bonds, should you count the value of your state pension as being part of your overall pension pot value and equivalent to a bonds holding?

Back to a 500k pot and 250k say value of state pension and wanting a 50-50 stocks-bonds split. Do you do 250k shares and 250k bonds, or 375k shares, 125k bonds (as plus 250k state pension makes 350k fixed interest equivalent)?