Derisking SIPP

spg1

I’m 59 and looking to start drawdown from my SIPP (my only source of future income other than the state pension) next year when I’m 60 (I’ve already taken all the tax-free cash out). It’s currently spread across trackers and investment trusts and is roughly 60% equities with the rest in bonds, gold and wealth preservation trusts (Personal Assets Trust, Ruffer).

The overall portfolio value has risen quite strongly over the past couple of years to the point where I’m pretty confident it will be able to generate enough income to provide for my needs provided it keeps pace with inflation. I have no need to leave an inheritance.

Given that, I’ve been running the figures for putting 90% of it split equally between three wealth preservations trusts (PAT, Ruffer and Capital Gearing) and 10% in a money market fund.

According to a very quick Chat GPT query, such a spread has historically beaten inflation by around 2% a year with a maximum drawdown of around 10-12% which sounds very appealing to me, particularly in the years before my SP kicks in.

Any thoughts on that approach would be welcomed.

Albermarle

10 to 12 % is a very high drawdown %, even if it reduces when your state pension arrives. Remember the pot has to last you for up to 30/35 years. The chances of you surviving to a ripe old age are probably higher than you think.

LHW99

According to a very quick Chat GPT query, such a spread has historically
beaten inflation by around 2% a year with a maximum drawdown of around
10-12% which sounds very appealing to me, particularly in the years
before my SP kicks in.

Chat GPT? have you read this thread?

https://forums.moneysavingexpert.com/discussion/6656290/i-asked-chatgpt-to-simplify-and-sort-out-my-investments

Over how many years is it giving you that result? The last 10 or so have been good, but there's no guarantee the next 10-20 will be (a rising tide lifets all boats etc). Anything that suggests a 10-12% drawdown would make me worry - how long would the drawdown last? Possibly OK if you would be happy living on just the SP in your 70's .

Figures vary, but one link suggests that the MSCI World has averaged 10.42% (in £) over the past 56 years, much of which has happened since around 2010 - when the drop in value of the £ against other currencies has had an effect. https://curvo.eu/backtest/en/market-index/msci-world?currency=gbp

Average inflation in the UK has been around 3.4% since 1980, so the MSCI World would have beaten that by around 7%. Taking out at 10-12% would see a drop in capital value of the SIPP.

QrizB

I concur with the above.

It might help if you could share some numbers. How much is your SIPP worth today and what's your target (gross, before tax) annual income in retirement?

michaels

If you have already won, an annuity or index linked bond ladder would seem like the sensible choice as these currently give better returns than historic safe withdrawal rates.

I would definitely set up an index linked gilts ladder to cover the value of your state pension until that becomes payable and look to get an annuity with the remainder of you pot.

Other consideration based on the size would be to draw to the basic rate limit prior to state pension age, putting any excess over expenditure into isas, to avoid the threshold freeze potentially pulling you into higher rate tax later.

These strategies will also save you paying out many £10s of thousands in fees.

Lowtrawler

I suspect the poster did not mean they could drawdown 10-12% from the fund but instead, the maximum fall in value of the fund was around 10-12% in a bad year. I'm sure the poster will be along to clarify.

In my view, moving to a "90% ..split equally between three wealth preservations trusts (PAT, Ruffer and Capital Gearing) and 10% in a money market fund". Is not going to guarantee the outcome desired (keeping pace with inflation). That guarantee only comes from Index Linked Gilts. The impact of moving from 60% equity to the proposed mix would simply reduce volatility and risk without any guaranteed outcome.

If they are certain they now only need to keep pace with inflation, Index Linked Gilts would provide that guarantee and most currently provide a real return above inflation.

dunstonh

 It’s currently spread across trackers and investment trusts and is roughly 60% equities with the rest in bonds, gold and wealth preservation trusts (Personal Assets Trust, Ruffer).

Most people fall between 70 and 100% pre-retirement. Post-retirement, it tends to be around 40 to 70%.

So already you're not far off where you'd expect to be at your age.

The overall portfolio value has risen quite strongly over the past couple of years to the point where I’m pretty confident it will be able to generate enough income to provide for my needs provided it keeps pace with inflation. I have no need to leave an inheritance.

In which case, why are you not using annuity?

Current annuity rates are good enough to exceed the optimistic projections on drawdown. I.E., you can go risk-free and be better than 70% of drawdown scenarios

Given that, I’ve been running the figures for putting 90% of it split equally between three wealth preservations trusts (PAT, Ruffer and Capital Gearing) and 10% in a money market fund.

Based on that, an annuity would be even more favourable.

According to a very quick Chat GPT query, such a spread has historically beaten inflation by around 2% a year with a maximum drawdown of around 10-12% which sounds very appealing to me, particularly in the years before my SP kicks in.

Over what period?

Unless you're monitoring at least 27 years, then any figures would be pointless. A lot of the growth in the last fifteen years has come from the 12 years prior to that being awful, along with exchange rate changes that have favoured UK investors based in sterling.

I suspect ChatGPT is only using recency, in which case anything you input would be very good, and give a false sense of security

DRS1

People mention annuities. You can get online annuity quotes (even ones which factor in your health and lifestyle) online without having to commit to buy anything. So it would be worth exploring that. Even though the rates are good now you are not going to get 10 or 12%. HL have a best rate page below

Best annuity rates | Hargreaves Lansdown

Obviously the top line (level single life no guarantee) gives the best rate but that doesn't mean it will be the sort of annuity you will want - the RPI one might be more sensible.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/6670440/derisking-sipp

Did you make sure ChatGPT was giving you answers relevant to the UK? it probably has a US bias. 10% withdrawal rate is very high. I'd be worried about some of your questions producing biased answers. Why have you chosen "wealth preservation trusts"? you could probably get similar results with lower fees from a simple Total Return portfolio of funds and ETFs or you could derisk with an annuity. Don't fall into the trap of assuming that "wealth preservation trusts" have some magic sauce to protect your money. They are just wrappers for various portfolios of equities, bonds, gold, cash etc.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82017696#Comment_82017696

As mentioned about I’m assuming the ‘drawdown’ was referring to the volatility and the most that fund drops - so less volatile than a fund that drops 20%.

it is a confusing overlap of terminology

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82017708#Comment_82017708

Yes maybe this is an example of technology producing confusion rather than clarity.