Defend or Attack?

mrklaw

we’re still working towards our number. Target retirement April 2029. It looks like we might hit the number needed in April 2027 next year but we still have to wait until 2029 so a ‘mini coast’ if you like.

I want to consider my allocation. Logic suggests maintaining a growth position and I still have two full years of heavy contributions (around 55k a year) which will mean the overall portfolio need is relatively low vs the savings. Feels like I have a couple of options I’d like to run past the group.

current savings are me: 100% VWRP, wife in a 2035 target date fund. starting next year would start to move contributions into lower risk funds - money market fund, short duration bonds mainly. This woudl aim to hit April 2029 with roughly a 60/40 split.

My concern is twofold - yes the market could have a wobble but our contributions should push through that. But what about job loss in those two years? I have income protection that would cover basic living expenses but the pension contributions would grind to a halt.

so I’m considering whether to use the April 2027 date to take stock and go more defensive.

• triple check we have hit our number needed
• consider moving wife’s SIPP to TDF2030 to be more defensive
• move my funds to MMF/short duration bonds maybe very small position in equities
• future contributions (still estimated to be 110k-ish over two years) - fully 100% equities

Aiming for strong reduction in volatility risk and trying to ensure those funds are still there with maybe 0% real growth if required to secure the 2029 date.

then we pile into equities with the contributions that are ‘excess’. Feels a little like constructing a bond tent two years out maybe?

We would spend down that fixed income pot over the 9 year bridge to state pension, and once state pension kicks in we have almost no draw on the DCs needed so the equities portion can do what it wants.

(we have a DB pension at 60 - two years into retirement - that will cover 40% of income needs too)

too defensive? pragmatic protection of specific retirement fund needs in a chaotic world? Something else?

MK62

There's no way to know really……..what you'll get are replies stating what the author of the reply would do in your situation. That said, I'd probably be doing something similar in the way of derisking……why take on extra risk in an attempt to achieve gains you don't really need. Doing so could pay off of course, but on the flip side it could seriously dent your retirement plans if it all goes south…..but that's the part you can't know today.

MasterG83

Needs modelling with a qualified pension partner.

mrklaw

I could probably model the potential up/down sides mechanically but I don’t know if the question is answerable objectively - its mindset, risk tolerance etc etc.

keeping current funds invested and building the defense with contributions is very likely mathematically more effective - if measured as a linear trend. But we’re less than 3 years from retirement when many would recommend starting to derisk already.

If the end result is about 400k in DC and about 225k needed for the bridge period, so around 50/50 equities/fixed income - the primary difference would be the delta between fixed income returns (maybe 4-4.5% nominal right now) and potential returns of an unknown market at perhaps 7%? and is the value of that delta worth the risk

Trying to understand which bits of this are measurable to distil and try and simplify the decision making part

mrklaw

I’m selling down £25k of VWRP to buy either CSH2 or IGL5. Then rest of this years contributions will go to a split of CSH2/IGL5. By April 2027 I aim to have around 130k in VWRP and 75k in fixed income. That gives me a solid percentage of my bridge funds in fixed income which will be reassuring, while leaving most of current VWRP invested.

the following two years I’ll do something like 50/50 VWRP/Fixed income which will slowly build to all my bridge being in fixed income while growing the equities too. but also the 70% of bridge already in fixed income by april 2027 is a good backstop

I may or may not buy a fixed annuity for the bridge with that fixed income portion depending on rates.

NormalNorman

Interesting. When the markets were volatile last year I sat a chunk if money in CSH2 ready to invest which I did before ending up in the usual VWRL.

Back then I was in HL so CSH2 made more sense than RL STMMF from fee point of view.

Without looking at the bigger picture the lack of growth in these funds can become frustrating when you see them along side your investments.

Also, I enjoy the dividends that VWRL provides so always thought about VHYL closer to retirement for higher dividends with lower scope for growth?

Also. The ISA has income producing funds coupled with savings, DB and inheritance so probably just going to keep asmall amount of ‘safe’ investments in the SIPP.

mrklaw

My thinking is along the lines of ‘if I have enough, why keep playing’? the downside seems worse when I don’t need the upside if that makes sense.

although this is playing with discretionary income - I don’t know that my wife would consider it all that discretionary. we want to spend 3 months a year overseas in her home country so thats less ‘holiday fund’ and more ‘spend meaningful time back home’

working through whole portfolio including wife’s, estimate a cost of around 230k for the full bridge out of an estimated total pot of 380-400k at retirement so its not like the whole thing will be non-growth assets.

maybe a short term fixed annuity for my wife’s side of things as thats more important income - maybe play with a gilt ladder for my portion - then thats all of our expenses guaranteed.

michaels

If you want to protect why not go the whole hog and put in place a linkers ladder for the bridge period and with that in place then decide how adventurous you want to go with the remainder?

NormalNorman

Yes I agree it’s difficult deciding on an overall strategy when your wife’s drawdown situation is different from your own. My DBs at 60 use the personal tax allowance whereas wife’s does not so she needs a different strategy. Regarding annuities I have thought about this as despite her concerns about handing over a large sum though that certainly of income could be priceless. My pot would then provide the fun tokens as well as extra base income in the 60 to 67 age bracket.

Spending three months abroad each year sounds incredible and I guess it’s opportunities like this that really focus the planning.