Feedback on my plan please

EverythingCounts

Hello all

I’ve spent the last few months setting up my pension and investments in preparation of potentially retiring in the next year or two. So the general idea has been to lower the risk and structure it so l’m able to manage a correction within the markets if that happens.

I was hoping for some feedback on my portfolio and would appreciate any feedback or advice.

A bit of context, I’m 55 years old, still working but looking to stop work in the next year or two.

This is how I’ve structured things:

Pension:

60% equities invested in a global index tracker

40% in a bond ladder (UK Gilts)

Starts: Jan 2028 (first bonds mature 31/01/2028)

Ends: July 2033 (last bonds mature 31/07/2033)

This covers just over 6 years and there is a years expenses in each year

ISA:

I have 3 years worth of money in a combination of Cash ISAs and Stocks & Shares ISAs, the split is 80% in the Cash ISA and 20% in Stocks & Shares ISA.

My plan is to manage the bond ladder ongoing, so when each year matures I will buy a new year. So hopefully keep a 5 to 6 year ladder, however this will be dependant on the equities, if markets perform well I will take that years money from equities, if they don’t perform then I will use that years bonds. I also have the ISAs to dip into if I need to but I would rather keep those untouched for as long as possible as a safety net.

I would continue this approach until 2039 when I will ‘hopefully’ receive the state pension which can take some of the burden. I say hopefully as I have 35 years paid in so should receive it but we never know how the government might change things.

gm0

There is no right plan. There is only the right plan for you. And your risk appetite.

Your overall portfolio includes the buffers in cash isa and later you can treat the potential guaranteed income from SP as "non growth assets" ( a simple capitalisation of this income via an assumed equivalent WR). Further reducing the apparent slew towards growth assets. Best approached with an across the spouses/couple pov if relevant to you.

And through that lens your commitment to growth assets is lower than the notional 60% and will step down absent other action later.

With the bond ladder (held to term). The sequence risk element is arguably covered by that and the cash buffers additional are "doubling up". Of course you may have family, other plans, capital requirements or may wish to exploit gifting while the regimen remains permissive as part of IHT planning. And to do so at time of your choosing without risk exposure around sequence of return and timing (hence the doubling). The opportunity cost of this is real but the benefit may suit you anyway. And the long term benefits of a more invested posture accrue to the tax man and heirs after your interest in this plan has life expired.

My own research at your age circa 6 years ago led me to a belief that <40% growth assets was problematic for drawdown income levels. (capital depletion + return). And that there wasn't a lot of value to the retiree during retirement going much above 70%/80%. Hassle from volatility getting added faster than upside - during retirement. In the pool of one - sequence risk affected - drawdown only approach.

This described plan is safer than my current plan (lower risk appetite) via the bond ladders alongside cash buffers.

The flexibility offered to roll the ladder or not as you approach SP is beneficial vs alternatives.

You face the same issue we all do with "indexers" and concentration by geography and sector via market cap weighting.

I was looking at mine only yesterday. And considering whether I now prefer the UK "list of 10" companies - to the US equivalent ahead of any reckoning on over exuberance over AI (and recognising that when the US goes pop - so does everybody else on most occasions). And how essential income is sustained over several years in that scenario is a key design consideration into retirement especially pre SP.

"Liability matching of essential income pre SP" which you have clearly covered off. Others will take a different view and carry more risk

Arguably the main question mark over this plan is the inflation exposure of the longer part of the bond ladder and the cash isa elements. Alongside the imperfect inflation hedges and risks attendant via other investing

In the end it is objective dependent. This plan will not struggle to produce the defined income and is hedged at multiple levels. With options. Excessive to some eyes in growth opportunity foregone.

I am in the middle of planning some gifting. So reducing my buffering. Which leads me to examine exactly the kind of structure you are proposing i.e. do I shift some of my "excess" equities into a ladder and remove income anxiety to SP and most speculative risk. Some chips off the table. The "already won - don't play" argument

FatherAbraham

A bit of context, I’m 55 years old, still working but looking to stop work in the next year or two.

This needs slightly more precision, because it's 2 September 2026 when you wrote this.

The normal pension age will increase overnight from 55 to 57 on 6th April 2028. If you have not started to take your pension by 6th April 2028, you will not be able to start taking your pension until you have reached 57.

Depending upon your precise birthdate, there may be a period where you cannot begin to withdraw from your pension.

Ensure that you check dates carefully, as well as any special protected retirement date on your pension, to avoid a nasty surprise.

EverythingCounts

https://forums.moneysavingexpert.com/discussion/comment/82123089#Comment_82123089

Thank you for the detailed response, you raise some very good points.

I have considered that with the ISA’s included I have less than 60% in equities overall, and this is something I will monitor and manage continuously, especially when it comes to managing the bond ladder. Taking my next years money from either the ladder or equities will obviously have an impact on the ratio, so I’ll need to ensure it doesn’t go too far one way or the other.

I note what you’ve said about the growth assets remaining above 40% and not going over 70/80%. I think I’ll be aiming to stick to a 60/40 to 50/50 split between equities and safer funds. I admit that my plan is quite risk adverse at the moment, the main reason for that right now is I’m a little nervous about the AI bubble talk, but I feel there is enough in equities to get some growth.

Which brings me to your point about index trackers. I have also been thinking a lot about how I can invest in global trackers and lower the risk if there is a big correction relating to AI and the Mag 7. I’m not sure if you can lower the risk by using a global tracker, then put some in an emerging markets or small cap fund. Or will they all take the same hit?

EverythingCounts

https://forums.moneysavingexpert.com/discussion/comment/82123179#Comment_82123179

Thank you for pointing that out and yes you’re absolutely right I do fall into that age group that’s caught within this transition period.

It’s certainly something I need to keep an eye on, as you say if I haven’t started taking my pension by April 2028 then I have to wait until I’m 57 which for me would be August 2028.

Albermarle

Which brings me to your point about index trackers. I have also been thinking a lot about how I can invest in global trackers and lower the risk if there is a big correction relating to AI and the Mag 7. I’m not sure if you can lower the risk by using a global tracker, then put some in an emerging markets or small cap fund. Or will they all take the same hit?

There are global trackers 'ex US' so with no US shares in them at all. As a 100% investment that would probably be a bit crazy, but you could have one of these and a normal global tracker as well. Of course whatever you do if the US market dives it will take other markets with it regardless.

So the general idea has been to lower the risk and structure it so l’m able to manage a correction within the markets if that happens.

It is not 'if' it happens, it is when it happens. You might have a 40 year retirement, if you do you will see lots of corrections and probably two or three full blooded crashes- plus of course many years of growth.

EverythingCounts

https://forums.moneysavingexpert.com/discussion/comment/82123266#Comment_82123266

Yes you’re absolutely right, it’s not if but when. I think that’s why I’ve been a little cautious, I feel like I’ve got a reasonable pot now so my thinking is to manage it rather than chase growth, I still want some growth but I don’t need to take unnecessary risk.

So in your opinion, if you invest in any global index tracker you’ll not escape the hit if the US tanks? Even if you exclude the US.

Triumph13

Unless the state pension is going to make up a very large percentage of your income, it all looks very tight indeed to me. You only have about 18x annual spend (6 in bonds and 9 in equities in pension, plus 3 in ISAs). Coupled with a low equity allocation, there appear to be a huge risk of running out of money.

Yorkie1

With your plan to reinvest the bonds as they come up, and also just for the longer-dated bonds, have you accounted for 'upping' the values in line with inflation?

LHW99

I would continue this approach until 2039 when I will ‘hopefully’
receive the state pension which can take some of the burden. I say
hopefully as I have 35 years paid in so should receive it but we never
know how the government might change things.

Don't hope - check! The often vaunted "35 years" is only correct if you start work after 2016. Otherwise you could need between about 28 and 50 years NI credited. It all depends on you work history.

https://www.gov.uk/check-state-pension

You need the words "you cannot improve your pension any more" (or similar)

EverythingCounts

https://forums.moneysavingexpert.com/discussion/comment/82123535#Comment_82123535

Thank you for the response, it’s got me thinking which is good.

Just to add a little more context, the bond ladder has a little more in each year so is more like 7 years money but spread over 6 years. The equities pot currently has about 11 years worth of money. So a little more than what I might have originally suggested but I do appreciate point and it’s totally valid.

I am still working and depending on how long I continue I might be able to add another years money to the ISAs, so that would be 4 years money there.

A couple of other things I’ve factored in, I believe my annual expenses will decrease in later years as less travelling etc, although this might be a dangerous assumption as other things could come into play such as medical costs etc, so might need to rethink that. I’m also open to doing bits of work if opportunities arise or I feel the need/want to, so there may still be some income over the next 10 years or so.