How safe is the average pension

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  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    What if a commercial property crash occurs, by moving money into a single sector your friend has probably increased the risk to his/her pension.

    Be frugal, avoid debt wherever possible, diversify, have an emergency fund, love your family and friends. You can't do much about macro-economic events like Brexit (other than vote) or Trump or IMF policies so don't worry about them too much.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • AlanP_2
    AlanP_2 Posts: 3,252 Forumite
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    Bianchiintenso wrote: »
    Thanks sounds sensible advice, Guess as I get to within a year to go That's the time to be more cautious, here's hoping things settle down and world trade continues for the benefit of all :)

    That depends I think. If you plan on using draw down and taking a monthly / annual sum to live off then you need to stay invested for possibly 40 more years so don't want to be too cautious and lose out to inflation.

    What is your plan?
  • Malthusian
    Malthusian Posts: 10,936 Forumite
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    What your colleague has done is bonkers. Assuming that he sold a globally diversified portfolio* in order to bung the whole lot into commercial property, then he has sold an investment that will plummet dramatically in a 2008-style crash but within 5 or so years will recover its value and never look back, in order to buy an investment that will plummet dramatically in a 2008-style crash and may never recover its value.

    *Of course that's a big if - for all I know the old portfolio he sold to buy commercial property was as daft as the new one.

    Equities recovered from the 2008 crash on a price return basis - i.e. ignoring dividends - in 2013. The last time I looked, commercial property still hadn't recovered its 2007 peak in capital terms. The IPD Commercial Property Index is above water, but that's a total return index and includes reinvested rent. Any investment in an individual sector (geographical or industry) carries the risk of a lost decade.
  • Bianchiintenso
    Bianchiintenso Posts: 215 Forumite
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    Drawdown, yes you're right re not being too cautious, hope to live off 4/5% of pot and hope it continues to grow
    "All lies and jest, still a man hears what he wants to hear and disregards the rest"

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  • Bianchiintenso
    Bianchiintenso Posts: 215 Forumite
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    Malthusian wrote: »
    What your colleague has done is bonkers. Assuming that he sold a globally diversified portfolio* in order to bung the whole lot into commercial property, then he has sold an investment that will plummet dramatically in a 2008-style crash but within 5 or so years will recover its value and never look back, in order to buy an investment that will plummet dramatically in a 2008-style crash and may never recover its value.

    *Of course that's a big if - for all I know the old portfolio he sold to buy commercial property was as daft as the new one.

    Equities recovered from the 2008 crash on a price return basis - i.e. ignoring dividends - in 2013. The last time I looked, commercial property still hadn't recovered its 2007 peak in capital terms. The IPD Commercial Property Index is above water, but that's a total return index and includes reinvested rent. Any investment in an individual sector (geographical or industry) carries the risk of a lost decade.
    He has a much bigger pot than me and felt property was a much safer investment, I must admit to being as baffled as you given how my fund is performing fairly well with Zurich, but he seems fairly sure the pension world will end soon and the only safe investment is commercial property. Each to their own eh?
    "All lies and jest, still a man hears what he wants to hear and disregards the rest"

    8kWh Canadian Solar Panels, 8.5kWh Hybrid Sunsynk inverter, 10kWh Sunsynk battery, 12kWh Ecodan ASHP
  • OldMusicGuy
    OldMusicGuy Posts: 1,758 Forumite
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    Bianchiintenso wrote: »
    He has a much bigger pot than me and felt property was a much safer investment, I must admit to being as baffled as you given how my fund is performing fairly well with Zurich, but he seems fairly sure the pension world will end soon and the only safe investment is commercial property. Each to their own eh?
    He clearly doesn't understand pensions. The "pension world" will not end soon. Like others have said, it depends entirely on what investments you have. You could move your entire SIPP into cash and lose nothing (except the effects of inflation). The pension will still be there. And all the pension platform companies that make money from our investments whether they go up or down will still be there.

    I have just retired and have 23% of a large pot sat as cash, costing me nothing. That (plus other savings) is my security blanket. The rest is invested for at least 10 plus years so will ride out any short term downturns.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Bianchiintenso wrote: »
    Drawdown, yes you're right re not being too cautious, hope to live off 4/5% of pot and hope it continues to grow

    That's a demanding target. 5% above inflation is the long term average with income reinvested. Without it's nearer 0.5%. While Trump hits the front pages. There's the little matter of the QE that was pumped in the global financial system to save it. Now that the banks are more or less recapitalised. Then it's cold turkey time. How the patient reacts to being weaned off cheap money is another matter. After all it's this that's driven the markets higher. Not underlying profitability.
  • coyrls
    coyrls Posts: 2,432 Forumite
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    Bianchiintenso wrote: »
    Had a lot of discussion recently with a colleague who has moved his pension into commercial properties he is convinced the 'crash' is about to happen. While I am not particularly concerned it got me thinking about Trump and trade wars, growing tensions between the US, Russia and the EU. What are the thoughts on the possibilities of a downturn/crash due to the political climate? Or will fund managers be well on top of this?
    [FONT=&quot]How precisely did your colleague move his pension into commercial properties?[/FONT]
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Bianchiintenso wrote: »
    growing tensions between the US, Russia and the EU.

    The US establishment seems set on stirring up trouble with Russia. Trump's instinct is clearly not to. Which way would you like to bet?
    Free the dunston one next time too.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 8 June 2018 at 9:19PM
    Bianchiintenso wrote: »
    Drawdown, yes you're right re not being too cautious, hope to live off 4/5% of pot and hope it continues to grow
    The initial UK safe withdrawal rate before costs is 5.5% over a 40 year retirement if the Guyton-Klinger rules are used with 65% equities. US work showed that costs reduce the SWR by 30% of them, so 1% of costs would cut that to 5.2% and 1.5% to 5%.

    The GK rules increase income if the pot size grows, which it's likely to do if you live through average or better times.

    We're currently in mediocre conditions for retiring, not horribly bad or good. So far as getting out goes, please read this recent post of mine: short term results not knowable, longer term, reduced equities looks better at the moment.

    Many of the rules of thumb for what to do assume taking and spending 25% then buying an annuity with the rest, so they try to protect the capital by cutting growth as you approach retirement age. If you're planning to use income drawdown that degree of reducing of equity percentage is the wrong way to go.
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