Any point in a Cash buffer in Pension Drawdown Account?
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The issue with (i) is that a Purchased Life Annuity is unlikely to be good value. As I understand it, the purchased annuity market is very small and people who buy purchased annuities tend to live longer than average.0
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If I was still alive after 30 years of retirement but had run down my pension pot completely and my only income was my State Pension, I wouldn't be very happy.
Yes, but as I stated in a previous post, my drawdown pension is about 30% of my pension income (mainly DB),and this % will reduce over the years to a much lower figure. When my SP starts, I have calculated that the drawdown element of my income will be about 18% of my income. So if it runs out when I am in my late 80’s, it’s no problem.0 -
Fair enough, I suppose it depends on individual circumstances, like for example if you have a spouse that would benefit from your pension pot if you go first, or if someone wants to leave an inheritance to children.peterg1965 wrote: »Yes, but as I stated in a previous post, my drawdown pension is about 30% of my pension income (mainly DB),and this % will reduce over the years to a much lower figure. When my SP starts, I have calculated that the drawdown element of my income will be about 18% of my income. So if it runs out when I am in my late 80’s, it’s no problem.
I know spending should go down in your 80s, but I think more income could be required later in life if you have care needs.0 -
As the percentage is now only 5.8% just wondering how many years it would take to break even after deferring for a year?
(iii) Consider whether there's any useful advantage in deferring drawing the State Pension for a couple of years. You get an extra 5.8% for each year of deferral, CPI-linked.0 -
OldMusicGuy wrote: »The scenario it actually helps in is allowing me a stress free retirement. I am incredibly risk averse, so I find volatility and market drops very stressful (I have learned this over several years). I probably have what is called obsessive-compulsive personality disorder, which means I need to feel that I am in control all the time.
I also have enough money accumulated to last us through a 30 year plus retirement provided what I have invested today matches inflation (I have done a detailed spreadsheet that forecasts all income and costs through a 32 year period).
I understand your concerns and everyone should pursue a strategy they they are comfortable with, however the research I posted before does indicate that holding cash actually increases risk in all their modelled scenarios!
I may be in a similar position to you in that if I turned all my investments into cash I should have enough for my needs for the rest of my life, (though I’m only 53) yet as per a comment above that means I can afford to risk a 100% equities approach because I could ‘afford’ an equities crash. So that would be two completely different approaches to two very similar scenarios - interesting.0 -
Does this mean that a cash buffer is for advanced investor only? I don't know, but I think a DIY investor should evaluate the evidence for the benefit of a cash buffer, and consider in practice whether they feel they could operate a cash buffer to produce any advantage. It does complicate things if one also has a bond buffer as well, although the rule of using cash, then bonds, then equities when equities have crashed is simple enough.
For me, managing my retirement portfolio is not only a necessity but also an opportunity to learn and to experiment. I think my pension planning has enough slack in it to allow me to experiment with the idea of a cash buffer, but I'm not currently set-up to monitor the difference this makes vs. having no buffer.
Indeed this is where I am, I’m trying to decide if cash buffer useful or not. My situation also likely has some slack/pessimism built in, so does this mean I can afford to go all equities, or does it mean I can afford to forgo some upside and implement such a buffer. I’m coming to the conclusion that it probably means both and I should just go with what I’m comfortable with. Of course you need to be confident that if you do go 100% equities that in the event of a 50-60% crash you don’t freak out and sell up!0 -
I think the real question isn't 'Should I have a cash buffer?' it's 'What is my tactic going to be if markets go down?' A cash buffer may be a useful way to mitigate stress, but only if you have a plan on how to use it that you are comfortable with.
In my view there are 3 basic responses to a market fall:- Carry on regardless and trust that all will be well / accept that there is now a higher risk of things not going well.
- Reduce your spending.
- Take part of your income from different sources eg cash buffers or part time work.
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IMO the key point could be that the OP wants a withdrawal rate of 2.5%, which is likely to be sustainable from dividends / natural yield.
If your requirement is nearer 4% of your pot, then cash reserves may well be a useful tactic.
Indeed, if within 100% equities it should be comfortably such. Yet others say if you don’t need the growth why risk 100% equities! It’s an interesting dilemma0 -
What you're missing is my "bucket" strategy. I am not following the example set out in the article. I have a significant amount of money currently invested 50/50, which I think is safe for a long-term retirement. My cash buffer does not require me to reduce that to 10/40/50. I have always separated the cash out in my mind and will use that to fund early years of retirement at no risk. FWIW I actually moved 100K from cash into funds in Feb last year (two days before the correction!). Even I felt I was holding too much cash.I understand your concerns and everyone should pursue a strategy they they are comfortable with, however the research I posted before does indicate that holding cash actually increases risk in all their modelled scenarios!
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Now I could put all my money into more equity and bonds but as I explained, my personality type really would not like that. The downside is just too much for me to contemplate. And if it was wildly successful, I would end up with too much money anyway.0
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