Analysing my portfolio pre retirement

enthusiasticsaver · 13 October 2017 at 12:06AM

bostonerimus wrote: »

You haven't really given us enough to comment intelligently.

1) Don't include your house in your portfolio. It's where you live and the capital is locked up and you should avoid equity release if at all possible.
2) You need to tell us the income you require in in retirement and your age and any unusual health issues.
3) You also need to include DB pensions and all other DC pensions and how they are allocated. You need to take a holistic approach to asset allocation.

We won't do equity release and no plans to downsize in near future.

To live comfortably we would like £2500 per month net which is roughly what we have been living off for the last few years. Our DB pensions will give us £2200 net from January when I draw on my pension and the shortfall will be made up from income on funds and if necessary we will draw on cash buffer. That should cover our living expenses, savings for gifts, holiday and home and car expenses. Replacement cars, long haul holidays and big home improvement projects will have to come from cash buffer too but no immediate plans as both cars recently changed. DH is 59 and I am 57. My 2nd DB pension pays out in 2020 and will cover the shortfall. State pensions pay out in 2024 and 2026 and husband qualifies for full spa but I may have a year or two shortfall. No health issues.

Any shortfalls we will draw initially on cash, then DC and SIPP then stocks and shares isas. As the shortfall is only for the first 2 years I don't envisage needing to draw on the investments any time soon.

chiang_mai · 13 October 2017 at 1:03AM

Approximately:
65% Asian currencies (I live in Asia) of which, 8% local mutual funds, 35% Time Deposits 17% cash
35% Sterling, of which 20% bonds, 50% equities, 30% cash).

40% property in Asia which I don't count as an investment.

bostonerimus · 13 October 2017 at 2:02AM

enthusiasticsaver wrote: »

We won't do equity release and no plans to downsize in near future.

To live comfortably we would like £2500 per month net which is roughly what we have been living off for the last few years. Our DB pensions will give us £2200 net from January when I draw on my pension and the shortfall will be made up from income on funds and if necessary we will draw on cash buffer. That should cover our living expenses, savings for gifts, holiday and home and car expenses. Replacement cars, long haul holidays and big home improvement projects will have to come from cash buffer too but no immediate plans as both cars recently changed. DH is 59 and I am 57. My 2nd DB pension pays out in 2020 and will cover the shortfall. State pensions pay out in 2024 and 2026 and husband qualifies for full spa but I may have a year or two shortfall. No health issues.

Any shortfalls we will draw initially on cash, then DC and SIPP then stocks and shares isas. As the shortfall is only for the first 2 years I don't envisage needing to draw on the investments any time soon.

So you need 30k pa, inflation adjusted for maybe 35 or 40 years. If your DB pensions are index linked then you are pretty much set as you've only got to cover a shortfall of 3.6k for three years until the second DB pension starts and the when SP starts you'll be swimming in income. Given your situation you can take pone of two positions: 1) I have my income needs covered by DB pensions and SP so I can take lots of risk with my investments and go with a high percentage of equities and maybe a small cash buffer to easy access and cash flow planning; or 2) I don't need extra income from my investments so I can be conservative and put them in savings bonds or short to mid term bonds and just reinvest all the interest.

I'm in a similar situation to you. I'm 56 and retired at 52 and have my income needs covered by a DB pension and rental income.....I also work part time, but put all I earn into a self employed pension. I have a cash buffer of about 1 year's income purely for convenience and so I can pay any big bills easily. My DC pension and other investments are 75% in stocks and 25% in a broad US intermediate bond index fund.

bigadaj · 13 October 2017 at 2:32AM

chiang_mai wrote: »

Approximately:
65% Asian currencies (I live in Asia) of which, 8% local mutual funds, 35% Time Deposits 17% cash
35% Sterling, of which 20% bonds, 50% equities, 30% cash).

40% property in Asia which I don't count as an investment.

Are you allowed to,purchase property as a foreigner in Thailand now, I know several years ago it was only Thai nationals who could, though there was a work around with companies I believe.

chiang_mai · 13 October 2017 at 2:46AM

My wife owns the property but I have an usufruct that is registered on the title deeds, which means to all intents and purposes I am the owner. The property cannot be sold or loans taken out against it without my approval plus I get to say who can and cannot live in the house. Usufruct is very reliable here and it has been tested in the courts, the company purchase route was cracked down on by the Land Office a few years ago and is now pretty much off limits to anything other than bona fide property companies that are structured and owned appropriately.

enthusiasticsaver · 13 October 2017 at 9:25AM

bostonerimus wrote: »

So you need 30k pa, inflation adjusted for maybe 35 or 40 years. If your DB pensions are index linked then you are pretty much set as you've only got to cover a shortfall of 3.6k for three years until the second DB pension starts and the when SP starts you'll be swimming in income. Given your situation you can take pone of two positions: 1) I have my income needs covered by DB pensions and SP so I can take lots of risk with my investments and go with a high percentage of equities and maybe a small cash buffer to easy access and cash flow planning; or 2) I don't need extra income from my investments so I can be conservative and put them in savings bonds or short to mid term bonds and just reinvest all the interest.

I'm in a similar situation to you. I'm 56 and retired at 52 and have my income needs covered by a DB pension and rental income.....I also work part time, but put all I earn into a self employed pension. I have a cash buffer of about 1 year's income purely for convenience and so I can pay any big bills easily. My DC pension and other investments are 75% in stocks and 25% in a broad US intermediate bond index fund.

That is pretty much how we have modelled it and yes when our sps kicks in we will have more income than when we were working which seems crazy. We are thinking worst case scenario that may help with care costs as we get older and we will, like my mum has be in a position to help family. The DB pensions are all index linked but we will not be working or bring any self employment income in.

We will have a cash buffer of around 2.5 years income which seems a lot as we have DB pensions covering 90% of our needs but we reckon the first 5-10 years will be the most expensive in terms of long haul holidays, home improvements etc and having worked so hard to provide a comfortable retirement we don't want to tie up any more than 75% of our assets in case there is a recession. I have not held stocks and shares during a recession before but I know the worst thing you can do is sell and crystallise losses.

I know we could be more aggressive investment wise but it has taken a long time for us to be comfortable with investing so I think we are happy with keeping 25% liquid and 75% split between bonds and equities.

Audaxer · 13 October 2017 at 11:26AM

enthusiasticsaver wrote: »

I know we could be more aggressive investment wise but it has taken a long time for us to be comfortable with investing so I think we are happy with keeping 25% liquid and 75% split between bonds and equities.

Absolutely right. As you are pretty much sorted with pension income alone you have no need to be more aggressive unless you really want to. Even if you became more conservative and cashed in some investments to have a much bigger cash holding, I'm sure it wouldn't change your standard of living in retirement. You are in a great position financially.

bostonerimus · 13 October 2017 at 1:47PM

enthusiasticsaver wrote: »

I know we could be more aggressive investment wise but it has taken a long time for us to be comfortable with investing so I think we are happy with keeping 25% liquid and 75% split between bonds and equities.

The right asset allocation for you is the one that lets you sleep well at night. With so much DB and state pension income coming in it really doesn't matter what you do as far as immediate income is concerned. Just keep reinvesting dividends and interest through the ups and downs of the market, You could have 40 years in retirement so there will be market downturns to live through, best thing is to be confident in your allocation and other than a little rebalancing don't do too much. You might think about some gifts to family and do a bit of estate planning as you might find your net worth growing quite quickly.

Right now I'm still paying money into my investment accounts and have decided to be quite aggressive with 75% equities. In 11 years time I could be getting both UK and US state pensions, but I'm looking into deferring as part of my tax planning. I think tax planning is also going to be important for you.

enthusiasticsaver · 13 October 2017 at 3:19PM

bostonerimus wrote: »

The right asset allocation for you is the one that lets you sleep well at night. With so much DB and state pension income coming in it really doesn't matter what you do as far as immediate income is concerned. Just keep reinvesting dividends and interest through the ups and downs of the market, You could have 40 years in retirement so there will be market downturns to live through, best thing is to be confident in your allocation and other than a little rebalancing don't do too much. You might think about some gifts to family and do a bit of estate planning as you might find your net worth growing quite quickly.

Right now I'm still paying money into my investment accounts and have decided to be quite aggressive with 75% equities. In 11 years time I could be getting both UK and US state pensions, but I'm looking into deferring as part of my tax planning. I think tax planning is also going to be important for you.

Yes you are right about tax planning but I am still fairly clueless on that.

We have put most of the income funds in my name as we have no more ISA allowances free for this year and my husband pays tax (now basic rate) and I will pay none from next April. As far as I am aware and I need to read up more on this the first £2000 of dividends are tax free for both of us and after that it must be declared as income. As the total income based on historical yields will be around £4000 a year we have structured it so £1000 is in my husbands name and the rest in mine to use up my tax allowance. We will need to think again when my second DB pension pays out and by the time the state pension begins I will be paying tax too except by then I will move the income yielding funds back to accumulation.

I have wondered about us deferring state pensions as some people have said this is worthwhile but I need to look into that. I guess this is the same thing as you have in mind?

enthusiasticsaver · 13 October 2017 at 3:23PM

Audaxer wrote: »

Absolutely right. As you are pretty much sorted with pension income alone you have no need to be more aggressive unless you really want to. Even if you became more conservative and cashed in some investments to have a much bigger cash holding, I'm sure it wouldn't change your standard of living in retirement. You are in a great position financially.

Thanks and yes that is exactly how I am looking at it. We have sufficient money to do the things we want to which was exactly our plan when we started this journey 35 years ago when we started our journeys and opted for booster pensions rather than the cheaper saver ones. We could probably get better returns by going higher into equities but as we do not need any more than we have I would rather not risk any more of our capital than we have to.

We are spending a lot of time stressing to our children the benefits of overpaying into pensions and their mortgages and putting small things in place now when they are in their 20s and 30s so it becomes a part of their everyday finances and pension and preparing for retirement is as important as gym memberships or holidays etc.

Analysing my portfolio pre retirement

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