Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Is it time to put the brakes on (2 years to go)

Including Financial Independence and Retiring Early (FIRE)
mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Is it time to put the brakes on (2 years to go)

#421274

Postby mark88man » June 21st, 2021, 9:10 pm

Similar to joe45's recent "bridge to SP" thread - I am a couple of years away from retiring with a DB kicking in at 65 (or earlier at 5%pa cost) plus full SP for myself and my OH both 2 years later. I will have 5 years to bridge and currently at 4x my gross target income in SIPPs. Then 2 years to bridge at a reduced rate after I take my DB.

I have planned for a comfortable retirement with a bit left over to help out the kids. Both OH and I will be ok post SP based on SP entitlement plus half the others plus our own DBs.

Until a couple of months ago I was ok sailing into my candidate date at quite an aggressive 80% global equity (mainly funds, some LLOY slight UK bias), 10% gold, 10%global index linked bonds. My logic was another year at work would make up corrections up to 30% and I was pretty confident I could bail in time if that was the way the wind blows. But I find now that the more I have thought about it, the more I don't want to miss out on my 2 year target by risking a correction so I have rejigged (funds are an odd selection of what is offered by my company scheme)
* 25% absolute return 5 year return 2%pa
* 10% bonds
* 10% gold
* 5% global property

The remaining 50% is the same mix of global and UK equity but a bit less of it. My question is, is this what are your thoughts on 50% equity with 2 years to go. I feel more comfortable taking the risk off in a way I hadn't expected, but not yet ready to sell out of the market.

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: Is it time to put the brakes on (2 years to go)

#421294

Postby tjh290633 » June 21st, 2021, 10:43 pm

mark88man wrote:Similar to joe45's recent "bridge to SP" thread - I am a couple of years away from retiring with a DB kicking in at 65 (or earlier at 5%pa cost) plus full SP for myself and my OH both 2 years later. I will have 5 years to bridge and currently at 4x my gross target income in SIPPs. Then 2 years to bridge at a reduced rate after I take my DB.

I have planned for a comfortable retirement with a bit left over to help out the kids. Both OH and I will be ok post SP based on SP entitlement plus half the others plus our own DBs.

Until a couple of months ago I was ok sailing into my candidate date at quite an aggressive 80% global equity (mainly funds, some LLOY slight UK bias), 10% gold, 10%global index linked bonds. My logic was another year at work would make up corrections up to 30% and I was pretty confident I could bail in time if that was the way the wind blows. But I find now that the more I have thought about it, the more I don't want to miss out on my 2 year target by risking a correction so I have rejigged (funds are an odd selection of what is offered by my company scheme)
* 25% absolute return 5 year return 2%pa
* 10% bonds
* 10% gold
* 5% global property

The remaining 50% is the same mix of global and UK equity but a bit less of it. My question is, is this what are your thoughts on 50% equity with 2 years to go. I feel more comfortable taking the risk off in a way I hadn't expected, but not yet ready to sell out of the market.

When you say that your SIPP has four times your target income, presumably you do not mean that it will provide income 4 times more than you need, just that you could draw down capital from the SIPP to provide that income, and have nothing left at the end.

How much income will your re-jigged portfolio produce? Have you sacrificed income to try to ensure that you have the capital needed? Gold will provide no income, the abolute return funds will provide 2% you say, the property is what? REITs or what? How much are the bonds yielding?

Were the gold price to collapse, interest rates to rise dramatically, and the stock markets to soar away, you would be in a worse position. It is a situation which would worry me. That is why my philosophy has always been to aim for a maximum flow of dividend income. Income is what you need and will fluctuate less than capital. To my mind the risk that concerns you is the wrong one.

TJH

mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Re: Is it time to put the brakes on (2 years to go)

#421296

Postby mark88man » June 21st, 2021, 10:58 pm

Thank you TJH.

So by "4x income" I meant that in Bridging to my DB and SP my worst case is to consume all the SIPP money and then from SP on survive on DB and SP. Currently I have 4 years saved (allowing some set aside for known expenditures). So I think when I get to the start of the Bridge I would probably accept inflation risk and move mainly to cash or very cash like. My initial decision was with 2 years at work to go to be aggressive and use my labour as a hedge (ie "one more year"). But coincident with the coming of summer (ha!) I am increasing reluctant to have to spend that year at work, but feel moving entirely to cash-likenow (for existing and new money) would be over cautious and think 50-50 to be better. I hope that clarifies it for you - I know what I mean, but have yet to achieve the laser like clarity of more experienced retirees. Whilst I have been saving for a lifetime, aggressive retirement thinking has come late and I still have some wrinkles to iron ​


I am not planning my SIPP as an income stream, rather a pot of money to consume. as longer term I have a solid DB/SP basis meeting core needs So without wanting to recreate the Total Return debates of other threads, that is probably closer to my mindset than an income one, especially as any remaining at the point I draw DB - I am likely to want to grow to help my children. ie SIPP to help me bridge (my decision when enough is enough) then DB and SP until clogs are popped

Dod101
The full Lemon
Posts: 16629
Joined: October 10th, 2017, 11:33 am
Has thanked: 4343 times
Been thanked: 7534 times

Re: Is it time to put the brakes on (2 years to go)

#421299

Postby Dod101 » June 21st, 2021, 11:14 pm

mark88man wrote:Similar to joe45's recent "bridge to SP" thread - I am a couple of years away from retiring with a DB kicking in at 65 (or earlier at 5%pa cost) plus full SP for myself and my OH both 2 years later. I will have 5 years to bridge and currently at 4x my gross target income in SIPPs. Then 2 years to bridge at a reduced rate after I take my DB.

I have planned for a comfortable retirement with a bit left over to help out the kids. Both OH and I will be ok post SP based on SP entitlement plus half the others plus our own DBs.

Until a couple of months ago I was ok sailing into my candidate date at quite an aggressive 80% global equity (mainly funds, some LLOY slight UK bias), 10% gold, 10%global index linked bonds. My logic was another year at work would make up corrections up to 30% and I was pretty confident I could bail in time if that was the way the wind blows. But I find now that the more I have thought about it, the more I don't want to miss out on my 2 year target by risking a correction so I have rejigged (funds are an odd selection of what is offered by my company scheme)
* 25% absolute return 5 year return 2%pa
* 10% bonds
* 10% gold
* 5% global property

The remaining 50% is the same mix of global and UK equity but a bit less of it. My question is, is this what are your thoughts on 50% equity with 2 years to go. I feel more comfortable taking the risk off in a way I hadn't expected, but not yet ready to sell out of the market.


I do not see your original position as being too aggressive, although I am not entirely sure what you mean. I retired at 53, a long time ago, and was and still am at least 85% in equities and I have no pension arrangement, DB or otherwise. Personally, I think most of you people, especially those with a DB arrangement, worry too much. Get on with life and leave the finances to look after themselves. They will do. I have gone through the tech bubble of 1999/2000, the financial disaster of 2008/9 and recently the Covid business, but am better off now than I have ever been, unlike a lot of those employed it would seem.

I do understand the lack of monthly income from a salary coming in to the enterprise, as I call my personal financial situation, but at some point it is going to happen and it need not be in the least painful.

Dod

mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Re: Is it time to put the brakes on (2 years to go)

#421301

Postby mark88man » June 21st, 2021, 11:25 pm

Thank you Dod

Wise words, I do worry too much. But it is what it is - had my company not curtailed my DB pension around a decade ago I would probably never had a light bulb moment and would be shackled to work for a few more years yet. So I am cautious I don't make an error decumulating what I have always regarded my early retirement pot.

JohnW
Lemon Slice
Posts: 506
Joined: June 1st, 2019, 7:00 am
Has thanked: 5 times
Been thanked: 176 times

Re: Is it time to put the brakes on (2 years to go)

#421338

Postby JohnW » June 22nd, 2021, 9:18 am

My sense is that 50% in equities is a bit risky, 2 years out. But you're closer to 7 years out, with 2 more years before starting to 'eat' the bridge which is 5 years long. It seems you've pictured yourself as 2 years out because you want to be in cash or near equivalent when you start the bridge, although you didn't say that in the original post.
Even six years is perhaps a bit risky for equities, so one might not wish to hold too big a % in equities at your stage, but only you know how adequate your SIPPs are likely to be (with 2 extra years added to them, and with projected growth). So, you've asked a hard question in a hard way. There are likely equities in the absolute return fund, I note. Good luck.

Urbandreamer
Lemon Quarter
Posts: 3121
Joined: December 7th, 2016, 9:09 pm
Has thanked: 347 times
Been thanked: 1025 times

Re: Is it time to put the brakes on (2 years to go)

#421344

Postby Urbandreamer » June 22nd, 2021, 10:02 am

mark88man wrote:My question is, is this what are your thoughts on 50% equity with 2 years to go. I feel more comfortable taking the risk off in a way I hadn't expected, but not yet ready to sell out of the market.


Everyone's attitude to risk is different. However I'd argue that is not enough equity.

I have agreed to work the next two years and then I'm retiring, at 60. Like you I have full SP entitlement and a modest DB that kicks in at 65. Combining the two would provide enough to live on, but income from SIPP, ISA and DC scheme will be required for comfort.

I don't see my SIPP/ISA/DC as bridging the 5 years until the DB kicks in or the 7 until the SP is added. Instead I see my retirement as possibly lasting 40 years. That means I want significant growth in the portfolio during those years.

I use firecalc to simulate/predict the chance of running out of money. Reducing the ratio of equities seems to significantly increase that chance.
The calculator contains this bit of advise about equity ratios, though I doubt that the advice considers SP or DB scheme's.

Research seems to suggest about 50% for a 10 year term, almost 70% for a 20 year term, and around 85% for a 60 year term.

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: Is it time to put the brakes on (2 years to go)

#421352

Postby tjh290633 » June 22nd, 2021, 10:39 am

mark88man wrote:Thank you TJH.

So by "4x income" I meant that in Bridging to my DB and SP my worst case is to consume all the SIPP money and then from SP on survive on DB and SP. Currently I have 4 years saved (allowing some set aside for known expenditures). So I think when I get to the start of the Bridge I would probably accept inflation risk and move mainly to cash or very cash like. My initial decision was with 2 years at work to go to be aggressive and use my labour as a hedge (ie "one more year"). But coincident with the coming of summer (ha!) I am increasing reluctant to have to spend that year at work, but feel moving entirely to cash-likenow (for existing and new money) would be over cautious and think 50-50 to be better. I hope that clarifies it for you - I know what I mean, but have yet to achieve the laser like clarity of more experienced retirees. Whilst I have been saving for a lifetime, aggressive retirement thinking has come late and I still have some wrinkles to iron ​


I am not planning my SIPP as an income stream, rather a pot of money to consume. as longer term I have a solid DB/SP basis meeting core needs So without wanting to recreate the Total Return debates of other threads, that is probably closer to my mindset than an income one, especially as any remaining at the point I draw DB - I am likely to want to grow to help my children. ie SIPP to help me bridge (my decision when enough is enough) then DB and SP until clogs are popped

Point taken. My concern is that you might have swapped the devil for a witch. I worked until state pension age, and part time for a while thereafter, so never had a transition period. I might add that I have been 100% in equities ever since, for over 20 years now, and much of the time have been reinvesting the income. The main thing is to ensure that you have more than enough income.

TJH

Kantwebefriends
Lemon Slice
Posts: 356
Joined: November 5th, 2016, 4:02 pm
Has thanked: 26 times
Been thanked: 102 times

Re: Is it time to put the brakes on (2 years to go)

#421418

Postby Kantwebefriends » June 22nd, 2021, 3:41 pm

"OH and I will be ok post SP based on SP entitlement plus half the others plus our own DBs."

Are you sure? That's not my understanding for the New State Pension.

mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Re: Is it time to put the brakes on (2 years to go)

#421431

Postby mark88man » June 22nd, 2021, 5:29 pm

Sorry - once again a bit slack in my language
* OH and I both have full state pensions. These will die with the holder
* OH and I both have DBs. Both of these happen to provide survivor benefits of half the Scheme Retirement Age income .

mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Re: Is it time to put the brakes on (2 years to go)

#421463

Postby mark88man » June 22nd, 2021, 9:13 pm

A little extra information. As ever posing the question and reading answers has helped to clarify what I should have asked.

Post 67 - my combined DB and SP (and that of my OH) will provide an income in excess of our steady state requirements so I don't need this to be supplemented (assuming reasonable inflation !!). Plus sufficient for the first survivor although OH will be slightly but not significantly the worse off. We will both be solidly in Basic Rate tax bands for the duration, although I am adding out of Higher rate money and will increase significantly now that all my little cost centres are much more self sufficient.

Thus my SIPP pot's job is to fund (through withdrawals of capital) those bridging years post retirement before taking DB with a desire only to have a a little left over which I might subsequently watch growing (untouched) to reinforce my young adults' pots as a final gift from us. Now I'm thinking of going I don't want that date to be significantly delayed, so I prioritise the date not being delayed by taking an element of risk/volatility off the table now with 2 years to go. TJH suggests I might not achieve that with my proposed derisking so I will have a think.

As ever this thread has caused an improvement in my thinking and I am grateful. It's made me realise my use of the SIPP to fund these years is unusual if not rare. For me its not about finishing a lifelong marathon, its about getting to the starting gate for a 5K on time, and not tripping up on the way round. With such a short Bridge (I know and I wish it was longer) ensuring it lasts is more about budgeting than investment.

JohnW
Lemon Slice
Posts: 506
Joined: June 1st, 2019, 7:00 am
Has thanked: 5 times
Been thanked: 176 times

Re: Is it time to put the brakes on (2 years to go)

#421498

Postby JohnW » June 23rd, 2021, 5:05 am

mark88man wrote:a desire only to have a a little left over which I might subsequently watch growing (untouched) to reinforce my young adults' pots as a final gift from us.

Beautiful detail. That hints at clear decision making. Here's one way: it's a desire, so it can fail if it must; it might be 20 years before you make that final gift, and another 20 years before those young adults use those retirement funds (is that what 'pots' are?). That hints very much at holding equities for that amount you estimate will be left at the end of your bridge. If it's a large-ish % of your SIPP it will do wonders for the bridge if the next 7 years are like the last 7. Suggest a low cost, broad based well diversified global tracker from a reputable provider.
What you do with the rest of the SIPP is easier now because it will apply to a lesser amount than the whole SIPP, and simplify the thinking necessary with so many moving parts.

jonesa1
Lemon Slice
Posts: 263
Joined: May 27th, 2019, 9:47 am
Has thanked: 103 times
Been thanked: 142 times

Re: Is it time to put the brakes on (2 years to go)

#422682

Postby jonesa1 » June 26th, 2021, 8:01 pm

The other lever you have which could help avoid having to delay retirement (if the stock market wobbles at the wrong time) is to swallow the ERDF and take the DB pension a bit early, ok you get less each month, but you get it for longer, the break-even might be further out than you imagine.


Return to “Retirement Investing (inc FIRE)”

Who is online

Users browsing this forum: wycliffe19 and 6 guests