Retirement strategy in current conditions ?

[Inv101]

I have never been a serious investor, as I have had a very time consuming career and am ultra-cautious and riskaverse. I got stung on the Zero Prefs debacle many years ago (which seemed very low risk, but turned out not to be), and have pretty much left investing to one side since then.

The result is that I have a very large cash pile which has obviously been earning very little in recent years. I have not really been troubled about that, as I have always earned very well.

Please forgive me if this all sounds very smug, but I am just trying to explain the context of my question.

I am now in my late 60s (sadly closer to 70 than 65) and am planning to retire in the next 12 months.

I am trying to work out a sensible retirement and am very taken with the idea of investing very heavily in blue-chip 10 year bonds currently offering around +/- 5.5%. I reckon the income from those will see me through v comfortably until my late 70s and will most likely provide a significant opportunity to increase my savings pot, even with inflation running high. I would then hopefully have plenty of capital to see my through into my dotage. The upside is that I would not have to manage everything, and would even be spared the hassle of deciding which savings accounts to park my cash in.

Can anyone come up with a better option given my risk profile and lack of enthusiasm for manging a portfolio ?

[scrumpyjack]

I have never been a serious investor, as I have had a very time consuming career and am ultra-cautious and riskaverse. I got stung on the Zero Prefs debacle many years ago (which seemed very low risk, but turned out not to be), and have pretty much left investing to one side since then.

The result is that I have a very large cash pile which has obviously been earning very little in recent years. I have not really been troubled about that, as I have always earned very well.

Please forgive me if this all sounds very smug, but I am just trying to explain the context of my question.

I am now in my late 60s (sadly closer to 70 than 65) and am planning to retire in the next 12 months.

I am trying to work out a sensible retirement and am very taken with the idea of investing very heavily in blue-chip 10 year bonds currently offering around +/- 5.5%. I reckon the income from those will see me through v comfortably until my late 70s and will most likely provide a significant opportunity to increase my savings pot, even with inflation running high. I would then hopefully have plenty of capital to see my through into my dotage. The upside is that I would not have to manage everything, and would even be spared the hassle of deciding which savings accounts to park my cash in.

Can anyone come up with a better option given my risk profile and lack of enthusiasm for manging a portfolio ?

Personally I would be very worried at the risk of having my entire pot invested in depreciating assets. The bonds may well ‘earn’ less than inflation so providing no real income and unless held in a tax shelter (eg personal pension) the nominal income will be taxed. There is no risk free alternative.

Equities obviously have risks but bonds do too, from inflation as well as possible default.

IMO a balanced portfolio of global equity trackers, with some bonds if you must, would be preferable.
Don’t forget you could live well into your 90s and inflation could make mincemeat of your pot over 30 years, as my grandparents and parents generations discovered

[BullDog]

Think seriously about buying an annuity with part of the money. Probably heresy to say that to some people here. But it's a guaranteed income for life and ideal for someone who is very risk averse. Hope that helps.

[Dod101]

Think seriously about buying an annuity with part of the money. Probably heresy to say that to some people here. But it's a guaranteed income for life and ideal for someone who is very risk averse. Hope that helps.

We never talk about that here but with interest rates on the rise that is almost certainly a better idea than buying a load of bonds directly. That is of course a completely different area to research but is certainly well worth looking at.

Dod

[NotSure]

Think seriously about buying an annuity with part of the money. Probably heresy to say that to some people here. But it's a guaranteed income for life and ideal for someone who is very risk averse. Hope that helps.

We never talk about that here but with interest rates on the rise that is almost certainly a better idea than buying a load of bonds directly. That is of course a completely different area to research but is certainly well worth looking at.

Dod

I'm surprised that "annuity" doesn't get the [expletive deleted] treatment here

However the rise in annuity rates of late means that a greater income can be bought with a portfolio of equities/bonds than before the recent declines - that is annuity rates seem to have risen by more than typical portfolios have fallen.

Personally, I'm not overly risk averse, just painfully aware of my lack of investment expertise. Hence while I hope to manage my own pension funds in later life, I'll certainly be keeping an eye on annuities too, especially as other half has zero investment knowledge and is likely to outlive me, statistically speaking.

[Dod101]

Think seriously about buying an annuity with part of the money. Probably heresy to say that to some people here. But it's a guaranteed income for life and ideal for someone who is very risk averse. Hope that helps.

We never talk about that here but with interest rates on the rise that is almost certainly a better idea than buying a load of bonds directly. That is of course a completely different area to research but is certainly well worth looking at.

Dod

I'm surprised that "annuity" doesn't get the [expletive deleted] treatment here

However the rise in annuity rates of late means that a greater income can be bought with a portfolio of equities/bonds than before the recent declines - that is annuity rates seem to have risen by more than typical portfolios have fallen.

Personally, I'm not overly risk averse, just painfully aware of my lack of investment expertise. Hence while I hope to manage my own pension funds in later life, I'll certainly be keeping an eye on annuities too, especially as other half has zero investment knowledge and is likely to outlive me, statistically speaking.

Most of us here are more or less active investors and so would have no interest in annuities but for the OP they certainly look to be worth looking at. One problem is that they need a lot of careful research, first to decide what sort of annuity we want and then research to get the best buy on the day.
Obviously, unlike buying a share it is not usually possible to change your mind and sell an annuity. Once purchased that is it so great care needs to be taken in buying one. Often and probably for most buyers that means that they will want to get some professional advice. For the last 15 years or so, they simply were not worth buying but with interest rates rising again, they could make sense for some and for the OP who is very risk averse they could be a good option, as Bulldog has said.

Dod

[Kantwebefriends]

(i) Index-linked annuity with strict linking to (say) RPI i.e. no cap on the annual increase in payment.
(ii) Index-linked gilts (though their lovely value of a few days ago has vanished. Just wait; it may return.)
Perhaps instead, or in addition, a fund or ETF of global index-linked bonds.
(iii) Gold sovereigns if you have a safe way to store them.
(iv) Heaps of cash to let you buy equities once the collapse has indubitably happened.

[TUK020]

Central question you need to tackle - what is your perspective on any legacy? Do you have people you want to leave money to when you are gone?

[scrumpyjack]

Note that most of the comments here assume your 'very large' cash pile is sitting in a personal pension rather than a taxable account. Though an annuity could still be attractive if bought from a taxable account as part of each payment will then be treated as an untaxable return of capital whereas if bought from a pension pot it is all taxable as income.

[Newroad]

Hi Inv101.

From what you outline, you could do worse than invest some/most in VHYL

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-high-dividend-yield-ucits-etf-usd-distributing/distributions

and live off the distributions (dividends). Currently yielding 4.46%, 0.29% ongoing charge. Fairly much a fire and forget.

But as others note, it depends on a lot of other variables with respect to your situation/preferences.

Regards, Newroad

[Inv101]

Just to clarify my post, the greater part of the cash is NOT in a pension so any income or gains will be taxable, likely in substantial part at what are the higher tax rates in force from time to time.

One issue I have is not wanting to convert capital losses to income i.e. buying high yielding bonds at above par, although I sense that nobody thinks bonds are a particularly good bet for medium term pension planning.

I would like to leave some capital for the next gen, but that is not a primary concern. A greater concern is putting my cash in the hands of 3rd parties on whose competence and honesty I then become dependent.

[Wuffle]

I am a bit woolly on the details because my position is different but can't you backdate 3 years worth of pension contributions up to a max of 40 grand a year.
Perhaps you have already done this and we are in the realms of SUBSTANTIAL amounts of cash and little jobs like this are a given and you have got all the 40% tax back that you can.
Just my first thought.

W.

[Urbandreamer]

A greater concern is putting my cash in the hands of 3rd parties on whose competence and honesty I then become dependent.

I'm afraid that is almost unavoidable. By keeping it in cash (£'s) you expose yourself to the actions of the UK government. Chose to keep it in $'s and you expose yourself to US government actions. Some would claim to have doubts of the competence or honesty of those groups.

I am NOT advising you to buy bitcoin, but you might find the concepts of self sovereignty* of the asset of interest. There are some who choose to keep significant amounts of the stuff, because of doubts about state controlled currencies.

A less radical idea is simply to own "real" assets. Property, gold or equities. A purist would point out that governments can and have, seized such things in the past. I regard such actions as unlikely by the UK government over the next several decades.

I'm retiring in April, so need to consider the same things that you do. What would suit me wouldn't suit you though. I enjoy investing.

*I must get around to making time to read "The sovereign individual", which was written before the invention of bitcoin.

[xxd09]

I think coming to do “something different “ with your accumulated cash pile in your late 60s must be a serious worry
The risk of doing something badly wrong through lack of knowledge is very high
Starting to learn about investing at this late stage is fraught with possible serious consequences
You don’t seem to be in immediate financial straights so I would certainly take your time and educate yourself
Take gradual steps as you get more confident-it sounds like a great project for your retirement!
Most of us here have been investing for many years and are in a very different position to yours ie having been fully invested in equities and bonds etc for many years
Well done making so much cash -look after it and only go to some other investment when you are very sure and then with only parts of your cash pile
xxd09

[Inv101]

Thanks for all the positive and helpful responses. I am in the, perhaps, unusual situation of having little investment experience, but being very clued up about how the city and financial products work, and have a reasonable understanding of how to read a balance sheet. My particular niche is insolvency / restructuring, so I do understand risk, warning signs etc. !

I am also acutely aware that reward generally correlates to risk. Hence my dilemma, since I am v. risk averse.

[BullDog]

Thanks for all the positive and helpful responses. I am in the, perhaps, unusual situation of having little investment experience, but being very clued up about how the city and financial products work, and have a reasonable understanding of how to read a balance sheet. My particular niche is insolvency / restructuring, so I do understand risk, warning signs etc. !

I am also acutely aware that reward generally correlates to risk. Hence my dilemma, since I am v. risk averse.

Then I see only two realistic options. Or a combination of them both. 1 Annuity, but the recent window of decent annuity rates is closing very quickly. 2 Cash deposits in as decent a paying accounts as possible and drawing down from it until it depletes.

[Hariseldon58]

The OP might consider buying Gilts directly, no CGT on anything bought below par.

Personally I'd look at a passive mix of equity and bonds.

[BullDog]

The OP might consider buying Gilts directly, no CGT on anything bought below par.

Personally I'd look at a passive mix of equity and bonds.

Yes, and I'm happy 100% equity invested. But I have a DB pension income. Many of us were shocked recently when the "gold plate" on the fully funded DB pensions turned out to be easily rubbed off by exposure to LDI. So that's a risk too.

So I don't think here the OP wants anything that's traded on an open market? "I am v. risk averse." That doesn't leave much in the way of options open in my opinion. But the OP will no doubt say for him/herself.

My own feeling here is that there's a number of related risks and many people focus on the risks that I wouldn't necessarily choose to focus on. That's not to say they're wrong, but as here, can have a big impact on options. Or lack of.

[kempiejon]

I have never been a serious investor, as I have had a very time consuming career and am ultra-cautious and riskaverse.

You've mentioned several times being risk adverse. Anything other than cash has risk, the value will fluctuate and might well go down. Cash is of course eroded with inflation. To be confident in my investing It's taken me a fair few years and I started with comparatively small amounts; jumping in with hundreds of thousands in your 60s with no experience would be pretty daunting.

I trust you're debt free, mortgage paid and you're splitting your cash in several accounts for FSCS protection. I'd be looking at the best rates out there at this time and consider a few fixes, so inflation aside you'll know what your available cash is in the future. Premium bonds are of course tax free, have you filled ISAs?
I'm not sure I know what an ultra cautious risk adverse individual would pick. I suppose with cash, fixed interest, bonds and gilts you know the portfolio value hopefully won't fluctuate too much.

[scrumpyjack]

An RPI linked annuity is clearly the lowest risk option. According to HL the current RPI linked annuity rate at age 65 for a single man is 4.29%