Transitioning to a "Pre Retirement" stance

[International]

you may be one of the lucky folk who can access your pension before 5 April 2028 (age 55) rather than 5 April 2030 (age 57)

I think so too. It has taken a while to straighten out, as most articles over-simplify and concentrate just on the transition dates. If I understand it correctly, I could access when I am 55, and also until 5 April, but if I haven't accessed by then then I have to wait until I am 57. Same as you.

But I plan to work until the children are earning properly and I think that will take me to 58 (and who knows how far beyond!)

[International]

I will be watching the next government's pension policies with some interest.

Quite! I think Kier Starmer has already said he would perform some sort of reversal of the AA increase and the LTA abolition. We'll see. It does make planning harder, not knowing what the rules will be.

[International]

https://www.bogleheads.org/wiki/Matching_strategy

I now spend all my time reading investment forums Thanks for the Matching Strategy link. Following it I found a good article on Asset Allocation on the same site. https://www.bogleheads.org/wiki/Asset_allocation . Seems the Bogleheads do still live by the equity/bond mix approach, which is what I followed originally at 80/20. If I followed the Bogle rule of thumb I'd be 50/50 by now!

[TUK020]

Hello All,

I'm standing at the gateway to one of those transitionary phases of life and so want to set up my portfolio for the next section of the journey. I've been reading this excellent forum with great interest recently and thought I would share the topics that are top of mind for me. I would be grateful for your comments on other things I should be thinking about as well as your thoughts on the specific actions I have in mind.

My Situation

M51, spouse F50
2 children
UK Domiciled
General plan: work until the children have finished university, which takes me to 58. I may "retire" or I may work doing something more fun/risky. The goal is getting to financial independence so I have more choices about how I spend my time whilst also launching my children into adult life. I intend to live off the income from the portfolio and so am thinking now, with 6.5 years to go, about how I might restructure things to enable that transition.

Portfolio

Pension: Employer DC pension - £1M - Standard Life Sustainable Multi Asset Growth Pn (https://library.standardlife.com/LPNL.pdf)
ISAs: - £500K - Basket of "Funds" originally set up in 2010 as an 80:20 equity/bond allocation. The current asset allocation is shown below.
Unwrapped: £310K in a single US stock (I know, I know...)
House: Doesn't really matter what the value is as we live in it, rather than it being an investment. No mortgage.

Spouse has a small untapped DB pension that I am ignoring for this exercise

Key actions currently in my mind, in a rough priority/sequence

Decide my desired asset allocation in this "pre retirement" phase
Reduce platform charges, both for the ISAs and the pension
Move the pension to a SIPP with the right asset allocation
Generally tidy up and simplify

Supplemental notes:

Asset allocation - I need to defend and grow and, in 6.5 years, be able to take income. I'm thinking of mostly a global equity tracking approach to try and smooth out regional differences and defend against inflation. I do worry a bit about how well trackers might do in a flat-to-down market. I need to decide whether I accept or reject the conventional wisdom that an equity/bond mix offers a balanced solution. I think asset allocation is my main area of decision. The rest is mechanics.
Pension - is a lifestyle plan but I pushed out my apparent retirement age to stop the provider moving into the pre-retirement mix that was bond-heavier. So that pension is all in its "growth" asset allocation still. I plan to drawdown.
Deriving income - I'm not used to taking the income. Most of the funds are in acc units at present so I need to get my head around how I actually take income efficiently.
Platform - I need to get the charges down as both the pension and the ISA are with providers who charge a percentage. I think I would be better with a flat fee or possibly consolidating to one and benefiting from reduced or no platform charges
Unwrapped I sell down the CGT allowance each year and move into the wrapped vehicles, diversifying at the same time. This is now getting more difficult as the GCT allowance is shrinking. I might have to just pay the CGT to get on with it.
Vehicles - I'm in "Funds" but I see many seem to prefer ETFs on this board... is this due to the lower holding fees? I am generally not going to want anything too exotic in the main portfolio, although I will keep a little playground area. I have about 22 different funds in the ISAs and so will want to get that down to a lower number rather than a higher number as I take control of the pension.

Current ISA allocation

UK Shares 42%
International Shares 33%
International Bonds 8%
UK Gilts 6%
Unclassified Funds 3%
UK Bonds 3%
Cash & Equivalents 2%
Investment Trusts 1%
Other 1%
Property 1%

Good planning, good position to be in.
Would agree with comments that orient towards ETFs rather than funds
Main comment is that you need to be flexible. Whatever you plan on your kids doing, reality will almost certainly turn our different. Good chance that at least one of them will need a Masters to get moving further. Then they will probably need help with property. Non negligible odds that a grandkid will turn up on an unplanned schedule. etc. It's called life.

[International]

Would agree with comments that orient towards ETFs rather than funds

I'm trawling around now looking for the most basic, cost effective ETFs that would give me the ability to set up whichever equity\bond ratio I pick. At the most simple I want to find a Global Equity ETF and a Global Bond ETF. I'm going through threads on here but if you know of one where this has already been covered (it must be a common question) then I'd be grateful for a pointer.

Main comment is that you need to be flexible.

Thank you, it's such an important point. There are so many big factors that can change: geopolitics right now, climate pressures, sequence of returns, domestic politics around pension allowances.

Something I am scratching my head on is how to keep myself current in my field if I stop working and subsequently want/need to return. Doesn't seem very practical, so I'd need to carry on working until I am sure I am safe. Which will be never.

It's called life.

I was mis-sold!

[DrFfybes]

Would agree with comments that orient towards ETFs rather than funds

I'm trawling around now looking for the most basic, cost effective ETFs that would give me the ability to set up whichever equity\bond ratio I pick. At the most simple I want to find a Global Equity ETF and a Global Bond ETF. I'm going through threads on here but if you know of one where this has already been covered (it must be a common question) then I'd be grateful for a pointer.

VAGP for Bonds, VEVE or VWRL for Equities. Buy the amount of each you want and then rebalance once or twice a year if you decide to keep the same percentages.

Paul

[Degsy67]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Degsy

[DrFfybes]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Degsy

Agreed - I put my Syngenta Pension into a similar split when I left - 60% UK, 30% Global, 5% Gilts, 5% Bonds. I'm pretty sure it is about 65% Global/30% UK now with no tinkering from me. The benefits of 20:20 hindsight.

Paul

[SebsCat]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Most large UK companies are multi-nationals and it is entirely possible that even a 100% UK equity portfolio could be under-exposed to the UK economy. Where a UK heavy portfolio likely falls down is not the national but the sector exposure. It's easy to get lots of exposure to pharmaceuticals, finance, oil & gas, mining etc from UK equities but hard to do so with, eg, technology. If the portfolio split you are objecting to has mostly tech companies in the international shares then it could be very well balanced.

FWIW, I do believe that it makes sense to have your investments overweight in the economy where most of your expenditure is, especially as a retiree. The worst possible outcome for someone no longer earning is to find that your costs are increasing at a time when your investments are doing poorly. Performance against some arbitrary international benchmark is irrelevant for the retired individual, what's important is being able to maintain & preferably improve your standard of living where you live. The worst possible scenario is to find the local economy performing better than elsewhere and costs rising whilst your income falls. Retirement isn't about maximising absolute return, it's about reducing risks.

[Lootman]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Most large UK companies are multi-nationals and it is entirely possible that even a 100% UK equity portfolio could be under-exposed to the UK economy. Where a UK heavy portfolio likely falls down is not the national but the sector exposure. It's easy to get lots of exposure to pharmaceuticals, finance, oil & gas, mining etc from UK equities but hard to do so with, eg, technology. If the portfolio split you are objecting to has mostly tech companies in the international shares then it could be very well balanced.

I would add single country risk to that. Specifically the risk that a UK government imposes windfall taxes on certain businesses, hikes UK corporation tax, increases worker and union rights, over-regulates and so on.

FWIW, I do believe that it makes sense to have your investments overweight in the economy where most of your expenditure is, especially as a retiree. The worst possible outcome for someone no longer earning is to find that your costs are increasing at a time when your investments are doing poorly. Performance against some arbitrary international benchmark is irrelevant for the retired individual, what's important is being able to maintain & preferably improve your standard of living where you live. The worst possible scenario is to find the local economy performing better than elsewhere and costs rising whilst your income falls. Retirement isn't about maximising absolute return, it's about reducing risks.

But even if you live in the UK a lot of what you consume is probably imported and so you are still subject to the inflation risk from those other nations and currencies. And more so if in retirement you spend more time overseas.

I am less than 10% invested in the UK and sleep at night.

[Dicky99]

The worst possible outcome for someone no longer earning is to find that your costs are increasing at a time when your investments are doing poorly.

Thank goodness that my UK investments performed so well during the last few years cost of living increases

[Dicky99]

I've mentioned on here before that I'm guilty of being overweight UK and though I'd like to address that I'm loath to do it now if there is any prospect of the low valuation of the domestically ftse 250 playing catch up.

[International]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Degsy

I would agree we all need to form our opinion on the UK economy and stock market, whatever our needs are. It looks very flat when plotted against the US for the last decade, especially against the NASDAQ. Against that I think about the good yields on the UK shares, how expensive those US stocks are now, how far into an AI bubble we may or may not be and the traditional home-weighting thought.

By the way, based on the info I shared, I make the pure UK equity exposure as much lower, more like 16%. How do you calculate 56%?

[EthicsGradient]

UK Shares 42%
International Shares 33%

Wow! 56% of your equities are in the UK. That’s a very bold bet to place on the UK vs rest of the world over the next 40 years. You must have some fantastic insight into how the UK is going to outperform the rest of the world throughout your retirement years. I wish you all the best with your alpha… alternatively, you may want to take a look at this split.

Degsy

I would agree we all need to form our opinion on the UK economy and stock market, whatever our needs are. It looks very flat when plotted against the US for the last decade, especially against the NASDAQ. Against that I think about the good yields on the UK shares, how expensive those US stocks are now, how far into an AI bubble we may or may not be and the traditional home-weighting thought.

By the way, based on the info I shared, I make the pure UK equity exposure as much lower, more like 16%. How do you calculate 56%?

I think that comes from the simple 42 / (42+33) = 0.56 - "56% of your equities". That might vary a very little depending on where "investment trusts" are, but 56% of equities does seem the figure - for the ISA. But I suppose the single US stock should also come into the calculation for your entire portfolio, and the split for the pension fund (which says it's about 80% equities, including 8% UK).

So that's something like
UK equities: 8% of £1m , 42% of £510k = £294k
total equities: 80% of £1m, £310k, 75% of £510k = £1492k
so I make it about 20% in the UK.

[International]

I think that comes from the simple 42 / (42+33) = 0.56 - "56% of your equities". That might vary a very little depending on where "investment trusts" are, but 56% of equities does seem the figure - for the ISA. But I suppose the single US stock should also come into the calculation for your entire portfolio, and the split for the pension fund (which says it's about 80% equities, including 8% UK).

So that's something like
UK equities: 8% of £1m , 42% of £510k = £294k
total equities: 80% of £1m, £310k, 75% of £510k = £1492k
so I make it about 20% in the UK.

Ah, gotcha. Thank you. I'll go back up and edit the OP to make sure it is clear that the Asset Allocation at the bottom is only the ISA.

Cool username by the way.

[International]

Three people in the retirement planning business, with PhDs, made some observations earlier this week if you have an hour to spare. https://rationalreminder.ca/podcast/289

Thanks JohnW, I consumed this in chunks and it was very good. A good listen for all interested in Retirement Investing I'd say.

Many topics are covered but one of my takeaways is that the dreaded annuity can provide a good baseline for essentials and should be considered as part of the mix in retirement. There were a couple of interesting facets about a partial annuity that I hadn't thought about before:

1) When you plan your own annuity-like instrument you are taking on the risk of living longer than planned, *and* you don't get paid for taking on that risk. When you have an annuity in the mix you are outsourcing some of that risk. Sounds good, and that prompts the question "at what cost" for me.

2) When you have an annuity providing part of the baseline you can take higher risks with the remainder, which might attract higher returns and therefore more usable income.

Good discussion on the psychology of retirement planning and being retired too.

All in all a good listen and worth the time. Thank you for the recommendation.