Going for stability as pension age approaches - Bad advice?

[GliderRider]

Conventional wisdom is that one moves one's pension pot from high growth into lower risk, and therefore lower growth potential shares, bonds etc. as retirement approaches. Given that the a retiring person in reasonable health could easily have fifteen, twenty or more years ahead of them, and few people will have a larger than necessary pension fund or be needing the whole lot at once, should we be rethinking this approach?

[Jon39]

GliderRider said:

Conventional wisdom is that one moves one's pension pot from high growth into lower risk, and therefore lower growth potential shares, bonds etc. as retirement approaches. Given that the a retiring person in reasonable health could easily have fifteen, twenty or more years ahead of them, and few people will have a larger than necessary pension fund or be needing the whole lot at once, should we be rethinking this approach?

I did not even consider doing that before retirement (early 50s) and as the annual income has risen well during most years, far above employer pension increases, certainly have no regrets.

You have to be prepared to accept risk though, so if you might lose sleep during market crashes, don‘t do it.

Funny how many people consider cash in a savings account to be the safest home for their money. The reality is, they have a lousy investment, and over the long-term will almost certainly lose money in real terms.

[ianrb]

GliderRider said:

Conventional wisdom is that one moves one's pension pot from high growth into lower risk, and therefore lower growth potential shares, bonds etc. as retirement approaches. Given that the a retiring person in reasonable health could easily have fifteen, twenty or more years ahead of them, and few people will have a larger than necessary pension fund or be needing the whole lot at once, should we be rethinking this approach?

When the only option for retirement income was to buy an annuity that approach may have made sense. Now however we have more options, so a more flexible approach may be better.

I keep sufficient funds in low risk investments to provide 4 years income. I keep the rest in funds to generate the best growth.

[condor]

I got one of my pension statements through the other day. Some of the funds had been moved to cash investments and lost money, with only a small investment making money. I'm now having to consider ditching that fund/ changing it to another...as this year it should have made a lot more than it has.
However, I don't know what I'm doing re pensions and that's why I pay a fee for other people to invest in the right funds. When they get it wrong there doesn't seem to be any comeback, just this is how your fund has performed.

[anonymous-user]

Going for "safety" is like buying insurance, it costs money.

But if you want insurance, pay the premium.

[JulianPH]

Conventional wisdom is based upon the rules of the past when it comes to pension benefits. To directly answer you question I would have to say 'yes', rethink this.

If you want to purchase an annuity (that is to say sell your pension fund in its entirety in return for a lifetime income) then managing down and out of equities into long or short dated (as you see fit) Gilts makes perfect sense.

If you want to keep the money and remain invested then doing this makes very little sense over the long term.

There is no right or wrong, only preference. A Growth (often called Adventurous) strategy whilst you are building, followed by a Balanced (often called Income) strategy whilst you are withdrawing does tend to work well over any medium or long time frame though.

[sidicks]

Some good advice above!

[Derek Chevalier]

condor said:

I got one of my pension statements through the other day. Some of the funds had been moved to cash investments and lost money, with only a small investment making money. I'm now having to consider ditching that fund/ changing it to another...as this year it should have made a lot more than it has.
However, I don't know what I'm doing re pensions and that's why I pay a fee for other people to invest in the right funds. When they get it wrong there doesn't seem to be any comeback, just this is how your fund has performed.

Who are the "other people"?

[condor]

pension fund managers

[ellroy]

OP, as has been said, that was conventional when people were buying an annuity.

These days it’s a little more complex, so you should consider your risk, likely length of life, size of fund, capacity for loss, income requirements, flexibility, need for capital lumps, wish to pass on to family etc etc

A good IFA should be able to guide you through the options, but an idea of what and how you want your retirement to look is a vital part of the process so give that some thought rather than the ‘solution’ focus that many will suggest.

[Derek Chevalier]

condor said:

pension fund managers

I'm assuming it's a work pension?

[condor]

Yes, I have 3 deferred works pensions, but have only received 1 annual update so far.

[Cheib]

Going “low risk” in this investment environment is potentially a massive problem. 10 years ago low risk meant 3 or 4% deposit interest...it now means effectively 0% interest with real inflation at something like 3 or 4 %.

You need to assume that kind of inflation in your costs I reckon to be safe/conservative.

[ringram]

The most recent suggestion is more Equities are required...!

http://fortune.com/2016/03/26/more-stocks-retireme...

[anonymous-user]

ringram said:

The most recent suggestion is more Equities are required...!/

Yes, and from previous posts we know you're fully signed up to the "risk on" environment. Nothing wrong with that.

Given the equity market can drop 30% in a matter of weeks (2003 and 2009) it's not surprising some investors feel a bit jittery. Bear in mind that early 2018 saw a 15% "flutter" which scared the daylights out of people. Somewhere between Brexit and Trump that could happen again (or worse) at any moment.

What was it Clint Eastwood said? "Do you feel lucky....?".

[mart73]

ringram said:

The most recent suggestion is more Equities are required...!

http://fortune.com/2016/03/26/more-stocks-retireme...

That's an interesting read - thanks for posting.

Definitely entering a different era in regards to self management of pensions.
You only have yourself to blame for your standard of living in your retired years, I'm 15/20 years away yet but hoovering up as much info as I can to give myself the best shot of having a stress free time of it.

[Derek Chevalier]

mart73 said:

ringram said:

The most recent suggestion is more Equities are required...!

http://fortune.com/2016/03/26/more-stocks-retireme...

That's an interesting read - thanks for posting.

Definitely entering a different era in regards to self management of pensions.
You only have yourself to blame for your standard of living in your retired years, I'm 15/20 years away yet but hoovering up as much info as I can to give myself the best shot of having a stress free time of it.

I think that might be for clients that have a financial planner, might not be optimal for someone doing it themselves.

[Testaburger]

Derek Chevalier said:

I think that might be for clients that have a financial planner, might not be optimal for someone doing it themselves.

What makes you say that?

I don’t see anything mentioned in that article that you can’t do yourself.

I haven’t figured out what my equity exposure percentage will be when I retire (hopefully at 53), but it will certainly be equity-heavy when compared with ‘traditional’ portfolios.

My safety net will be 5 years’ cash on standby to weather a slump.

At a conservative point post-slump, I’ll certainly be increasing my percentage equity exposure. Similarly, if my retirement occurs after a slump, I’ll be doing the same, and living off the cash buffer.

Again, though, all stuff I can do myself.

I think the OPs point about a break from the norm (and indeed the suggestion of increasing equities in retirement) are on the money. Traditional portfolio planning seems to be slightly outdated, in as much as it was a prudent plan when annuities were where your money was going.

[Derek Chevalier]

Testaburger said:

I don’t see anything mentioned in that article that you can’t do yourself.

You could do it yourself, but history has proven time and time again that investors tend to sell (and buy) at the wrong time. Having a guiding hand should (not would) prevent you from being your own (not you, in general!) worst enemy in turbulent times.

[modeller]

This book was mentioned in another thread. It's an interesting read , again arguing to keep invested in equities in retirement.

'Beyond The 4% Rule: The science of retirement portfolios that last a lifetime'