Donate to Remove ads

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

Thanks to gadjet,niord,88V8,Wasron,PeterGray, for Donating to support the site

Bonds or Cash?

AsleepInYorkshire
Lemon Quarter
Posts: 3425
Joined: February 7th, 2017, 9:36 pm
Has thanked: 4570 times
Been thanked: 2142 times

Bonds or Cash?

#472758

Postby AsleepInYorkshire » January 13th, 2022, 2:10 pm

I have a draft strategy for retirement

1. Accumulate - equities 100%
2. Upon retirement reduce equities to 75% and keep 25% inside pension wrapper as cash
3. Cash will be equal to 4 years income requirements
4. Keep cash at 4 years income always
5. If equities fall substantially invest 50% of cash in equities
6. Rinse & repeat

I believe I have built robust protection into the plan by

1. Keeping 4 years income in cash - an annual roll over through withdrawal of equity (tax efficient)
2. Doubling the size of the pension pot needed to retire - thus providing for a market shock of up to 50%
3. Draw down on cash could be cut by 50% if needed.
4. Paying for big stuff before retirement - new kitchen as an example

I've kept it simple because I am simple. However, I've a couple of questions I can't really answer.

1. If I keep roughly 25% of the pension in cash can I draw this down monthly if so does this count towards crystallisation?

2. Why do many pension investors buy bonds when they retire?

Thank you

AiY

JohnB
Lemon Quarter
Posts: 1825
Joined: January 15th, 2017, 9:20 am
Has thanked: 287 times
Been thanked: 545 times

Re: Bonds or Cash?

#472783

Postby JohnB » January 13th, 2022, 3:20 pm

There is no point keeping 4 years in cash always. The whole point of a cash buffer is to smooth market movements, so you should expect to draw from it rather than equities when the market is down, and replensih it when the market rises. Too many people say they plan to have 3 years in cash when they mean 1-3 years.

77ss
Lemon Quarter
Posts: 1141
Joined: November 4th, 2016, 10:42 am
Has thanked: 120 times
Been thanked: 309 times

Re: Bonds or Cash?

#472792

Postby 77ss » January 13th, 2022, 3:41 pm

AsleepInYorkshire wrote:I have a draft strategy for retirement

1. Accumulate - equities 100%
2. Upon retirement reduce equities to 75% and keep 25% inside pension wrapper as cash
3. Cash will be equal to 4 years income requirements
4. Keep cash at 4 years income always
5. If equities fall substantially invest 50% of cash in equities
6. Rinse & repeat

AiY


Now in retirement, my current 'strategy' is:

Keep 2% in cash
Keep 98% in equities
With about 60% in ITs

Much of what one does depends upon variable factors:

Dependants & pensions in particular.

There is no 'right' answer.

swill453
Lemon Half
Posts: 6131
Joined: November 4th, 2016, 6:11 pm
Has thanked: 674 times
Been thanked: 2344 times

Re: Bonds or Cash?

#472806

Postby swill453 » January 13th, 2022, 4:19 pm

AsleepInYorkshire wrote:1. If I keep roughly 25% of the pension in cash can I draw this down monthly if so does this count towards crystallisation?

You can keep it in and make regular UFPLS (uncrystallised funds pension lump sum) withdrawals. Each withdrawal is a BCE (benefits crystallisation event).

A provider like AJBell would make no charges for these withdrawals. Income tax may be due.

An alternative would be to crystallise the pension and take the 25% cash out and deposit it somewhere. You'd have to investigate interest rates and tax implications.

Scott.

defbref
Posts: 2
Joined: March 5th, 2018, 10:20 am

Re: Bonds or Cash?

#472869

Postby defbref » January 13th, 2022, 7:31 pm

How do you intend to always keep 4 years of cash always but then also sell half of cash into equities when they drop ? You now have two years of cash and so need to sell equities to get back to the always have 4 years of cash.

AsleepInYorkshire
Lemon Quarter
Posts: 3425
Joined: February 7th, 2017, 9:36 pm
Has thanked: 4570 times
Been thanked: 2142 times

Re: Bonds or Cash?

#472872

Postby AsleepInYorkshire » January 13th, 2022, 7:45 pm

defbref wrote:How do you intend to always keep 4 years of cash always but then also sell half of cash into equities when they drop ? You now have two years of cash and so need to sell equities to get back to the always have 4 years of cash.

Yes that's right. At the point that the pension cash buys additional equities the drawdown on cash will be reduced.

3. Draw down on cash could be cut by 50% if needed.

My thought process is that by keeping 4 years in cash available it provides a reasonable period of protection against downside. However, once the market has dipped (for example covid) there's no real reason to keep four years cash as the market rises afterwards. At the same time by reducing cash use there's a belt and braces approach. I can't time the market and I'm not trying to. I'm trying to make sure I can exploit opportunity when it arrives. I don't think it's a perfect plan. I do feel it's got some merits though.

AiY

defbref
Posts: 2
Joined: March 5th, 2018, 10:20 am

Re: Bonds or Cash?

#472876

Postby defbref » January 13th, 2022, 7:57 pm

So you actually mean you will always only drawdown 25% of the available cash. I understand now, the 4 years of income requirement made it seem like the drawdown was a fixed amount.

You need a plan to increase the drawdown (and thus available cash) back up at some point then as well ?


Return to “Pensions - Practical Problems”

Who is online

Users browsing this forum: No registered users and 2 guests