Transitioning to a "Pre Retirement" stance

[International]

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%

[Alaric]

/b]- I'm in "Funds" but I see many seem to prefer ETFs on this board... is this due to the lower holding fees?

That's one of the reasons Others might include the point that ETFs are usually trackers of an index rather than the outcome of decisions made by a fund manager. Also that unlike OEICs ytou can buy and sell in real time rather than having to wait up to a day for the next pricing point.

A downside of ETFs is that outside of SIPPs and ISAs you get entangled with "Excess Reporting Income" who has the disadvantage of both being taxable and elusive to discover whar it is.

[Boots]

Your action plan sounds good to me.

I use ETFs because: lower holding fees, no Stamp Duty, better range of index tracking options to suit my asset allocation.

That single US stock would be keeping me awake. Not sure what you can do other than pay the tax, but wiser people may be along in a minute.

[tjh290633]

If you are keen on trackers, I suggest that you look at the FTSE100 from 31 Dec 1999 to date. There has been income along the way, of course.

TJH

[xxd09]

You need to work out the income you need or expect in retirement -start recording your daily expenses -this gives you a rough idea of the size of portfolio required
A guide -£100000 of a 60/40 portfolio should safely produce an income £3000+pa before tax
xxd09

[scrumpyjack]

If you are keen on trackers, I suggest that you look at the FTSE100 from 31 Dec 1999 to date. There has been income along the way, of course.

TJH

Alternatively look the S&P500, or even a world tracker!

[DrFfybes]

If you are keen on trackers, I suggest that you look at the FTSE100 from 31 Dec 1999 to date. There has been income along the way, of course.

TJH

One could say the same of that favourite of Dividend investors, CTY.

Paul

[International]

If you are keen on trackers, I suggest that you look at the FTSE100 from 31 Dec 1999 to date. There has been income along the way, of course.

TJH

Hi - I did take a look and saw pretty much no capital growth and dividends of ~4% along the way. Is your point then that, adjusted for inflation, the capital would have been eroded and so a tracker is not a good idea? Or am I missing your point?

If not trackers, what approach do you use?

Thanks in advance.
(edited for a typo)

[International]

You need to work out the income you need or expect in retirement -start recording your daily expenses -this gives you a rough idea of the size of portfolio required
A guide -£100000 of a 60/40 portfolio should safely produce an income £3000+pa before tax
xxd09

Thank you. Last time I did that was 2019-20 and I think we spent about £32K that year, but I can't remember if we went on holiday and we certainly made no big purchases like cars or roof repairs that year.

I've also been using the table at https://www.retirementlivingstandards.org.uk/ that is cited in many articles. It suggests £34K for moderate and £54.5K for comfortable retirement for a couple, in today's money at least.

Do you like 60/40 or was that just an example?

[International]

"Excess Reporting Income" who has the disadvantage of both being taxable and elusive to discover what it is.

Lol! Like so many things in the tax system.

[kempiejon]

You need to work out the income you need or expect in retirement -start recording your daily expenses -this gives you a rough idea of the size of portfolio required
A guide -£100000 of a 60/40 portfolio should safely produce an income £3000+pa before tax
xxd09

Thank you. Last time I did that was 2019-20 and I think we spent about £32K that year, but I can't remember if we went on holiday and we certainly made no big purchases like cars or roof repairs that year.

I've also been using the table at https://www.retirementlivingstandards.org.uk/ that is cited in many articles. It suggests £34K for moderate and £54.5K for comfortable retirement for a couple, in today's money at least.

Do you like 60/40 or was that just an example?

I did a comprehensive record keeping exercise in 2011, 2012 and 2013. I have revisited my numbers since then and adjusted for changes but I was able to split my spending into must have - food bills, would like holidays, eating out and usual discretionary spend and finally would be good more/bigger holidays, new cars and guitars. This was my spend so I was able use real numbers, since then my circumstances have changed a lot but without that data I'm not sure I would have got to where I am today.
Retirement-living-standards is a good approximation but actuals would be better. It looks to me like you have enough in pensions, ISAs and unsheltered but kids can be a big drain so I like your plan of seeing them off first. Selling down your unsheltered USA holdings looks a good early move even if you have to pay some tax. Fill the ISA and SIPP each year. Especially as you are near 55 the SIPP is more tax efficient than the ISA as you can get the relief on the way in and take out 25% tax free. I like a healthy easy access cash buffer just in case, £50k in premium bonds are a little excitement each month and tax exempt too.

The move to only a few days per week might be good, you'll have spent decades filling your time with the M-F 9-5 it can be a wrench. Check your national insurance record and are you on track for full state pension?
As I said it looks like you have enough.

[tjh290633]

If you are keen on trackers, I suggest that you look at the FTSE100 from 31 Dec 1999 to date. There has been income along the way, of course.

TJH

Hi - I did take a look and saw pretty much no capital growth and dividends of ~4% along the way. Is your point then that, adjusted for inflation, the capital would have been eroded and so a tracker is not a good idea? Or am I missing your point?

If not trackers, what approach do you use?

Thanks in advance.
(edited for a typo)

My method is to follow the HYP principles in the main. Roughly equal weights of shares with yields higher than the market when bought. You can follow my progress at viewtopic.php?p=639335#p639335

I've done better than the market for capital growth and the RPI for income.

TJH

[xxd09]

I use a continuous running record of my expenses,portfolio value etc
I use Quicken 2004-update with expenses once a week,(wife and I ) so we both know where we are at all times
Retired at 57- kids all gone and financially independent
We seemed to spend the same as when we were working-more time to fill,more travelling etc
We saved quite a lot so could retire on a conservative asset allocation -actually was 30/70-currently 33/61/6-equities/bonds/cash
Cash =2 years living expenses
xxd09

[International]

£50k in premium bonds are a little excitement each month and tax exempt too.

Noted. When the time comes I'll be wanting to keep 2 to 3 years cash-like to be able to ride out crashes. I'd forgotten about Premium Bonds! As you say, a little fun element.

The move to only a few days per week might be good, you'll have spent decades filling your time with the M-F 9-5 it can be a wrench.

That would be excellent! A friend has a nice 3 day-per-week consulting on what he used to do vs doing what he used to do. Perfect arrangement!

I'm really looking forward to having options. The ability to try something more risky if I want, or more fun, or just do less of what I don't like.

Check your national insurance record and are you on track for full state pension?

Yes, I am. 3 more years to contribute and that would happen with the current plan. I am not at all confident that the state pension won't be means-tested by the time we get there, though.

As I said it looks like you have enough.

Really appreciate the feedback, thank you. It's great to have affirmation, and also the "have you thought about this" and "I would do that a different way" perspectives on this site.

[International]

We saved quite a lot so could retire on a conservative asset allocation -actually was 30/70-currently 33/61/6-equities/bonds/cash

Thank you. This key point is something I've come to appreciate more while thinking this through. The higher you can get the pile then the easier your risk stance can be.

[JohnW]

You're in a good position as an organised thinker, with time to consider the options and execute, and enough money. Broadly speaking, as good as this forum is you'd benefit from wider reading, even if not posting, of other sources with different perspectives and a wider range of views. There are some smart people out there who haven't found the lemonfools yet.
As an example your comments on asset allocation suggest you're thinking along the lines of an at risk portfolio, ie assets whose values fluctuate, from which come 'interest' or capital sale for your expenses. Our need to fund a fairly constant level of expenditure from 'interest' and asset base which fluctuate, for a lifetime of unknown length is clearly an uncertain arrangement.
Clever minds came up with the liability matching portfolio approach. Sources of income providing a guaranteed level, inflation adjusted for life. Of course, a mix of 'at risk' and LMP is an option, and this has already been raised with 'check NI record for max state pension'. An LMP might add to the state pension with an annuity and/or non-rolling linker ladder. https://www.bogleheads.org/wiki/Matching_strategy
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

[International]

as good as this forum is you'd benefit from wider reading, even if not posting, of other sources with different perspectives and a wider range of views.

I appreciate the links and I agree. I'm spending a fair amount of time sponging retirement information at the moment as I want to feel I know what I am doing before I make adjustments. I'm not looking for a risk-free solution. I want to be deliberate about the risks I am taking.

Also, I know I'm asking a lot of questions right now. I'll try to give back over time now I've registered on TLF.

[xxd09]

Monevator.com has good info on running U.K. savings and pensions
xxd09

[DrFfybes]

In no particular order..

I am not at all confident that the state pension won't be means-tested by the time we get there, though

I am - apart from being a guaranteed elecion loser, a lot of people would stop saving into pensions, but that's a discussion for elsewhere.

Thank you. Last time I did that was 2019-20 and I think we spent about £32K that year, but I can't remember if we went on holiday and we certainly made no big purchases like cars or roof repairs that year.

I've also been using the table at https://www.retirementlivingstandards.org.uk/ that is cited in many articles. It suggests £34K for moderate and £54.5K for comfortable retirement for a couple, in today's money at least.

Do you like 60/40 or was that just an example?

Just before finishing work I worked out our annual spend and broke it down into 'essentials', 'house works', and 'fripperies'. Since moving to a neglected old cottage we have a seperate 'house works' budget so now I simply download the annual transactions form our joint account (from which nearly everything comes out except gifts and the odd club fees), sort by value, and ignore anything over £3k as that will be building works.

For us £34k is comfortable, but we aren't extravagent by nature. We don't do luxury hols but do go out a lot more for lunch than when we were working. 60/40 is fine if that works for you, we are probably nearer 80/20 and will be even more equity heavy once the house works are done, but we have DB pensions in payment that cover all our essentials. Long term more equities seems better, and we probably have as many years left as it took to accumulate it.

If not trackers, what approach do you use?

We're all different - I started looking at generating income as it seemed a logical and simple thing to do, but now believe Total Return is more important over the 30+ years I'll be retired, so I invest Globally and sell a few units each month for income. This approach is very simple and totally hands off, and also made more sense taxwise when we had higher CGT allowances.

TJH's comment on the poor UK performance demonstrates the risk of focussing on one area, Global trackers returned over 10% pa for about a decade, VEVE is a Gloabl Developed World Tracker and my biggest holding has improved 236% in a decade. There won't be many HYPs that have done that.

The move to only a few days per week might be good, you'll have spent decades filling your time with the M-F 9-5 it can be a wrench.

Some people struggle with this more than others. I was OK - happy to potter in the garden, do stuff around the village, tinker in the shed, on various local charities etc. We both went part time pre retirement, but only I went Cold Turkey.

MrF 'needs' to be pushed and focussed, she's now wondering about whether she really does want to give up her 2.5 days per week when she retires for the third time in March, Bear in mind this is now 8 years later than her original early retirement target of 55, and 3 years later than her normal retirement date would have been when she started planning.

As for the rest, unless (and probably even if) your single US stock is Berkshire Hathaway I'd be inclined to unwind that first and live off the capital, leave the sheltered stuff for later.

Paul

[moorfield]

M51

This you should check with your provider but I think 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 will be, by a matter of weeks. Depending on circumstances I may look to draw either the maximum lump sum (£268k currently) or a partial lump sum (£40k, 2yrs of ISA allowances) leaving the rest (an ITs portfolio) alone while maybe working to 60ish. I will be watching the next government's pension policies with some interest.