# Five years to retirement



## weston68 (9 May 2011)

My Dad is five years from retirement. His pension trustees have written to him advising that he should move his pension pot from its current equity units to cash based units. He understands the logic behind this but is unsure of when exactly is the best time to do this. He does not want to spend the next five years watching unit prices to find out the exact best minute to sell his current units and buy units in the cash fund. Is there any general rule of thumb (other than sell high and buy low)?


----------



## TheFatMan (9 May 2011)

5 years is now considered a short time frame to de-risk the equity portion of a fund. We are reccomending a 12 year transition period as a default to our members, most of whom are at least 25 years away from retirement age of 60. 

I reckon the manner of his move to cash will depend on his stomach for risk. If he likes to gamble keep it all in till the last minute. If he is risk adverse then 100% out now. And everything in between. 

If it were me 30-40% into cash/bonds now and additional 15-25% move over the remaining few years. All new contributions should go to cash for the remaining period. But thats just me.


----------



## DerKaiser (10 May 2011)

I presume he will be compelled to purchase an annuity at retirement?

If so I'd agree with TheFatMan and move a significant proportion the fund into cash or safe government bonds (not Irish, Greek or Portuguese) immediately.

How much depends on a couple of factors:

1: If he expects to take a lump sum, what will he do with it?  If he has it earmarked for spending, it should be switched to cash. If he intends putting it away for a longer term, he might consider leaving it in equities.

2: Of the remainder, how dependent will he be on the annuity it provides?  If he'll need every last cent to live on, I'd strongly suggest a full move to cash now.  If he can afford to play around a bit, he could just move a large portion into cash now and gradually switch the rest out of equities over the remaining 5 years.


----------



## TheFatMan (11 May 2011)

DerKaiser is right, I should have also thought about what he intends doing with the fund at reitement if he intends using an ARF or AMRF then a move to cash will depend on how much he is going to invest there and what type of investment vehicles the ARF/AMRF will be inested in.


----------



## weston68 (12 May 2011)

Thanks for the information guys. Unfortunately we are on a bit of a steep learning curve here! All this pension jargon takes a bit of getting my head around.

From his pension literature, his current investment strategy is something called a 'Default ARF'. The documentation goes on to say (1) if you intend to invest your retirement proceeds in an ARF...... and (2) if you intend to purchase an annuity with your retirement proceeds.

He has written to the investment company asking when this decision (about an ARF or an annuity) has to be made and what advice is available in order to make the best decision for my Dad.

Any suggestions?


----------



## DerKaiser (16 May 2011)

weston68 said:


> Thanks for the information guys. Unfortunately we are on a bit of a steep learning curve here! All this pension jargon takes a bit of getting my head around.
> 
> From his pension literature, his current investment strategy is something called a 'Default ARF'. The documentation goes on to say (1) if you intend to invest your retirement proceeds in an ARF...... and (2) if you intend to purchase an annuity with your retirement proceeds.
> 
> ...



If he wants to use his pension to guarantee an income in retirement, switch to a cash/bonds fund now and take out an annuity at retirement.

If he is not relying on the proceeds of this pension he need to decide whether he wants to take a punt with the money (stay in equities and continue this through with an ARF) or keep it relatively safe (go with the cash/bonds into annuity choice)


----------



## LDFerguson (17 May 2011)

weston68 said:


> He has written to the investment company asking when this decision (about an ARF or an annuity) has to be made and what advice is available in order to make the best decision for my Dad.


 
He makes that decision at retirement.


----------



## Baracuda (17 May 2011)

LDFerguson said:


> He makes that decision at retirement.


Some of the new type PRSA's are asking this question up front for their lifestyling option i.e. If the client is funding for an annuity, there will be a higer % moved in to bonds where as if the client is funding for a ARF their will be a higher % left in equities.

Regarding the OP, his pension probably has a built in switch feature where up to 20% of the fund is automaticly switched each year in to secure funds in the final 5 years up to his NRA. Thing is, who the hell knows what they are funding for 20 to 40 years before retirement except for the very few who actually takes a keen interest in their retirement planning!!!


----------

