Pension fund investment advice needed

[Herbie]

Hi,

I'm 57 and have two DC pension pots, the first worth approx €120k and the second worth approx €280k. I'll have to 'retire' one at age 60 as its an AVC linked to a DB scheme with that retirement age. The second has a retirement age of 65. The DB scheme itself will pay a small pension of approx €10k per annum. I intend to keep working for as long as possible but not sure how long that'll actually be and if I'll be able to make meaningful pension contributions during that time. The two pensions will form the bulk of my retirement funding with the small DB pension and contributory state pension making up the rest. I'm the main breadwinner and have two kinds in full time education for another twelve years or so.

Both pensions are invested 100% in global stock index funds but given @Marc's comments on risk reduction as retirement approaches, I'm concerned about my investment strategy, especially with the first one being so close to drawdown.

My fund choice is limited with both having the lower risk options of a 'Cautious Managed Fund' with a risk rating of 4, a Euro Global Liquidity fund with a risk rating of 1 and a Euro Government Bond fund. The other options are all equity-based and either global equity or emerging markets equity.

Now, I know that I shouldn't try to time the market but the issue is bigger than that as I think that I'm not sufficiently diversified in general and given @Marc's comments, I'm at risk of my funds dropping quite a bit with the tariff war that's breaking out and the short window to retirement, especially for the first fund.

So my questions:

1. Roughly what percentage split should I aim for between equities and low risk funds given my dependency on the funds and the need for them to grow?

2. Should I let the dust settle on the new tariff announcements and responses before rebalancing my portfolio?

I know that the second question is almost impossible to answer and smacks of timing the market. On top of that, my pension administrator is Mercer and any switch requests usually take a couple of weeks to action. Its possible to cancel them during that time though so if the markets did tank I could probably back out of the switch.

Any advice would be very much appreciated.

 

[Sarenco]

A lot of posters think I’m overly conservative on this topic but, FWIW, I take the view that folks should aim to have 10 years’ worth of anticipated expenses in cash on retirement, net of any guaranteed income.

So, let’s say your anticipated annual expenses are €40k on retirement at 66, you qualify for a full State contributory pension of €15k and a DB pension of €10k per annum. So, in those circumstances, I think it would be prudent to aim for a cash reserve of €150k (€15k x 10) on retirement.

I don’t have particularly strong view on how far out from retirement you should “glide” to that position - whatever lets you sleep at night.

Also, it’s important to look at all your accounts and not to focus on individual accounts in isolation. So, my suggested 10x expenses cash reserve could all be met by any after-tax savings you might have, with your DC pension pots remaining fully invested in global equity funds.

I definitely wouldn’t make any adjustments to your portfolios based on the latest news flow. Who knows, maybe the tariffs are already baked into stock prices?

Hope that helps.

 

[AJAM]

If you consider your 10K DB as a Bond (or better yet Cash), paying perpetual risk free 4% interest, then it is the equivalent of 250K+.
With this in mind, your pension mix is actually not 100% Equities, it is closer to 62% Equities.
This is very close to the 60:40 mix that most professional or academic advisors will start from.

Without knowing a lot more details of your financial situation, I can only advise what I would do.
Which is stay at 100% equities in your DC until you retire, then look to switch your overall mix to more like 50:50
Which at current levels would mean moving roughly 75K of your DC into a very conservative fund.

 

[Herbie]

Thanks @Sarenco and @AJAM - much appreciated