Pension portfolio

Well it makes sense in maximising the 25% tax free cash lump sum

And I'm still working on what to do with the arf as I said

I imagine that would be treated cautiously at the age so probably not rush into entirely equities

With your rule... you may miss out on cash lump sum aged 65 (I'm assuming retirement age) when you would be 55% invested in equities. What if equities went to the floor any time in the 5 year run up to age 65?

moneymakeover said:

With your rule... you may miss out on cash lump sum aged 65 (I'm assuming retirement age) when you would be 55% invested in equities. What if equities went to the floor any time in the 5 year run up to age 65?

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What if equities collapsed 10 years out from retirement? There have been 10, 20 even 30-year periods in the past where long-term domestic bonds have outperformed domestic equities in all major economies. Or what if equities collapse within a few years after retirement?

Why is maximising your tax-free lump sum such a priority? Ultimately your pension pot is about funding your retirement - which could last 30+ years.

Logically what you're saying makes sense

I wonder what the "pension advisors" say?

Can people live with the risk involved?

And brings me back to the "bear market probability index"

Mr A is 5 years out from retirement and still 100% in equities. His fund of €500,000 grows by 10% per annum for 4 years. He'll be up to €732,050 with 1 year to go.
Meanwhile, Mr B has reduced risk and is getting 2% per annum for 5 years up to retirement in 5 years. His fund will grow to €552,040 when he is 65.

Mr A's pot will have to fall in value by -25% in the final year for him to be worse off than Mr B. While we don't know what form any stock market crash will take, Mr A would have plenty of opportunity to move his pension from 100% to cash before it falls by 25%, so even if it fell by 10%, he'd still have over 100% more in his pot at retirement than Mr B.

This pension advisor has already had his say, your own total financial situation has to be taken into account.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

So Mr A will be closely monitoring the market and selling up 100% when it falls 10%?

I thought @SBarrett subscribed to Tim Hale approach

Rule 1: Own 4% in equities for each year until you need the money as defined by your investment period above and own bonds for the rest. Rule 2: If this money represents general funds to support your future lifestyle, own your age in bonds and the rest in equities. Own more in equities if you are more aggressive and able to weather market falls, or more in bonds if you want more certainty of your outcome.

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SBarrett said:

Mr A is 5 years out from retirement and still 100% in equities. His fund of €500,000 grows by 10% per annum for 4 years. He'll be up to €732,050 with 1 year to go.
Meanwhile, Mr B has reduced risk and is getting 2% per annum for 5 years up to retirement in 5 years. His fund will grow to €552,040 when he is 65.

Mr A's pot will have to fall in value by -25% in the final year for him to be worse off than Mr B. While we don't know what form any stock market crash will take, Mr A would have plenty of opportunity to move his pension from 100% to cash before it falls by 25%, so even if it fell by 10%, he'd still have over 100% more in his pot at retirement than Mr B.

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Oh dear, oh dear. This is not your finest Steve.

SBarrett said:

Mr B has reduced risk and is getting 2% per annum for 5 years up to retirement in 5 years. His fund will grow to €552,040 when he is 65.

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So aged 60 he has a reasonably certain idea of the value of his pension pot at retirement. If it is adequate to meet his needs, he can look forward to his retirement without financial worry.

SBarrett said:

Mr A is 5 years out from retirement and still 100% in equities. His fund of €500,000 grows by 10% per annum for 4 years. He'll be up to €732,050 with 1 year to go.

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10% a year ? Lucky Mr A. Is that what you project for your clients?

A more realistic long run return is 6% p.a.

But what if equities fall 25% five years out. If they then rise 6% each year thereafter poor Mr. A has €473k, less than he started with, not to mention less than Mr. B.

It's a hypothetical. Merely to illustrate that even staying in equities and suffering a loss in the final year can leave you in a better position than playing it safe for the final 5 years.

The 10% return is perfectly reasonable given the returns on equities over the last number of years.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

moneymakeover said:

I thought @SBarrett subscribed to Tim Hale approach

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I made my approach perfectly clear at the outset. Take your total personal and financial situation into account first.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Investment fund performance appears good right now because the 10 year window is now sliding beyond the massive losses in funds between 2007 and 2009.

Anyone investing in funds (not just equity ones either) would need to be aware that 75% losses in value are possible and factor than into their calculations.

https://www.ilim.com/fund-fact-sheets/retail/+++-Active_Managed_Fund.pdf

If you look at the chart for Irish Life active managed despite the upward trend there are two 10%+ drops one starting in July 2015, a recovery and the same pattern again in December 2015. So if you do have a stop loss it's likely you're going to be using it earlier than you'd like and it won't allow you to capture an overall upward trend. Don't imagine it conveniently only coming into play at the end of a 5 year investment window