Can I retire ?

[TimR]

My overall (ISA & SIPP) asset allocation is very high in Global equity ETFs...I am 63 years old with modest £18K pa DB pension (index linked) in payment...My state pension starts in 2.5 years time (January 2020).. We live in the North West with mortgage is fully paid off.. My wife (Age 56) works part-time and earns about 10 K pa.. My Wife has several small pension pots with different companies...
We have a 15 year oid daughter at home and also have a 24 year old daughter working London living in rented accommodation.

SIPP & ISA PLATFORM:-

Global Equity ETFs ......................................................(£630 K)

Bond Collectives ..........................................................(£90 K)
Ishares 0-5 etf (IS15),,UBS EM Bond Sov etf Hgd (SBEG)
Henderson IT (HDIV),,New City IT (NCYF),,Invesco IT (IPE)

Commercial Property.....................................................(£20 K)
Standard Life IT (SLI)

Cash ISAs (0.6% interest rate)...........................................£100 K)

ASSETS OUTSIDE TAX WRAPPERS :-

Legacy Shares....................................................(total)... (£30 K)
RDSB,,National Grid ,, Severn Trent Water,, BT,, Lloyds

Separate Emergency Cash Fund..........................................(£40 K)

House mortgage is fully paid off...............(House Value)........(430 K)

Wife's small pension pots......(total of pots)........................... (70 K)

Our investment assets total about £870K - excluding house, emergency fund and wife's pension.


Can I retire on my DB Pension and investment income ? (My wife wants to carry on with her part-time job and build up some more pension)

We have alot of CASH in ISAs earning a very low interest rate of 0.6% can I get more from a Bond Investment Trust, Fund or ETFs?

I am thinking of:-
Opening a SIPP for my wife and consolidating the several small pension pots
Selling my remaining legacy shares and putting the proceeds in the SIPP & ISAs

Do readers think my overall Equity allocation is high for my age ?

[Chrysalis]

Hi Tim
To answer your question about retirement, you need to have a good handle on your current living expenses, and some idea of future financial needs. If you don't know what you need/want, how can you decide if you've reached it?

Second, I would not describe a guaranteed 18k per year as 'modest'. I suspect you'd be unable to replicate the benefits it gives you on the open market, but if you could, it would certainly cost in excess of half a million. So that's a large chunk of your assets which can be considered very low risk.

I think the question about asset allocation is something you need to work out for yourself. It looks to me like you have about 75-80% equity allocation in your invested assets, but if you consider your DB pension (and state pensions when you get them) as either a guaranteed income 'floor', or perhaps calculate their value and consider them bond-like, your equity allocation goes down to something less than 50% ish. The question you really need to answer here, is how well you tolerate volatility? If your equities halved in value, how would you feel? Could you stick to your asset allocation or would you be tempted to sell (which would be wealth destroying). You need an asset allocation which you can live with, without selling out at market bottoms.

Consolidating your wife's pensions seems like a good idea.

So I'd suggest you consider the following:
1. What do you need to live on? How much of this is covered by guaranteed pension income?
2. If you don't already know, find out how much state pension you and your wife will get.
3. If you don't already know, check your life expectancy (and remember it's an average). There's a useful calculator on pension wise website I think.
3. Consider other objectives, major future spending (you don't mention if you have dependents for example), your plan for future care expenses (sell the house?)
4. If your requirements can be sustained by withdrawing less than 4% of your investments per year, you're in the ball park. There's a lot written about withdrawal strategies and 'safe' rates of withdrawal which you might want to consider, but I think 4% is a useful rule of thumb, particularly if you have enough slack in your spending to cut back if your portfolio does badly. If you don't have any slack, consider annuitising enough so that you have guaranteed income for essentials (but I'd think 18k plus 2 state pensions ought to cover your bills).
5. Keep enough cash to avoid having to sell assets or withdraw from investments in market downturns to cover essential expenses.

Hope that is some help. You look in good shape to me, but need a bit more clarity on your spending goals.

[Chrysalis]

Sorry you do clearly say you have two daughters (don't know how I missed that!). One of whom is yet to leave home. So that changes your expenses quite a lot I'd say, depending on how much help you expect to give for education and training, and also house purchase etc.
You also haven't indicated how much pension your wife has. Why does she want to continue pension saving, rather than saving in an ISA? Tax advantages very similar at her tax bracket (ISAs more flexible on withdrawals but pensions have more IHT advantage), but does she get employers contribution? I'd probably save enough in pension to maximise that, but then think carefully about the choice between pension and ISA savings.

[Chrysalis]

Apologies again - you have said your wife has £70k in pensions.

I'll get me coat...

[TimR]

@Jabd2001 - Thanks for the reply.

My £18 K pa DB pension and the £10K pa my wife earns seems to pay the household bills and basic living expenses.
I could do with boosting my income by about another say £15 K pa to make life more comfortable and pay for holidays etc.

My state pension starts in 2.5 years time and is forecast now to be £159.5pw (£8296 pa)
Wife's state pension starts in 11 years time and is forecast now to be £169.5pw (£8788 pa) - She intends to carry on working until retirement date as she only has several small pension pots (£70K in total).

In addition to our emergency fund we have quite a lot of Cash in instant access ISAs (only earning 0.6%) so I was wondering how to get more income from this. ( eg Cash Bond Ladder, investment trust basket, Bond Fund) - Although I already have a lot on equities I do have a safe DB pension so perhaps I could take more risk with this ISA Cash.

I don't need to worry about school fees because my youngest daughter is at state school (but she may go to Uni in three years time). I do worry about my 24 year old daughter renting in Central London as both her and her boyfriend earn both earn about £25K pa each and have no hope of buying but I don't think they are bothered at the moment and if I gave her any money now she would probably spend it on world travel.

[tjh290633]

My only comment is that it is income which you need. Are your global ETFs and your Bond funds providing enough, and will it grow ahead of inflation?

You ought to be able to get over 4% dividend income without too much trouble from a suitable selection of ITs, or equities. That is what I would aim for from your portfolio. You may be content with a lower figure, if it grows more quickly. Something ahead of the RPI is the minimum which you need.

TJH

[Lootman]

My only comment is that it is income which you need. Are your global ETFs and your Bond funds providing enough, and will it grow ahead of inflation?

I would substitute the word "cashflows" for the word "income" there. Ultimately what we all need are adequate cashflows to fund our needs. Such cashflows may derive from employment, pensions, dividends, interest, rent, premia or gains. Most likely a combination of them.

In some cases, e.g. having a very large cash sum, you may not need cashflows at all because you already have enough cash to satisfy your needs, and therefore have no need to take any of the risks that are involved with trying to create "income". Whether 870K (or five million as the other chap has) counts as enough is another question. But at some point the challenge is not creating wealth but preserving it.

[DiamondEcho]

Can I retire

Something I don't see addressed is consideration given to estimating the income you'd be content to retire on. Have you considered that? And if not, how can you know how much is enough?

[Alaric]

Something I don't see addressed is consideration given to estimating the income you'd be content to retire on.

The OP said he had around £ 140,000 sitting in cash. If he could earn 5% on that, that would be a useful £ 7,000 a year. It's only earning £ 700, so it's paying for perhaps a short holiday for one. I'd stop worrying about it dropping to £ 100,000 and put it to work to generate a higher return, which could be any of the routes already suggested. If it's in stock market investments, you can still get at the capital at short notice, unlike Buy-to-let.

[TimR]

TJH - Thanks for the reply

Our investment assets (from list above) total about £870K - excluding house, emergency fund and wife's pension pots.
If I deduct the £100K which is currently in Cash ISAs earning a low rate of 0.6% we currently have £770K invest.

Then potentially @ 4% withdrawal I could get 4% x £770 K = £30,800 pa

My Cash ISA interest = £600 pa

My available Retirement income now should be £18,000 (DB Pension) + £31400 (investments) = £49,400 pa

I just need to make sure I am currently getting 4% from my £770K of investments !

[tjh290633]

I just need to make sure I am currently getting 4% from my £770K of investments !

That is indeed the crux of the matter.

TJH

[TimR]

Something I don't see addressed is consideration given to estimating the income you'd be content to retire on.

The OP said he had around £ 140,000 sitting in cash. If he could earn 5% on that, that would be a useful £ 7,000 a year. It's only earning £ 700, so it's paying for perhaps a short holiday for one. I'd stop worrying about it dropping to £ 100,000 and put it to work to generate a higher return, which could be any of the routes already suggested. If it's in stock market investments, you can still get at the capital at short notice, unlike Buy-to-let.

Thanks Alaric & DiamondEcho - The £140,000 comprising of (£100K Cash Isas + £40K Emergency fund) is currently in cash because I was worried about the so called 'bond bubble' and wanted some diversity/ stability from my £630K global equity etf allocation and this is also Guaranteed by the FSA.

I suppose I could consider a basket of investment trusts for some of the £140,000 to generate more income ?

Tim

[BreakoutBoy]

Why in the name of his Noodliness would you keep 100K in cash ISAs getting destroyed by inflation?

What possible emergency might require 100k of cash? I mean, I keep a grand or two on hand in case I need a new boiler in a hurry. The amount you have I can only assume you plan on needing to rebuild the house from foundations up after a hurricane sans buildings insurance....

Seriously. You have 18k DB income. You don't need to keep cash on hand as some sort of bizarro gonzo insurance against poverty or the Great Depression, because you can as a minimum eat beans on toast and pay the gas and leccy bill with the DB money.

[BreakoutBoy]

Edit to say: Holy cow, I just read that you actually keep 140k in cash.

Wow... I guess maybe you can hope inflation is something that happens to other people?

In your situation I would buy something, anything. Sod it - maybe even a race-horse, as long as it has a total return that beats inflation long-term. Consider this a face-punch, if that helps. You give away your hard earned money every year that you sit in cash earning zilch feeling safe. Reckless caution is a real thing.

Good luck, whatever you decide.

[masmon]

I respect that the OP has a large cash allocation, every investor has a different risk tolerance and for many of us that cash in the bank can provide for a real SWAN feeling. Having 2 to 3 years of living expenses in cash and or safe investments is not a bad idea for many. It avoids the trap of having to withdraw funds during times of portfolio stress - the cash bucket is used instead. Noted in this case that the OP has a DB pension enough to cover the essentials though.
If it were me then I would invest part of the cash in conservative investment trusts, some in investment grade low duration corporate bonds and the rest held in bank accounts...

[TUK020]

Rather counter-intuitively, being cash rich is a good position to be in, if inflation is about to jump suddenly.
After bond yields jump, then is the time to transfer into bonds.
However, this does require a very good feel for future inflation rates - something I would not be prepared to gamble on.

[DiamondEcho]

The OP said he had around £ 140,000 sitting in cash. If he could earn 5% on that, that would be a useful £ 7,000 a year. It's only earning £ 700, so it's paying for perhaps a short holiday for one. I'd stop worrying about it dropping to £ 100,000 and put it to work to generate a higher return, which could be any of the routes already suggested. If it's in stock market investments, you can still get at the capital at short notice, unlike Buy-to-let.

Thanks Alaric & DiamondEcho - The £140,000 comprising of (£100K Cash Isas + £40K Emergency fund) is currently in cash because I was worried about the so called 'bond bubble' and wanted some diversity/ stability from my £630K global equity etf allocation and this is also Guaranteed by the FSA.
I suppose I could consider a basket of investment trusts for some of the £140,000 to generate more income ? Tim

You both might have missed the point I was hoping to make
Alaric you mention his assets, and the possible income that could be derived from that. TimR replies and also discusses assets. But if the question is 'Can I retire?', for me the starting point is to ask 'How much income do you think you need to retire on?'. Because I don't know what lifestyle TimR has, nor his current cost of living, nor the future lifestyle desired and cost thereof. Would he be comfortable on £10k a year, or does he need 50 ... 100k/pa... ?

If you can estimate the desired future income, and outline the current assets, you can then model the various options re where you'd need to invest the latter to yield the former. You could also consider the relative risks of those various allocation strategies, and which might best fit with TimR's goals. But without estimating the goal, you can't get out of the starting blocks - IMHO.

[TimR]

1nv35t - Thanks for the reply. I am 63 years old (not 67yrs) but the 23 years of future life expectancy is still a good maximum estimate as both of my parents & grandparents died well before they were 80.
Tim

[TimR]

DiamondEcho - Thanks for the reply. I estimate that my income needs to live comfortably are about £45K per annum. So deducting my £18K pa DB pension leaves approximately £27K pa that needs to be generated by my investments.

From the calculations above it looks like this is achievable providing I can get around 4% return from the Bulk of my investable assets.
Tim

[TimR]

BreakoutBoy ,TUK020, masmon - Thanks for the replies.

I previously thought the (£100K cash + £40 Emergency cash) I have was acting a bit like a very safe short dated Government Bond in order to diversify and stabilise the portfolio from the £630 K I have in Global ETFs (similar weights to VWRL) plus shares, High Yield, comm property which total £770 K (excluding the £140 K cash) which is more volatile and subject to movements in the £ exchange rate. Now I can see that I should think how I can invest most of it to get a higher return than the (0.6% or 1%) you get in instant access cash ISAs. After all I do have the safety net of an index linked £18K pa DB pension so I wouldn't starve if all my investments crashed !

Tim