When I was doing pension counselling (fifteen years ago) I always advised to extra budget for a car and holiday when they retired , as they were the first things many people wanted and they could make a big hole in the tax free cash
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There is, I understand, a 25% tax free option on withdrawals from defined contribution funds though- outside of any personal allowance.
I’m in the middle of discussions with an IFA; been wading through a 120 page report over the last week or so.
I think I’ve come to my conclusion, just need to persuade my IFA to agree with me (so I feel justified in my decisions…)
Yes a few valid points there imo:
- If you take a sensible, diversified portfolio approach to your strategy i.e. lots of liquid investment funds with lots of eggs in lots of baskets, then no matter the risk level it will still be volatile. Low risk does not equate to no risk.
- That said, again if you’re sensible, you’re probably at no more risk of losing all your money at ‘5’ on a 1 to 5 scale, than if at 1. Yes, the scale of volatility will be more noticeable by nature of a higher equities content but that works both ways, going down and going up again and if you don’t need all or most of the money any time soon, so what?
- Do your homework or let someone else do it for you. Don’t buy a name (I’m looking at you Woodford), buy what they’re investing in. And monitor it.
- I understand that many people will never feel comfortable at anything beyond ‘3’/medium/balanced, whatever the trending terminology for a mid point on a risk scale looks like. However, this really is a big and unwarranted simplification, a hangover from ideas decades back and isn’t helped by the FCA any who, for instance, will still insist that keeping all of your funds in a single, UK bond fund carries far, far less ‘risk’ than a globally and asset diversified portfolio spread across a number of funds and fund managers.
- If costs are really, really the most important thing, then by all means seek out cheap. I would suggest that ‘value’ is a better quality however. And on a slight tangent, picking up on your point about managed funds, imo there is nothing wrong with considering some element of cheap tracker funds within a broader portfolio if that works for the investor and the strategy but I would caution against relying on them. I’ve lost count of the number of times I’ve seen some journo blather on about how ‘a FTSE tracker is all you need’, ‘go for the cheapest’, ‘fund managers just rip you off’ yadayada. Well what price that piece of ‘advice’ when you look at the 5 year chart below? (Though I have also included the S&P index as a counter point.) FWIW, the blue line is my own portfolio, an apparently ‘high’ risk 5 being as it’s all equity and not all in the UK.
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Indeed, 25% tax free up to the maximum Life Time Allowance (LTA) which currently stands at £1,073,100…this is for all your pension pots.
I bought €345,000 worth of menthol and capsule fags from Luxembourg (cheapest prices in Europe - about £4 a packet). Now menthols are banned I can sell them at £15 a packet - result!
Sadly, this savvy investment was wiped out by the one million toilet rolls and 50,000 cans of tomatoes I bought during the height of panic buying, as well as all those U2 picture discs. Can’t even shift those buggers for a penny on Discogs.
Good job I have no intention of retiring…
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I know where I can lay my hands on some cheap VCRs if you’re interested? Sony Betamax, none of your VHS rubbish.
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Yeah I am. If you know of anyone who’s got any V2000 machines, I’d be interested. V2000’s ripe for a comeback, mark my words.
Hah! I could never understand why they called their tapes video compact cassettes, when they were clearly larger than VHS tapes, which were in turn larger than Betamax.
Yes, subject to LTA considerations (as flagged by Jack).
My IFA, as standard m.o., recommends taking the whole 25% (as it is tax free etc), which can then be invested in ISAs and other investment classes.
Of course, this reduces your running pension/fund but better a bird in the hand.
This is all such a complex area, as some people with DB schemes (especially if both husband & wife had material time-in), elected to TF-out so as to manage their estates, in being able to pass something on to their kids (with a fair wind)…a nice problem to have!
Gosh, this sort of stuff would give me the willies. I’m so pleased I spent so long in the boring old LGPS. Now the cash arrives each montth, goes up by CPI every April and that’s that.
We save £50 a month through Fidelity and that has now got back to where it was in January, more or less.
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Or, da-da-daaaaa(!), you could consider UFPLS, which means 25% of every drawing is tax free and thereby, as the residual funds should grow over the years, ultimately more of your direct pension drawings are tax free and stays in your pension account, outside of your estate for tax purposes and to be passed on directly to your beneficiaries. Though consider if the impact on MPAA is important to you too.
That’s where I’m thinking about going with the ‘DC’ funds- leave it locked up for as long as possible, potentially I won’t touch it and then it can go to my children outside of my estate and I think they can choose whether to take it as cash (in which case I think it’s handled as income) or to just put it into their pensions- not sure whether this risks running up against annual allowance issues for them but, frankly, I’m not going to worry about it.
Of course… there’s every chance legislation changes between now and then…
Leave it to children?
Where’s your sense of adventure? Wine ,women and Statement are calling.
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Die before 75 and they can have it as cash if they like, die after 75 and it’s treated as an income and they’re taxed at marginal rates.
That’s something I can threaten them with.
Hmm… or they can threaten me with…
Happy to leave what’s left on my pension to my children, but only after I’ve had a good time with it!
In fact one of the reasons I moved out of my DB scheme is so my pension could be passed on in full to my wife (rather than only half of it) and then to my children who would have got nothing otherwise.
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Funny you should mention that one. Yes, monitor your investments all the time. I had Woodford Equity Fund along with 100,000s and obviously followed it every day. When the FTSE went up, this fund was particularly poor at following the rises. I became disappointed with it and sold Sep’17 at £1.30. It then proceeded on a downward slope and eventually crashed. I don’t mess around too much with my investments, but when something obviously stands out in the list and doesn’t perform when everything else is, it’s the time to act.
The only stock I have is TESLA. I watched it for 5 months before buying at a low point in May’20. It’s now reached a high today, giving a 251% gain. Watch, watch, watch.
@anon4489532 yes reading about investing sounds far more complicated than it actually is. If you briefly look at funds or take advice without taking interest yourself, it will always be subject that somehow rich people play. I’m just an average bloke using the internet to help my finances. I used to use IFA for everything up to 12 years ago, including finding me a mortgage. They advised on a particular deal and it looked good. A couple of days later I researched the net and found a great deal (2 years fixed at good rate followed by 0.49% over the base rate). I’ve payed under 1% for over 10 years. That was the point I thought I should take interest myself.
If anyone is scared about change, find funds, watch them without acting for 6 months. When I mean watch, I mean see how they perform daily compared to the country’s market their invested in.
8 days later and the gain is 320% since May. Even I’m now doubting it can go further for a while.
You can buy a 552 or be patient and get a statement or you can diss the whole investment world and work your backside off and to be told stay indoors with no support.
Thanks Nasdaq and Tesla, you have been great for me this year. Bought In May for $701, stock split 5-1 and just went up 6% in the last second of trading before going into S&P on Monday, to finish $695, an amazing 390% return. What a ride today.