Brendan Burgess
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De-risking Assets Before Pension Draw Down
- Thread starter LiferT
- Start date
Brendan Burgess
Founder
- Messages
- 55,427
No one has suggested gambling. You, as a professional advisor, should know the difference between gambling and investing.
Setforlife
Registered User
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This is exactly why my colleague did it and it turned into a good decision, in spite of it being ‘lucky’ or totally wrong as some people might think. He needed a certain lump sum to clear mortgage from his pension, he planned early retirement for when he met this figure and the pension figure to fund his retirement. He planned to retire in April this year then, basically once had made the most tax efficient salary for this year. He moved to cash 5 months ahead of this and could totally relax that he has a risk free plan in place and of course retired as planned. Global upheaval showed a significant risk of a very bumpy year this year.
As it turned out April would have been quite bad timing if he hadn’t of done this and he would have had to change his plan, retire with a fair amount less (~ 2 years spend)or postpone his retirement, which would have been tricky as our notice for it is quite long.
Perhaps it’s a specific planning thing coming from engineering and project management principals but the idea you just do what will work most of the time for everyone else and don’t plan for guaranteed success is just something I don’t understand. I.e you have time, cost and quality as 3 parameters for any decision in engineering or project management and retiring early is a project with this variables. I’m personally not sure I’d do the same, but I’d hopefully plan to retire when I have a fair bit more leeway cost wise.
Brendan Burgess
Founder
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- 55,427
And did he get back into equities with his ARF?
You can't time the markets.
There is an issue with people who have a specific plan for the tax-free lump sum - such as paying off the mortgage.
If you were buying a house in the short term, you should not invest in the stockmarket in case you don't have the deposit when the time comes.
Depending on the circumstances, something similar could be happening to a person approaching retirement. Especially if they have an interest only mortgage about to mature when they retire.
Having said that, they would still be able to pay off the bulk of it in most circumstances. So you would need to look at the specific circumstances of the person. But, as a general rule, it is wrong to move into cash as you approach retirement.
Seems prudent in those circumstances to protect it once it's achieved.
The thought suddenly occurs that if the rules allowed the lump sum to be based on salary and service and the balance to be ARFable (read an article recently suggesting it was being considered), them a lot of this type of discussion would go away as the lump sum wouldn't be entirely dependant on the fund value.
Plenty of people had interest only mortgages with either an endowment or a pension lump sum to pay it off at the end of the term. There may still be some out there.
There's also the potential of a change to taking the full 25% at one moment in time. But, that's an option now for some with multiple PRSAs and maturing them at different times.
Gerard
www.execution-only.ie