The plan will be to purchase an ARF on retirement which will then be invested in a similar fund.
If the market drops before retirement and my funds value drops, then surely the fund (ARF) that I am going to purchase will also drop.
Thereby negating the effects of the drop in value.
Good point. And why a Money Makeover may be a better forum in which to discuss this issue properly.It's your wider financial situation and the other Pillars of your Retirement Planning that will help cushion the drop in value - income from other sources, access to other cash resources whereby you are not sensitive to the drop in value of the lump sum, ability to leave the fund to recover in value (distribution requirements notwithstanding) etc.
This is true, but as the market recovers both funds will increase in value. This thereby protects the income potential.If you are in a Global Equities Fund in your DC Scheme and will be reinvesting in a Global Equities Fund in your ARF, your 'pot' has very much dropped in value,
What do you mean by "both funds"? There's only one fund in your example - the "Global Equities Fund".both funds will increase in value
My question is not so much will i have enough money, its more of a generic logic.
as the market recovers both funds will increase in value. This thereby protects the income potential.
This is the key risk to your plan OP. That doesn’t necessarily mean you shouldn’t follow through on your plan, but you really do need to understand Sequence of Return Risk better.Furthermore, the longer any recovery takes, and the more you draw out of an investment pot during this period, leaving a diminished pot to recover its previous value, then the income potential is very much exposed. Larger and larger percentage market increases will be required to restore a pot to its previous value, where such a pot is being drawn down.
As @AAAContributor mentioned a few times, a person's wider/non-pension assets/savings/investments and their ability to ride out volatility, probably need to be factored in here too. I'm late 50s, early retired, taking a small income from some of my pensions (splitting into smaller PRSA contracts as needed), and remain basically 100% in equities (MSCI World Index or equivalent), but I have significant other non-pension assets that allow me to deal with significant volatility if/when it arises. Without those non-pension assets I might be more cautious about the all equities approach...FWIW, I personally would not stay 100% invested in equities at point of retirement (ie when I move from accumulation to decumulation) if I was retiring today with CAPE ratios of 30+ but if it was more like 2010-15 with CAPE’s below 20 then I’d have very little concern about doing so.
am I being naive about the risks?
Not necessarily, since these taxes are only on the growth, rather than the full value.will have to work that bit harder now that it is outside a pension wrapper.
Agreed, but just to clarify that when I say 100% equities I literally mean all of your portfolio (minus PPR), not just your pension plan.and remain basically 100% in equities (MSCI World Index or equivalent), but I have significant other non-pension assets that allow me to deal with significant volatility if/when it arises. Without those non-pension assets I might be more cautious about the all equities approach...
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