Would that still be your advice if the OP has, say, €900k in cash savings outside his pension?With 5 years to retirement, you should get that 25% into a very stable bond fund as quickly as possible. then look at the remaining 75%. Is it already big enough for what you need or not? If it is big enough, then why take excessive risk? Derisk it down to 60/40 or even 50/50 equities.
That said, let me lay some general advice. Assuming you are not buying an annuity and that you are taking a 25% tax free cash lump sum. With 5 years to retirement, you should get that 25% into a very stable bond fund as quickly as possible. then look at the remaining 75%. Is it already big enough for what you need or not? If it is big enough, then why take excessive risk? Derisk it down to 60/40 or even 50/50 equities.
I can't post links here, but if you search for "allocation advice for betterment portfolios" they have a really good article there.
If you intend to continue to self manage your portfolio in retirement, I would recommend you check out the Vanguard target date funds, and see what % of those are invested in equities. That's a great starting point.
They are US investments that aren't available here.I can't post links here, but if you search for "allocation advice for betterment portfolios" they have a really good article there.
If you intend to continue to self manage your portfolio in retirement, I would recommend you check out the Vanguard target date funds, and see what % of those are invested in equities. That's a great starting point.
Hi StevenWith the ARF, the investment journey will continue on for decades to come so the real reason for derisking is to protect the tax free lump sum. There is no other reason except for people thinking that's what you are supposed to do because they still have a purchase annuity mindset where you need the biggest pot of money to purchase your pension for life.
I didn't say buy it. I said read it. It's an article detailing exactly what the OP is asking about, namely the effect of asset allocation and time horizon on risk. The math works the same in the US as it does here.They are US investments that aren't available here.
Using your own example: 900K with 25% (225K) in bonds. Market falls 20% so pot now worth 765K, and you can take 191,250 tax free.If the other 75% falls in value, the money in cash/ bonds will make up a higher percentage of the overall fund and the lump sum received will be lower. Say his 75% falls by 20%, he will have a fund of €765,000 instead of €900,000. His lump sum will then be €191,250 instead of €225,000, a loss of €28,750 (after taxes on excess).
That's exactly what I said! General advice here is not advisable for this OP. The only general advice I'm really trying to say is that at 55, with a 5 year time horizon till retirement, it's probably not ideal to be in 100% equities.The OP needs to look at all his assets together and not in isolation.
How do you know the OP is 100% in equities? He has only told us the allocation within his pension fund.The only general advice I'm really trying to say is that at 55, with a 5 year time horizon till retirement, it's probably not ideal to be in 100% equities.
Therefore you must have other meansmy intention is to finish work next year (at 55) but not draw down my pension (currently >900k) till i am 60
Thanks for all the informative comments , there is a lot to think about ,
just to clarify my pension 100% of it is in Global equities , my intention is to set up an ARF and take the 200k Lumpsum only because my understanding is, it is tax free ,
i hope to have roughly 200K from savings and sale of shares by end of next year which im hoping will last me 4 or 5 yrs as i have no mortgage ,car loans , kids are nearly tru college etc., it will run out and i will have no other source of income other than the pension so i dont need to mess it up
Do you have to take 4% of the 700Kif your pension is currently 900k then your lump sum is €225k
€200k of this Is tax free, the next €25k is only taxed at 20%
Howeverif you took an income from the pension of say 13,000pa then (assuming no other sources of income) you would pay no tax on this at all.
So you might be better off taking an ARF now and taking your €200k tax free lump sum plus an annual payment of €13k pa as, in principle, you would pay no tax at all on the payments
€13k pa from a remaining fund of around €700k is only 1.8%pa
that could allow you to get around €65k out tax free over 5 years just making use of your exemptions
No not until you are aged 61Do you have to take 4% of the 700K
@Colm Fagan didn't say that. He was just giving indicative figures.The average pension fund in Ireland is hardly €1.8m is it?
Hi @NoRegretsCoyote You've hit on an important issue. During the discussion of my paper to the Society of Actuaries in January, one contributor said (and I'm paraphrasing - I hope I've got him right) that it was fine for affluent people like Seamus Creedon (who opened the discussion) and myself to leave our money in equities post-retirement, but ordinary savers couldn't take those risks; they had to put a high proportion of their savings in low-return, and supposedly low-risk assets like government bonds, eschewing the opportunity to earn a good return on their savings. The purpose of my paper was to make those high long-term returns available to all through an auto-enrolment scheme invested entirely in equities from cradle to grave, with returns smoothed to protect members from the risks of short-term (or not-so-short-term) equity underperformance.Otherwise I tend to agree that he has been extremely lucky to ride near-uninterrupted equity bull run since retirement. He doesn't give us a broader picture of his lifestyle and assets (nor does he have to) but it may suit him personally.
I think his investment and withdrawal strategy would be far too risky for the average retiree with a pension fund in the low hundreds of thousands.
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