In the back
Someone who retired in December
1999 (just before the dotcom crash)
with £500,000 would have had a very
different retirement experience to
somebody who retired in March 2003.
Both started with £500,000 and
both withdrew £25,000 per annum,
but by 2017 the difference in portfolio
value would have been almost
£700,000.
This phenomenon is called
sequencing risk and it has vexed the
industry for years.
The good news is that more
companies are working on how
to construct portfolios that either
de-risk your holdings prior to a
market downturn or have higher-
Source: Whole Money
TRUSTNET
2006
2008
Maximise your annual limits Think about the lifestyle you would like
out at 55
Don’t wait until your final years of
employment to catch up with
your contributions
It may be worth looking
at low-cost platforms and
using passive/tracker funds,
which can have a big impact
on the net performance of
your retirement portfolio
Mr Unlucky
£1m
£900k
£800k
£700k
£600k
£500k
£400k
£300k
£200k
£100k
0
2004
Things to consider when decumulating
Don’t be tempted to take money
Mr Lucky
2002
Things to consider when accumulating
Start as young as you can
INVESTMENT RETURNS DETERMINED BY ACCIDENT OF BIRTH
2000
[ PLATFORMS & PENSIONS ]
54 / 55
2010
2012
2014
2016
Keep an eye on the charges you pay
With an extended time horizon,
can you afford to de-risk in the run-up
to retirement?
and cost it out
Stay invested – avoid buying an annuity
if possible – and draw down only what
you need
Consider keeping your pension portfolio
invested in retirement
Be aware of sequencing risk
and attempt to mitigate it
Keep fees as low as possible – consider
buying passive portfolios direct from the
provider
Consider annuities and lower-risk
investing from your mid to late 70s
risk portfolios and a “cash sidecar”
that you can live on if your portfolio
drops. Allowing your portfolio time to
recover without having to draw down
money from it avoids most of the
negative effects of sequencing risk.
Plus, it’s worth remembering that
even the lowest-risk investments take
a thumping in a crash, but they don’t
have the growth element to power
their value back up as quickly as
higher-risk ones.
Charges
The final point you need to consider
when you are decumulating is the
subject of charges. It may be worth
looking at low-cost platforms and
using passive/tracker funds, which
can have a big impact on the net
performance of your retirement
portfolio.
You should also consider buying
a passive portfolio, such as the
Vanguard LifeStrategy range,
directly from the fund manager.
These are simple, low-cost products
that are easy to run and understand
– just what you need when you’re
getting old.
trustnet.com