Trustnet Magazine 57 December 2019 | Page 54

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