My problem consists of funding the years between 58 (when I hope to retire) and 65 (when I intend taking my pension). My calculations are not around working out how much I can take, they are based on having enough there in the first place. It doesn't matter to me if it all goes and I do have the luxury of knowing how long it has to last, but it does have to be there. I'm very close to needing the money (two years this month) and still a fair way off from having it. I need the pot to grow but I haven't got a lot of time. If it shrinks dramatically I could be looking at working longer or not sleeping at nights when I do leave, so I need to secure my income for those years as tightly as possible. How to do this?
I have no training in economics and failed A level maths 3 times (this and learning to drive are the two things I've allowed myself to fail at in my life) and the dynamics of the markets is something I've only just started to take an interest in. Financial products and how to manage money (beyond the basics) is an art I'm only just learning but I think these are the two areas I need to work on.
Assess how much I need to live on.
But at this point I am already making two assumptions:
- that our rental property will bring in at least £4,000 pa
- our ISA's will have grown to £70,000, won't lose value dramatically and will pay 3% dividends giving us at least £2,000 pa.
This process also tells me something quite important: I need a substantially higher amount of income in the first two years than I do for the following 5.
Work out how much I need to produce this income and how to secure it when I've got it.
According to received wisdom I shouldn't really have any of my pension in equities at all since I will need to draw on it in 2 years time. Thankfully a good chunk of it (around £19,000) is safely stored in my CIS FAVC but I will have to transfer it out in order to draw it so I will need to have worked out what to do with it by then. Maybe I shouldn't actually put this in my SIPP for drawdown but put it into a "high" interest current account instead and use it to fund the first two, most expensive, years of retirement?
It's very difficult to see how things will pan out given that we don't yet know how pension drawdown will work under the new rules so maybe when this becomes clearer I will be able to put together a firmer plan. But my more immediate dilemma is that I need my SIPP to grow but I shouldn't risk the volatility that this requires. According to my calculations I'll have just enough, but only just and only if....
I know the solution of course, spend less, save more. Any kind of withdrawing, safe or otherwise, depends on the funds being there in the first place. Perhaps I need to concentrate more on tactics for saving than worry so much about where to put the money and how to make it grow.
Having more than enough is the only way to be confident that I won't run out and it's time I acknowledged this, bumped up my targets (see below) and got on with it.
|ISAs - £70,000||65,344|
|Pension - £50,000||29,600|
|Abundance Gen - £7,500||1,500|
|Cash - £22,500||22,000|
|Total - £150,000||118,444|
|Isa To Go||4,656|
|Pension To Go||20,400|
|Cash To Go||500|
|Abundance To Go||6,000|
|Total To Go||31,556|
(The money in Adundance is an interesting addition because it works in quite a different way from the rest of my investments. A chunk of capital is returned each year and, so long as the project you are invested in doesn't fail (which is a risk), you can be fairly confident of that return. So this level of investment should give me a return of around £650 - £700 pa.)