So I'm 60, considering taking my pension in another year-2 years. I will continue to add to the pension during that time, and want to have it invested in something. My understanding is that the world index approach really requires 5-10 years to flatten out bumps, so given I have 1-2 years left, I don't want to risk a downward bump that might not flatten out in 2 years.
However having read the responses, I'm realising that just because I am retired in the future and no longer contributing, it does not necessarily mean I need to move away from a tracker. The concern would be that if a bump happens just as I retire, and it takes a couple of years to neutralise, in those couple of years I'll have reduced the already lowered pension by say 3% a year, and it might significantly throw-off it's longevity. In other words are trackers that have 5-10 year requirement to be "fool-proof" still the best place to be when you are drawing a pension and need more sureity of value of the pension pot going forward ?
I'm not sure yet whether annuity or drawdown is best for me, but I think drawdown. I'll have to draw more out of the pension personal for the first 5-6 years until the state pension kicks in (assuming it's still around).
Right so you probably need to either, do some basic modelling in excel yourself to get an idea what sort of lifetime your pot can provide for based on some average values.
Don't get overly fixated on things like worst case, even some monumentally large funds perform badly under this scenario. Plan for a sensible middle ground.
Or, go and see a FA and get them to help.
Its very difficult as your going to have to make a choice on some things that you cannot predict, how long will you live etc.
You may find you simply cannot afford to retire yet, or that you can but your lifestyle will have to be very basic.
Or that maybe you need some alternate limited sources of funds, eg plan to do some xmas jobs, or summer jobs etc.
Unfortunately one of the key timings for many people is just after retirement, if its a downturn and they end up taking in effect more out (because returns are low or negative) it significantly impacts the long term.
Linked to above, what you always want to try to avoid is having to sell decent sized chunks of investments in a dip.
Your making the right noises in regards thinking about it. Slinxy gave a bit of a complicated scenario he plans for himself above but thats the sort of thing you can aim for.
You drop some funds from the higher volatility funds into lower ones, those are the ones you plan to use in early years and plan to top them up as you go from the high volatility.
If the high volatility are seemingly really on a high then sell a bit extra, drop them in low volatility. You can always do the opposite should it be beneficial later.
You still want to maintain a good portion in high volatility high growth but have enough in the opposite so you aren't being forced to sell at lows.
A few years should be enough for most people most of the time.
You also want to be maximising tax opportunities as well.
An example of how its difficult to plan perfectly is the 25% tax free lump. Its been held as pretty sacred and as such most would plan around that. Either to do some thing like pay off the house, or as part of tax efficient drawdown.
There is now a chance that may change come the budget and those people who made the "wrong" choice to fully take their 25% early may well end up having made a genius decision by luck.
Generally drawdown is recommended for larger pots, and buying an annuity with the guarantee that provides for smaller ones.
You can of course hybrid. Get an annuity that gets you to the basic minimum you need to survive, and use drawdown for the rest so you can time withdrawls.
More difficult if you retire early however since your early years income needs to be higher. (Unless you save to fund that via eg ISAs)
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