At What Age Should You De Risk Your Pensions

We read recently in a report by FTAdviser.com that LCP had produced some research that

• At age 60, 10% more people were happier having selected flexible drawdown for retirement rather than choosing the annuity route.
• At state pension age 67 or thereabouts, a greater % of people were happier with annuity than flexible drawdown.

This tells us that in the early stages of retirement people like flexibility and investment growth but as they get older and other guaranteed pensions like state pension and defined benefit pensions kick, our appetite for risk declines with more people preferring the security of guaranteed annuity income.

We put this down to the fact that in our latter 60s many people are no longer able to ‘tolerate’ investment losses in the same way that can in their 40s, 50s and early 60s as you have little or non earning power to recover any losses as well as limited time to recover those losses.

We believe that both lower risk, guaranteed annuity income is preferable for your ‘subsistence’ living expenses (your daily bills) and flexible funds may be better suited to your leisure expenses.  At what age we cross over where we have enough secure income to cover your minimum living expenses will differ for us all.  Indeed, we suggest you think about your tolerance to losses and review this regularly.

It would appear logical that when many of us start to receive our state pensions, we are less reliable on our other pension funds and thus can afford to take some risk with any excess pension funds.  Equally, as we move from late 50s/early 60s to late 60s, annuity rates will have increased and look more attractive.

Cash Flow Modelling: Take Advice

We suggest you contact us for advice on cash flowing modelling for early or partial retirement, in full retirement and for later life care.   You can then make informed decisions on your retirement strategy and when annuity make become more attractive.

Remember:

• Annuities, once in place, cannot be converted back to flexible drawdown.
• Flexible drawdown can be converted to annuity at any time.
• It therefore makes sense in early retirement to consider flexible drawdown.

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