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Drawing down your pension is like a game of football

You’ve probably heard many a football commentator say: “You can lose a game of football in the first 20 minutes but you can’t win one”.

I’m sorry to tell you that you also can destroy your retirement in the first five years, but you won’t achieve your dream retirement in that time.

When I used to play, the last piece of advice our manager used to say in the dressing room before kick-off was “be solid in the first 20 minutes, don’t concede and we can build from there” and “the first 20 minutes are crucial – make sure we manage the game effectively in this period”.

The basis of these comments and advice from the manager is all about ensuring that the team has the best chance of winning the game over the full 90 minutes.

As I first suggested, if you concede three goals in 20 minutes, it’s generally game over. Pack your bags and go home! But, if you are cautious, make sure that your defensive shape is perfect and that you mitigate the risks, then you still have 70 minutes in which to win the game.

Now, this may not lead to playing the most entertaining football. But, for me, it’s about giving your team the best possible chance of success. And if that means there is a need to be boring for 20 or 30 minutes then so be it.

This strategy should be no different when you think about drawing down your pension pot to live the life you want in your game of retirement.

Think about it. Imagine you go into the first five years of your retirement all guns blazing (attack-minded), with a large portion of your fund in equities (more attack-minded players that defensive) and big spending plans (a 3-4-3 formation).

If the market goes against you with losses of 20/30% (the other team score three times), the chances of your pension pot (the team you play for) recovering from this are slim to nothing. Your dreams of living a full and happy retirement (winning) could be in tatters.

When you retire, one of two market scenarios will happen:

  1. It will go up and then down

  2. It will go down and then up

One of these is much better than the other!

If markets go up first, then you will be drawing money from your pension fund in a rising market. This is the best-case scenario and one that should lead to positive outcomes (if you have a robust lifestyle financial plan in place).

But, if markets go down first, then you will be drawing down your pension fund in a falling market, which could lead to exaggerated losses and negative outcomes. It may lead to you running out of money a lot quicker than anticipated or having to scale back considerably, which means an extraordinary retirement turns into being ordinary or, even worse, dull!

The idea that you need to protect, be defensive and not concede in the first 20 minutes of a football match to make sure you can still win the game over the full 90 minutes is exactly the same idea that you need to protect, be defensive and not allow the ‘falling market’ scenario to affect your chances of winning over your full retirement period.

Putting a good percentage of your drawdown fund into defensive assets such as cash and bonds may seem counterintuitive according to the traditional thesis of investing. However, in the new world of having all your pension pot at your disposal, the need to ensure that you have skin in the game over your full 90 minutes is crucial.

Retirement is your World Cup final

But your life does not equate to just any football match. This is your World Cup final! You have one shot at making this work and won’t get a chance in four years’ time to try and put things right.

Being defensive at the outset may not lead to the potential exaggerated returns you could have got in the ‘rising market’ scenario. But it will ensure that you can live the life you desire and protect your plans from experiencing a falling market in the first five years of your retirement.

Once we know that we have built a great foundation for our retirement, we then can increase our equity allocation over time. We can become more attacking as we go through our retirement.

There is some wonderful research that suggests the optimal portfolio for delivering a long-lasting successful retirement is one that starts with 30% in global equities and over time increases to 70% in global equities. If you’re interested, click on the link and have a read. It will turn conventional investing wisdom on its head.

This why we believe that, as you retire, it is vitally important to break down your portfolio into buckets. This will allow you to segment your pension fund into cash, short term, core and long-term holdings.

With this strategy, we like to hold at least two years’ worth of expenditure in the cash bucket (for some clients it may be more). This will provide the buffer needed if we do get a significant downturn in the market early into the retirement journey.

You can then hold a decent allocation of defensive assets such as government or corporate bonds in your short-term bucket.

Your core bucket will hold a mix of growth and defensive stocks and your long-term bucket will provide the exposure to growth stocks you need to ensure that your pension fund can grow over a full retirement time horizon and maintain the purchasing power needed.

After all, as I have preached many times before we have no idea what the markets are going to do next, so ensuring that you can last the full match should be your main priority.


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