Income drawdown advice

In this period of intense market volatility, investors will be worried as to how the economic fall-out from the COVID-19 virus is likely to impact their portfolios.

These concerns will be particularly acute for those investors in the near or at-retirement stage of their lives. For those already now dependent on their investment portfolios and pension plans for income, what strategies should they be considering?

Tideway’s advice at this extraordinary time focuses on four key points:

  1. Diversify investment strategies and go global - invest for higher income in some areas, but not exclusively and not in all your equity investments. The UK and Europe economies already under performing may well turn out to be the worse hit by the virus so invest globally, not just in the UK.

    Consider:
    a. High yield bond funds
    b. Global Infrastructure funds

    Both of which should be less reliant on future economic growth which is going to be severely dented by lock downs.

    Combined with:
    c. Global equities funds exposed to big US Tech and Healthcare
    d. Global Equity Income funds
  1. Have a segregable drawdown account structure - like a low-cost SIPP which allows you to siphon off the investment income from your portfolio - and which allows you to select what investments get sold to avoid selling investments at a loss. Funding withdrawals by selling investments at loss completely defeats the objective of investing to reap a better longer-term return and will rapidly accelerate the decline of your capital and account value.

    Such an account will also allow you to maintain a cash holding or very low risk investments like short dated bond funds which can be used to supplement portfolio income in the shorter term acting as a buffer.
  1. Plan your withdrawals based on realistic real returns - after fees and inflation, these should be in the 1-2% region not 6% or 8%. Try using Tideway’s drawdown calculator, or income in retirement calculator if you want to include ISA and GIA investments into your modelling.
  1. Get cost effective expert advice. ‘De-accumulation’ is much harder than regular saving and it should be possible to get the right account structure, proper ongoing advice and investment management for less than 2% p.a. That might seem like a lot but good advice should add value both in terms of protecting you from the worst impact of volatile markets, saving tax and unnecessary fees and giving you peace of mind that your funds are optimally invested for the long term.

Tideway’s multi asset drawdown portfolios currently aim to generate around 3.5% p.a. of net income after all fees without over reliance on equity dividends. This is only 0.5% p.a. less than a current level annuity, but Tideway clients get to keep their pension and over the long term the aim is to increase their capital for flexible access in the future or to pass on to the next generation. Fixed Income portfolios can be created to pay out more than 4% p.a. after fees and more than current level annuity pay outs, without accessing the capital.

Tideway’s service has total ongoing cost of around 1.7% p.a. including account administration, advice and investment management.

If you have any concerns about your income drawdown investments please do call us to book an initial free consultation with one of our advisers.

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Tideway Investment Group comprises the following entities: Tideway Investment Partners LLP and Tideway Wealth Management Limited. Tideway Wealth Management Limited is an appointed representative of Tideway Investment Partners LLP, which is authorised and regulated by the Financial Conduct Authority. FCA number: 496214.

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