Lessons learnt from my portfolio review

What Investors Chronicle's experts said in December 2012:

IC economist Chris Dillow: "You may be taking on more risk than you need to meet your retirement objectives. If we assume that annuity rates stay as they are - at 3.6 per cent for a retail price index-linked annuity for a 65-year-old - then you need a pension pot of £1.25m by the age of 65 to give you an income of £45,000; the state pension, which you'll get a year later, should give you just over £5,000 a year.

"A return of 2.6 per cent a year in real terms over the next 17 years will get you your desired retirement income. You're taking on a high chance of having more than you need in retirement, and in doing so you are jeopardising your chances of an early retirement, should shares fall. A shift to cash or bonds would give you safer but lower returns, and thus reduce the small chance of you not being able to retire comfortably."

Ben Yearsley, head of investment research at Charles Stanley Direct: "Be aware of the recent rule changes announced by the chancellor limiting pension pots to £1.25m, which may affect you in future. Watch the doubling up of direct shares you own with holdings within your fund investments."

What our reader did following his review:

"I started with some calculations on target growth rates needed to hit a £1.25m pension pot - but not go too far over. I worked out I might hit this very quickly - and also realised that I was only allowed to scale down my pension payments once a year in my occupational scheme. Excluding my individual savings account (Isa) - I can anticipate reaching a fund of £1.25m by 2021 (age 58). This assumes the minimum allowed occupational pension payment; 5 per cent a year growth; and no other payments in. Including my Isa (with regular top-ups), and by age 60 I get to around £1.9m which is enough to buy a £68,000 pension. This more than meets my retirement objective of £45,000 in today's money plus a state pension of £5,000.

"The earliest I would anticipate retiring is 2023 (age 60), and it seems unlikely I would be unemployed for long unless I become ill (in which case perhaps I don't need so much money?). All this leads me to conclude some surgery was required on my pension savings to reduce unnecessary risk and avoid hitting the £1.25m limit too early. I therefore set myself an objective to lower risk in my pension funds, but leave my Isa risk levels unchanged.

"As I dislike government bonds at the moment, I will start by reducing equities and extending the use of corporate bonds in my self-invested personal pension (Sipp) - it looks easy to hit 5 per cent a year return with a little care. I'm leaving my other investments alone though - I simply feel more comfortable that an equity index fund will return 5 per cent a year over the next 10 years than the bond or cash fund options that are available. Also, I like the simplicity and diversity of my portfolio being split between 'professionally managed' balanced pension fund, part equity index, and part DIY low-risk Sipp fund.

"I therefore started looking at bonds to deliver a predictable fund value in 2020 to 2025. Bonds funds are good in that they lower risk, but many don't really deliver what I need since if inflation rises the capital value falls. So I started researching low-risk bonds and funds that looked likely to behave in a fairly predictable way. Finding suitable bonds was hard as it was unfamiliar territory, and I quickly realised I needed to build in diversity, but the choice was quite limited. More research is needed before I feel comfortable with bonds, and I'm in no rush.

"I increasingly wonder, though, if I'm not being radical enough. Growth in the first quarter of 2013 has been good - perhaps too good. My funds total has grown to £903k* from £757k only three months ago (including 18k contributions - that's still growth in excess of 16 per cent). It's also faster growth than the FTSE, which I find worrying as it implies I'm taking more risk than I should. Hopefully it's just a very pleasant blip as a result of a short measurement period - I can't see an obvious reason for it."

*This is made up of Isa: £209k (was £174k); Sipp: £136k (was £121k); Equity Index: £369k (was £311k); Managed Pension Fund: £188k (was £150k).

Portfolio pre and post review, showing 11 changes made