Pension pot: how much is enough?

RandallFlagg

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

How much in your pot vs how long do you need it to last?. The impoderable question.

I've had people around me die at 56 and 66 so I am leaning towards just enough and sooner rather than later and using equity gains rather than moving into bonds/cash after retirement in the hope of the stock market gains covering the drawdown and increase the pot value over time. Risky? yes but early death is a risk as well.

bloodandtears

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

some of the figures mentioned here are both eye-watering and depressing..  I'd be lucky to accumulate £100-150k I reckon.

fields5069

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

I thought so, but I must admit I don't understand how drawing it works, as calculators tell me that's around £18k pa. I need to read up on the whole thing, I'm 50 so it's going to get real soon.

viz

fields5069 said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

I thought so, but I must admit I don't understand how drawing it works, as calculators tell me that's around £18k pa. I need to read up on the whole thing, I'm 50 so it's going to get real soon.

Don’t forget you will have 25% lump tax free on top of that; also although it might 18k if you retire early but if you wait till 65 it should be more than that. 

RandallFlagg

fields5069 said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

I thought so, but I must admit I don't understand how drawing it works, as calculators tell me that's around £18k pa. I need to read up on the whole thing, I'm 50 so it's going to get real soon.

The online retirement planning/prediction tools are very crude and overly cautios/pessimistic. They follow rules set down by the FCA of a 3%/5%/8% (Low/Med/High) growth rate and make assumtions about your contribuitions and don't allow for setting a flexible/variable drawdown amount when your state pension kicks in. I built my own using real historical pension fund investment returns as a guide.  

MtB

This Which article gives the basics:

https://www.which.co.uk/money/pensions-and-retirement/starting-to-plan-your-retirement/how-much-will-you-need-to-retire-atu0z9k0lw3p

RandallFlagg

bloodandtears said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

some of the figures mentioned here are both eye-watering and depressing..  I'd be lucky to accumulate £100-150k I reckon.

There's always a bigger fish and someone in life with more than you no matter who you are. Buil your own plan, a £100K pot can be invested to grow nicely if you are prepared to take some risk with it.

The S&S ISA fund I'm in has gained 201% in 5 years. If had put £5K in 2010 it would be £40+ now even if I'd added no more to it. 

ESBlonde

viz said:

fields5069 said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

I thought so, but I must admit I don't understand how drawing it works, as calculators tell me that's around £18k pa. I need to read up on the whole thing, I'm 50 so it's going to get real soon.

Don’t forget you will have 25% lump tax free on top of that; also although it might 18k if you retire early but if you wait till 65 it should be more than that. 

Lets say you have £500k at age 60. You take 5% a year for 5 years (£20k) plus £12.5k draw down (tax free income) gives you £2.7k a month in your bin. Come age 66 you can add the state pension but lose the 5% tax free so say £8k state and £25k draw down nets £2.5k per month. How old do you expect to be when you die? Even with modest investment growth that takes you well into your 80s.

Jalapeno

I just read a paper from IG Investments saying the the London Stock Market has average 4.9% pa growth (incl reviesting dividends) over the last 119 years.

I'm not comfortable trying to out-perform the market, and/or turn my late career into a full-time fund manager. From recent inheritances I have my emergency fund that I'll keep in a med-risk S&S ISA (going gangbusters at present). But I'm not feeling the love for a draw-down pension fund and associated financial risks yet. Your risk of death is a given either way, playing (working if that's insulting) the markets is additional risk

I recall a colleague who thought that as the exchange rate was so good he'd get a Swiss Franc mortgage - other colleagues warned him he was effectively competing with professional currency traders but he wouldn't listen. 2 years later John Charcoal put him back into Sterling mortgage (against his will) owing 25% more than when he started.

RandallFlagg

Jalapeno said:

I just read a paper from IG Investments saying the the London Stock Market has average 4.9% pa growth (incl reviesting dividends) over the last 119 years.

I'm not comfortable trying to out-perform the market, and/or turn my late career into a full-time fund manager. From recent inheritances I have my emergency fund that I'll keep in a med-risk S&S ISA (going gangbusters at present). But I'm not feeling the love for a draw-down pension fund and associated financial risks yet. Your risk of death is a given either way, playing (working if that's insulting) the markets is additional risk

I recall a colleague who thought that as the exchange rate was so good he'd get a Swiss Franc mortgage - other colleagues warned him he was effectively competing with professional currecncy traders but he wouldn't listen. 2 years later John Charcoal put him back into Sterling mortgage (against his will) owing 25% more than when he started.

You don't need to, a well chosen pension fund is managed by a professional team doing that work for you selecting and modifying the investment portfolio so you don't have to. That's what you pay the 1.5% annual fees for. Picking a fund or couple of funds for diversification is no harder than using GoCompare once a year, you don't need to review any more frequently than that.

I have no time or interest in frequent stock market trading and follow the simple adage that it's all about time in the market rather than trying to time the market. I have plently of time for research and planning to fine tune my retirement planning for maximum benefit though.

bloodandtears

RandallFlagg said:

bloodandtears said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

some of the figures mentioned here are both eye-watering and depressing..  I'd be lucky to accumulate £100-150k I reckon.

There's always a bigger fish and someone in life with more than you no matter who you are. Buil your own plan, a £100K pot can be invested to grow nicely if you are prepared to take some risk with it.

The S&S ISA fund I'm in has gained 201% in 5 years. If had put £5K in 2010 it would be £40+ now even if I'd added no more to it. 

So is this essentially what you do these days if you havent got the luxury of Defined Benefit/Final Salary?  Accumulate your pot.. then invest it best you can so that you can live off your monthly withdrawals? I presume this is Pension Drawdown as opposed to buying an Annuity.. 

RandallFlagg

bloodandtears said:

RandallFlagg said:

bloodandtears said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

some of the figures mentioned here are both eye-watering and depressing..  I'd be lucky to accumulate £100-150k I reckon.

There's always a bigger fish and someone in life with more than you no matter who you are. Buil your own plan, a £100K pot can be invested to grow nicely if you are prepared to take some risk with it.

The S&S ISA fund I'm in has gained 201% in 5 years. If had put £5K in 2010 it would be £40+ now even if I'd added no more to it. 

So is this essentially what you do these days if you havent got the luxury of Defined Benefit/Final Salary?  Accumulate your pot.. then invest it best you can so that you can live off your monthly withdrawals? as opposed to buying an Annuity..

Yes, annuities are not great value at present and may never be again.

Have a look at what funds you current pension is invested in now and see how that is currently growing. Some people move a portion of their fund into lower volatility investments at the point of retirement such as bonds or cash, but the returns on those are very low so some people prefer to remain invested in equities funds after retirement and use the gains to offset the drawdown. It's more risky/volatile but can increase the amount you can drawdown if you have a well chosen fund that peforms well in the future. You need to accept the risk of having some years where there is little or no gains or even reductions though.

A lot of this comes down to your personal risk appetite.

bloodandtears

RandallFlagg said:

bloodandtears said:

RandallFlagg said:

bloodandtears said:

viz said:

fields5069 said:

Well, that's one way to look at it, sure. It places understandable stress on those of us less financially fortunate and/or savvy - the feeling that we are being told that we should be enjoying life more, and look this is how to enjoy it. I think the most imortant thing for me at the moment is to integrate work and life such that I'm good at both and enjoy both, and to be honest I'm not far off. I don't have a bucket list particularly, I've never personally understood them.

 I think at this stage I'd be lucky to achieve a 500-600k pension pot. Probably more towards the lower end.

500k is quite a lot. 

some of the figures mentioned here are both eye-watering and depressing..  I'd be lucky to accumulate £100-150k I reckon.

There's always a bigger fish and someone in life with more than you no matter who you are. Buil your own plan, a £100K pot can be invested to grow nicely if you are prepared to take some risk with it.

The S&S ISA fund I'm in has gained 201% in 5 years. If had put £5K in 2010 it would be £40+ now even if I'd added no more to it. 

So is this essentially what you do these days if you havent got the luxury of Defined Benefit/Final Salary?  Accumulate your pot.. then invest it best you can so that you can live off your monthly withdrawals? as opposed to buying an Annuity..

Yes, annuities are not great value at present and may never be again.

Have a look at what funds you current pension is invested in now and see how that is currently growing. Some people move a portion of their fund into lower volatility investments at the point of retirement such as bonds or cash, but the returns on those are very low so some people prefer to remain invested in equities funds after retirement and use the gains to offset the drawdown. It's more risky/volatile but can increase the amount you can drawdown if you have a well chosen fund that peforma well in the future. You need to accept the risk of having some years where there is little or no gains or even reductions though.

OK,, so I'm reading this now.. https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/income-drawdown/what-is-income-drawdown-apsqg6y8pg57

Drawdown is basically what my plan is.. I suppose I just get an advisor nearer the time (currently 44yr/old) to help me choose where to invest it and make it last.

RandallFlagg

 

OK,, so I'm reading this now.. https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/income-drawdown/what-is-income-drawdown-apsqg6y8pg57

Drawdown is basically what my plan is.. I suppose I just get an advisor nearer the time (currently 44yr/old) to help me choose where to invest it and make it last.

Personally I would review what your pension is being invested in now, don't wait. Look to maximise it's growth now.

You don't need to pay for advice, you can do your own reseach on pension funds, it's not hard to find good solid information on historical performance, often from your pension provider and cross check with https://www.morningstar.co.uk/uk/ or https://www.trustnet.com/. If you do go for advice then go armed with some homework.

No IFA can tell what's going to happen in the future, no more than you or I can.

RandallFlagg

Ossyrocks said:

RandallFlagg said:

I just want to answer this point.

I have calculated the difference in taking the final salary pension at 55 vs leaving it to age 65. I will draw £83K benefits from that pension between 55 and 65. If I leave it and only draw at age 65, even though the amount that pays out annually is higher, and even with the index linking, it will take 21 years for it to pay out that £83K taken early and start to be the better option.

Even though I will pay tax on it, its a no brainer.

I am doing exactly this in June this year when I turn 55. Based on my lump sum and monthly income it will take 22 years before the amount I have received is affected. I'll be 77 !

I'm taking it now, buying a nicer house by the seaside and going down to 2 days a week part time work. 

It is indeed a no-brainer for me.

Rob.

Sounds wonderful!

RandallFlagg

While we're on investments etc. A fella at work dabbles in the stock market and has shorted some Tesla shares.

He's sweating as the price has gone up 40% in the last week not down so he could be in for a thumping loss if the fall doesn't materialise soon

ToneControl

OK, a subject close to my heart

Two bit of bad news for you I am afraid:

1. You are sadly going to have save for longer. I know plenty of permie staff on £60k -£80k a year who have been paid-off ~£1m by their employers to rid the employer of the final-salary obligation. The fact that these banks are paying 31x the pension rate as a pay off tells you that they think that the costs of a pension of £X will on average be at least 31 x £X. The last I heard, Annuities were typically 4%, and (a while back) I read that taking a drawdown of more than 7% was unlikely to be permitted. It's quite possible to burn all of your capital in 20 years at 7% if growth is not great

2. From what you've said I think you have made a common error in your predictions: you've selected a fund that did well in the past, and assumed this will continue. Consider this: from 5000 funds, this one of them did well very consistently in the past. This does not prove with much confidence that the same will be true in the future. This is a common problem with big data. 

You've picked a fund that has the best performance from 1998 - 2020

Imagine instead you pick the best 10 funds from 1998-2009, then check if your fund is one, and whether any of them are in the top 10 for the period 2009-2020. Chances are none of them will be. There's a very good book that covers this. "The AI delusion"

My estimate is that you need at least 20x your annual pension target in your SIPP, so £700k for the income
Bear in mind that you can take out 25% tax free, so that changes the figures a little if you take a yearly lump sum, each of which would be tax free.
e.g. with £800k, you could take £40k each year: £10k tax free from the fund, £11k-ish tax free part of personal allowance, so only £19k taxed, so about £36k after tax each year

Was your £35k after tax?
You do get taxed on the pension drawn (not NI though)

Musicwolf

Jalapeno said:

I just read a paper from IG Investments saying the the London Stock Market has average 4.9% pa growth (incl reviesting dividends) over the last 119 years.

I've tracked one of my managed ISAs from April 2009 - April 2019 during which time it achieved a CAGR of 7.13%.  The lowest that it achieved over any three year period within that decade was 3.97%.  Certainly not sufficient difference to say that it is in any way at odds with your number.

RandallFlagg

ToneControl said:

OK, a subject close to my heart

Two bit of bad news for you I am afraid:

1. You are sadly going to have save for longer. I know plenty of permie staff on £60k -£80k a year who have been paid-off ~£1m by their employers to rid the employer of the final-salary obligation. The fact that these banks are paying 31x the pension rate as a pay off tells you that they think that the costs of a pension of £X will on average be at least 31 x £X. The last I heard, Annuities were typically 4%, and (a while back) I read that taking a drawdown of more than 7% was unlikely to be permitted. It's quite possible to burn all of your capital in 20 years at 7% if growth is not great

2. From what you've said I think you have made a common error in your predictions: you've selected a fund that did well in the past, and assumed this will continue. Consider this: from 5000 funds, this one of them did well very consistently in the past. This does not prove with much confidence that the same will be true in the future. This is a common problem with big data. 

You've picked a fund that has the best performance from 1998 - 2020

Imagine instead you pick the best 10 funds from 1998-2009, then check if your fund is one, and whether any of them are in the top 10 for the period 2009-2020. Chances are none of them will be. There's a very good book that covers this. "The AI delusion"

My estimate is that you need at least 20x your annual pension target in your SIPP, so £700k for the income
Bear in mind that you can take out 25% tax free, so that changes the figures a little if you take a yearly lump sum, each of which would be tax free.
e.g. with £800k, you could take £40k each year: £10k tax free from the fund, £11k-ish tax free part of personal allowance, so only £19k taxed, so about £36k after tax each year

Was your £35k after tax?
You do get taxed on the pension drawn (not NI though)

A few questions:

Point 1 - don't be afraid, and it's not bad news! Your opening line does come across a little condescending!

Point 2: Permitted by who? Also, the withdrawal rate will not necessarily stay fixed, I'm sure it will flex and vary, I may even do part time paid work as well.

Point 3: No-one can predict the future, agreed, but some funds wil perform better than others based on their portfolio mix and investment strategy, it's obvious that a fund containing bonds and cash will be less volatile and gain less than 100% equity funds invested in SmallCap. The trick is to know which ones will perform. We only have history to help us, you are making some assumptions on growth rate and so am I they just may be different and neither of us knows the future.

Point 4: The fund I am currently in has performed in top ten for last 10 years, I don't have comparable data for the first 10 years but it's growth performance without reference to other funds is solid, whether it's in top 10 or not is irrelevant isn't it?

Point 5: based on what growth rate, fees and length of time? I dont expect to need the £35K inflated in outer years, we will spend a lot less. 

ToneControl

RandallFlagg said:

ToneControl said:

OK, a subject close to my heart

Two bit of bad news for you I am afraid:

1. You are sadly going to have save for longer. I know plenty of permie staff on £60k -£80k a year who have been paid-off ~£1m by their employers to rid the employer of the final-salary obligation. The fact that these banks are paying 31x the pension rate as a pay off tells you that they think that the costs of a pension of £X will on average be at least 31 x £X. The last I heard, Annuities were typically 4%, and (a while back) I read that taking a drawdown of more than 7% was unlikely to be permitted. It's quite possible to burn all of your capital in 20 years at 7% if growth is not great

2. From what you've said I think you have made a common error in your predictions: you've selected a fund that did well in the past, and assumed this will continue. Consider this: from 5000 funds, this one of them did well very consistently in the past. This does not prove with much confidence that the same will be true in the future. This is a common problem with big data. 

You've picked a fund that has the best performance from 1998 - 2020

Imagine instead you pick the best 10 funds from 1998-2009, then check if your fund is one, and whether any of them are in the top 10 for the period 2009-2020. Chances are none of them will be. There's a very good book that covers this. "The AI delusion"

My estimate is that you need at least 20x your annual pension target in your SIPP, so £700k for the income
Bear in mind that you can take out 25% tax free, so that changes the figures a little if you take a yearly lump sum, each of which would be tax free.
e.g. with £800k, you could take £40k each year: £10k tax free from the fund, £11k-ish tax free part of personal allowance, so only £19k taxed, so about £36k after tax each year

Was your £35k after tax?
You do get taxed on the pension drawn (not NI though)

A few questions:

Point 1 - don't be afraid, and it's not bad news! Your opening line does come across a little condescending!

Point 2: Permitted by who? Also, the withdrawal rate will not necessarily stay fixed, I'm sure it will flex and vary, I may even do part time paid work as well.

Point 3: No-one can predict the future, agreed, but some funds wil perform better than others based on their portfolio mix and investment strategy, it's obvious that a fund containing bonds and cash will be less volatile and gain less than 100% equity funds invested in SmallCap. The trick is to know which ones will perform. We only have history to help us, you are making some assumptions on growth rate and so am I they just may be different and neither of us knows the future.

Point 4: The fund I am currently in has performed in top ten for last 10 years, I don't have comparable data for the first 10 years but it's growth performance without reference to other funds is solid, whether it's in top 10 or not is irrelevant isn't it?

Point 5: based on what growth rate, fees and length of time? I dont expect to need the £35K inflated in outer years, we will spend a lot less. 

1. my apologies, had no intention to offend
2. I've checked just now and it looks like the rules have changed. A few years ago, you had to make a case for larger yearly drawdown percentages, because the regulators didn't trust us with our own money. AFAIK there is no limit now.
3. My point is, they may be good, but they are probably not going to repeat the last 20 years' performance, I think you should use a much lower percentage in your projections, as everyone else is doing btw
4. Not saying it's a bad fund, I'm saying that most funds don't repeat their past behaviour
5. not sure what you mean. it's very easy to burn all your cash quickly, because of the nature of the maths, play with a pension predictor to try to get the curve right, but I would not assume 16% growth per year, that's way off the end of the opimistic end of the scale for most people.