Calculating required retirement fund

savingforoz

I came across a useful rule of thumb way of calculating how much your retirement fund needs to grow at, percentage wise, to reach its target...and didn't bookmark it, and haven't been able to find it again! :mad:
Can anyone let me know the formula? Thanks!

K9cuddles

I've used this pension contribution calculator before.. not sure it's of any use??

cheerfulcat

Was it the Rule of 72?

savingforoz

:iloveyou: Thank you cheerfulcat, that was the one!!!! (I've now added it to my favourites list so I can't lose it again!
Thanks too to Sara, the Legal and General calculator was also useful. You're both stars - have a cyber drink on me :beer:

EdInvestor

Of course the Rule of 72 will work for cash but with any pension investment you need to take charges into account ( and the "effect" of them as well).

The figures in the pension section here give an idea:

https://www.fsa.gov.uk/tables

dunstonh

EdInvestor wrote:

Of course the Rule of 72 will work for cash but with any pension investment you need to take charges into account ( and the "effect" of them as well).

The figures in the pension section here give an idea:

www.fsa.gov.uk/tables

Yes, remember that Ed thinks it is best to earn 4% and appear to pay no charges (because she assumes that no one profits on savings accounts) but not earn 7% after charges because you shouldnt earn more and pay someone.

EdInvestor

Yes, remember that Ed thinks it is best to earn 4% and appear to pay no charges (because she assumes that no one profits on savings accounts)...

Perhaps you can answer a question I've been wondering about for some time.

What are the charges on annuities?

dunstonh

I couldnt tell you as the charge as it isnt explicit. One obviously exists there though.

EdInvestor

I couldnt tell you as the charge as it isnt explicit. One obviously exists there though.

Quite so: the providers quote a figure net of charges, as with cash, and that's what you compare to get the best deal. It's a defined benefit, so to speak.

Whereas with a pension or any other investment,it's a defined contribution - and the return is based on the performance of the investment minus the charges.Which is why it's important to know what the effect of the charges will be on the performance, especially if the effect is different from what the charges appear to be.

Take a five year fund investment with a 5% initial charge and a 1.5% annual charge. A person who didn't understand about the "effect" factor might think that total charges were 5% + (5 x 1.5%), ie 12.5%, right?

Wrong.After you add in the "effect" you may find your investment performance is reduced by more like 17.5% - and the longer you are invested the worse it gets, hence the Pension Commission's statement that charges eat up between 25% and 30% of your fund.

You can see this illustrated in the charges listed on the FSA's tables for various products on the link I mentioned above.

dunstonh

Take a five year fund investment with a 5% initial charge and a 1.5% annual charge. A person who didn't understand about the "effect" factor might think that total charges were 5% + (5 x 1.5%), ie 12.5%, right?

They are the total charges.

The effect of charges over time is not a charge.

Paul_Herring

EdInvestor wrote:

Take a five year fund investment with a 5% initial charge and a 1.5% annual charge. A person who didn't understand about the "effect" factor might think that total charges were 5% + (5 x 1.5%), ie 12.5%, right?

Wrong.After you add in the "effect" you may find your investment performance is reduced by more like 17.5% - and the longer you are invested the worse it gets, hence the Pension Commission's statement that charges eat up between 25% and 30% of your fund.

Aren't we getting back to RIY calculations here? (The ones discussed in http://forums.moneysavingexpert.com/showthread.html?t=162784#post1737870)