Pensions Planning: The NUMBER

LL_USS

michaels said:

I would recommend working in today Money terms with assumptions for real (post inflation) returns for different asset classes (eg shares 2-3% pa, bonds 0% pa, cash -0.5% pa).  The advantage being when you see your income in 2050 is £30k you understand what the purchasing power of that 30k is.  Instead if you use nominal terms then you have to remember when you see £50k in 2050 it only gives you the same spending power as £30k today

I am not a finance person so I am not sure about this actually. I thought when your pension projection says "annual pension of 30k/year" in today's money term it means when you actually receive the money in your hands, it is, say 50K but having the buying power of 30K today.

PJM_62

LL_USS said:

michaels said:

I would recommend working in today Money terms with assumptions for real (post inflation) returns for different asset classes (eg shares 2-3% pa, bonds 0% pa, cash -0.5% pa).  The advantage being when you see your income in 2050 is £30k you understand what the purchasing power of that 30k is.  Instead if you use nominal terms then you have to remember when you see £50k in 2050 it only gives you the same spending power as £30k today

I am not a finance person so I am not sure about this actually. I thought when your pension projection says "annual pension of 30k/year" in today's money term it means when you actually receive the money in your hands, it is, say 50K but having the buying power of 30K today.

My understanding is there are two different things here..
- a current value of benefits built up (DB) or current value of pot (DC) = (todays money)
- a projection/quote for a specified future retirement date which, depending on DB or DC, includes specified assumptions about inflation/contributions/growth/pay rises/AVCs/etc = (calc of future figure)

LL_USS

PJM_62 said:

LL_USS said:

michaels said:

I would recommend working in today Money terms with assumptions for real (post inflation) returns for different asset classes (eg shares 2-3% pa, bonds 0% pa, cash -0.5% pa).  The advantage being when you see your income in 2050 is £30k you understand what the purchasing power of that 30k is.  Instead if you use nominal terms then you have to remember when you see £50k in 2050 it only gives you the same spending power as £30k today

I am not a finance person so I am not sure about this actually. I thought when your pension projection says "annual pension of 30k/year" in today's money term it means when you actually receive the money in your hands, it is, say 50K but having the buying power of 30K today.

My understanding is there are two different things here..
- a current value of benefits built up (DB) or current value of pot (DC) = (todays money)
- a projection/quote for a specified future retirement date which, depending on DB or DC, includes specified assumptions about inflation/contributions/growth/pay rises/AVCs/etc = (calc of future figure)

Eeek it gets me worried now.

Agree, the current value of accrued benefits in DB is today's money (which is revalued every year to go up in line with inflation - some sort), say a few years ago your accrued DB for 2016-2017 was, say, £500 for that year, but the number was revalued and shown as £510 for 2016-2017 in the year after, and today you may see that the accrual for 2016-2017 is, say, £700. And DC pot is the actual money put in, invested and hopefully increased year on year (depending on how the pension fund invests - if we get 5% then it typically beats inflation and have a bit earning on top).

Where it is not clear is the projection given by the benefit calculator. I understood it is not today's money, but "in today's money term" for ease of comparison.
I emailed our pension fund USS a couple of days ago and this is what they have just replied: "The benefit calculator projects your retirement income builder benefits assuming future accrual, then applies a 'reverse inflation' factor to reprsent the value in line with current market conditions. This is to provide as accurate as posisble the picture as to the real value of the retirement benefit". 

When they say "real value" I suppose it is the actual buying power. I believe so but still not very sure.

cfw1994

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

Not sure I ever thought in that much my 30s (now approaching 60!), but one piece of advice I would have given my younger self would be to put as much away as comfortably possible the pension…and also some into an ISA - the ISA funds ar giving you money in the distant future that you can use to quit a job before the pensions are accessible 😉

I believe the advice Martin Lewis has somewhere here is half your age in % terms, including company contributions.
so if you are 36, get at least 18% stashed in there.  If the company match to 5%, always match that - so 10% in total - but at that age, aim to get another 8% (or more) in there💪

I wouldn’t focus on inflation at all, to be honest.   It will vary, and the recent horrendous period will *probably* be behind us for a few years🤷‍♂️

Oh, & also aim to live well: no point focussing on money at the expense of friendships & fun experiences 😉

Brenster

cfw1994 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

Not sure I ever thought in that much my 30s (now approaching 60!), but one piece of advice I would have given my younger self would be to put as much away as comfortably possible the pension…and also some into an ISA - the ISA funds ar giving you money in the distant future that you can use to quit a job before the pensions are accessible 😉

I believe the advice Martin Lewis has somewhere here is half your age in % terms, including company contributions.
so if you are 36, get at least 18% stashed in there.  If the company match to 5%, always match that - so 10% in total - but at that age, aim to get another 8% (or more) in there💪

I wouldn’t focus on inflation at all, to be honest.   It will vary, and the recent horrendous period will *probably* be behind us for a few years🤷‍♂️

Oh, & also aim to live well: no point focussing on money at the expense of friendships & fun experiences 😉

I hope you are right, however the current situation in Isreal is a worry.  Pension pots have already started dipping for me personally, and i imagine for most others.

Note : I realise this is inconsequential compared to the issues in Gaza, but it is a financial / pensions forum.

Pat38493

Brenster said:

cfw1994 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

Not sure I ever thought in that much my 30s (now approaching 60!), but one piece of advice I would have given my younger self would be to put as much away as comfortably possible the pension…and also some into an ISA - the ISA funds ar giving you money in the distant future that you can use to quit a job before the pensions are accessible 😉

I believe the advice Martin Lewis has somewhere here is half your age in % terms, including company contributions.
so if you are 36, get at least 18% stashed in there.  If the company match to 5%, always match that - so 10% in total - but at that age, aim to get another 8% (or more) in there💪

I wouldn’t focus on inflation at all, to be honest.   It will vary, and the recent horrendous period will *probably* be behind us for a few years🤷‍♂️

Oh, & also aim to live well: no point focussing on money at the expense of friendships & fun experiences 😉

I hope you are right, however the current situation in Isreal is a worry.  Pension pots have already started dipping for me personally, and i imagine for most others.

Note : I realise this is inconsequential compared to the issues in Gaza, but it is a financial / pensions forum.

I'm not actually sure that it's the situation in Israel that is the biggest driver.  It's a part of it, but I think the bigger issue is that markets are correcting because they realised that the prospect of interest rate cuts in the US has receded - a week ago they were predicting 6 rate cuts in 2024, now it's max 2 and not before September.

michaels

Pat38493 said:

Brenster said:

cfw1994 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

Not sure I ever thought in that much my 30s (now approaching 60!), but one piece of advice I would have given my younger self would be to put as much away as comfortably possible the pension…and also some into an ISA - the ISA funds ar giving you money in the distant future that you can use to quit a job before the pensions are accessible 😉

I believe the advice Martin Lewis has somewhere here is half your age in % terms, including company contributions.
so if you are 36, get at least 18% stashed in there.  If the company match to 5%, always match that - so 10% in total - but at that age, aim to get another 8% (or more) in there💪

I wouldn’t focus on inflation at all, to be honest.   It will vary, and the recent horrendous period will *probably* be behind us for a few years🤷‍♂️

Oh, & also aim to live well: no point focussing on money at the expense of friendships & fun experiences 😉

I hope you are right, however the current situation in Isreal is a worry.  Pension pots have already started dipping for me personally, and i imagine for most others.

Note : I realise this is inconsequential compared to the issues in Gaza, but it is a financial / pensions forum.

I'm not actually sure that it's the situation in Israel that is the biggest driver.  It's a part of it, but I think the bigger issue is that markets are correcting because they realised that the prospect of interest rate cuts in the US has receded - a week ago they were predicting 6 rate cuts in 2024, now it's max 2 and not before September.

I guess is if the driver is a stronger economy then that is not so bad for shares, if it is higher inflation driven by oil prices then not so much....

DT2001

Brenster said:

cfw1994 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

Not sure I ever thought in that much my 30s (now approaching 60!), but one piece of advice I would have given my younger self would be to put as much away as comfortably possible the pension…and also some into an ISA - the ISA funds ar giving you money in the distant future that you can use to quit a job before the pensions are accessible 😉

I believe the advice Martin Lewis has somewhere here is half your age in % terms, including company contributions.
so if you are 36, get at least 18% stashed in there.  If the company match to 5%, always match that - so 10% in total - but at that age, aim to get another 8% (or more) in there💪

I wouldn’t focus on inflation at all, to be honest.   It will vary, and the recent horrendous period will *probably* be behind us for a few years🤷‍♂️

Oh, & also aim to live well: no point focussing on money at the expense of friendships & fun experiences 😉

I hope you are right, however the current situation in Isreal is a worry.  Pension pots have already started dipping for me personally, and i imagine for most others.

Note : I realise this is inconsequential compared to the issues in Gaza, but it is a financial / pensions forum.

There are always things to worry about when investing however most are built into the market as they are known factors.
My pension has dropped 2% in the last week. It is not aggressively positioned as I could potentially retire anytime soon so as I think you are 20 years younger you could be, on paper, suffering a bigger loss. I have been saving for 40 years and my wealth has increased but not without setbacks or steadily.
Personally I have looked at what it cost me to fund my investments (my SIPP was primarily funded by a payment on the sale of a business so the ‘cost’ to me was about 50%) so I feel I was winning from day 1. Then I look at recent performance - my pension is 9% up in the last 6 months even after dropping back. If that is not a comfort I can see over the last 7/8 years the return has been ahead of inflation - better than putting cash into savings accounts. I had a ‘back of fag packet’ plan some years ago and know that I have achieved that. Circumstances have meant we are in a much better position now but if the original plan was good enough to enjoy retirement…….

kinger101

Sea_Shell said:

SouthCoastBoy said:

I use 2.5% inflation, next 4 years are currently set to 4% inflation, 1% for cash returns, changed cash to 4% return for next two years and 3.5% for investment returns. I have a spreadsheet taking me up to 100, one row for each year and adjust as necessary 

We are all destined to run out of rows!! 

I have a similar spreadsheet.

Hard to not see your remaining years as rows of financial data 😉🤣😲

I only have another 202 rows to go to state retirement age, but I'm hoping to be able to start using the drawdown columns 60 rows sooner if possible.

SouthCoastBoy

kinger101 said:

Sea_Shell said:

SouthCoastBoy said:

I use 2.5% inflation, next 4 years are currently set to 4% inflation, 1% for cash returns, changed cash to 4% return for next two years and 3.5% for investment returns. I have a spreadsheet taking me up to 100, one row for each year and adjust as necessary 

We are all destined to run out of rows!! 

I have a similar spreadsheet.

Hard to not see your remaining years as rows of financial data 😉🤣😲

I only have another 202 rows to go to state retirement age, but I'm hoping to be able to start using the drawdown columns 60 rows sooner if possible.

That's a lot of rows, I'm a one row per year person. Only 8 rows until SPA.