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Pensions Planning: The NUMBER
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MoneySavingExpert
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For my own calcs I use 2.5% annual.
I find this future inflation calculator useful:
http://www.buyupside.com/calculators/inflationjan08.htm
For the ISAs this would equate to a fund size of circa £370k when I retire which out of the plan is going to be the hardest part I think.
Thanks...
You certainly have a good spread of both income sources and expectations...so you are prepared for a worst case situation (I agree with your fairly cautious view on %returns)
> Is your pension pot invested in cautious funds?
> Similar for ISA's ...7% seems a good return...
> What value of properties are needed to yield £15k?
(I might get into this myself!)
> I have included Govt pension income in my forecasts...GULP!!
I agree that in the current market 7% would be unlikely but I have got to hope that by the time I retire things would have returned to more historical levels.
Regards the investment properties this is probably/hopefully quite conservative. Currently I have a single investment property that I pay on a repayment mortgage that will be cleared by retirement. So ignoring the capital value of circa £170k in todays money the current rental is £9000 pa. I intend to purchase another couple of properties over the next 2 years and also have these on a repayment mortgage. (I am aware that many would see this as a very conservative way of doing it but it is what I am comfortable with).
You mentioned 'worst case situations' that might arise - please could you expand on this? I am keen to try and build some stress test in to the retirment plan.
Can you explain why you wouldnt?
This is well worth doing - and helps you to understand where the week points could be. Once all on a spreadsheet, I spent hours changing one variable at a time, seeing what effect that had on when I run out of money!
Inflation is a potential large issue if it gets to something like 1970's proportions (up to 27%). But provided it stays reasonable, and that interest rates/Equity income move up to match, then I found the variations tenable.
Actually, in my case, spending was the biggest factor. This is not surprising perhaps, since my retirement model is basically aimed at recording my entire income stream, and trying to spend it before we die! After 5 years, I have learned that I can live more than comfortably with the amount I assumed and provided for. [In fact I have squirrelled away over £75K of 'excess' income and lower spending.]
I built in a factor for "spending fade". I could feed in an age (say 75) after which my spending would rise by inflation, but fall by a factor of, say, 1% a year. Even that had quite a large impact on the final figures.
One 'killer' could be the need for long term care. In my own assumptions, the house value would provide a backbone for this cost. But actually a lot of the cost can be 'paid for' by making other reasonable assumptions. For example, if either of us were in care, we would not be jaunting lavishly through Europe for 2 months a year, or having other holidays. We would not be running two good cars, and a lot of 'luxury' expenditure would probably go.
There is no solid reason to not include it other than a fear that the governments habit of raiding pensions and in particular the State Pension will continue.
If it does one area that may get hit is the universality of the State Pension for those that have worked. It may become means tested and people who have another income source may be hit.
Politically very difficult to imagine however I have many years until retirement and so is more likely for me than perhaps for others who may be in their late 40s or 50s.
no offence Rainmaker but thats why I asked Gatser the question.
That's only 5.3%
What about repair costs?
That does not seem a great return on investment, but perhaps I am missing something?
I think I would want around 7%+ .... with any property value increase as cream on the cake...:T
If one was cautious and/or mistrusting of future governments management of State pensions and the means by which they will be funded.
I HAVE included some State pension... that's why I added the nervous <GULP>.... just incase I've got it all wrong.;)