Must I stay or can I go

bigchipper

SliAbhaile wrote: »

I couldn't agree more. Not only will the costs associated with getting to work disappear but you will discover you don't need to 'reward' yourself with little gifts "Oh, it's been a hard day I'll treat myself to a new ....whatever". It's amazing how your expenditure falls when you are not in the rat race.

Life isn't a dress-rehersal, we are only here once, and if you are miserable in your job you are already rushing towards an early grave. Get out, take time to take stock and you might find you want to do other work later.

I left full time employment in my early forties, I was lucky enough to build up a good lump sum. At the time I swore I would never work in my industry again. I have nothing like your pensions to look forward to but by careful expenditure and careful investment my lump sum is sustaining my lifestyle. I find now, ten years later, I've started dabbling in my old career again on a free-lance basis. I only take the jobs I want and I'm enjoying it.

A lot more possibilities will present themselves once you are out of the grind.

Thanks, this is encouraging .

Rollinghome

bigchipper wrote: »

Quote:
"You can work on a sustainable income of around 4-5% pa from a lump sum and this should rise roughly with inflation."

Is this net or gross?

You might also want to ask whether it's before or after costs, which are likely to be 2% or more in collective investments, with what level of risk, and over what time frame.

In fact, as a prediction, it barely matters because although it's a figure you'll often seen bandied about on internet forums, unless you believe the guru making the statement has a better crystal ball than yours, it's largely meaningless.

When responsible financial planners use similar and other figures they are not intended to be predictions. They are simply figures used to show what your position would be if those returns were achieved.

The actual returns might be better, zero, or there could be a significant loss and plans would need to be adjusted accordingly.

If you look probe a little deeper you'll often find that people who give such figures as predictions will often have put as much as they could into the last NS&I index-linked bonds paying them inflation plus 0.5% for the next five years.

Asked why, they'll tell you it's for diversification to reduce risk: i.e. to reduce the risk that the return they apparently so confidently predict was unrealistic and will in reality be less than the 0.5% return on NS&I I/L.

So by all means use such figures as guestimates for your calculations, but please don't rely on them as predictions.

You should also be aware that the FSA now wants those using figures for projections to use lower figures that are more realistic given the economic outlook than those previously used. See http://www.moneymarketing.co.uk/pensions/fsa-confirms-plans-to-cut-projection-rates/1052336.article

bigchipper

Rollinghome wrote: »

You might also want to ask whether it's before or after costs, which are likely to be 2% or more in collective investments, with what level of risk, and over what time frame.

In fact, as a prediction, it barely matters because although it's a figure you'll often seen bandied about on internet forums, unless you believe the guru making the statement has a better crystal ball than yours, it's largely meaningless.

When responsible financial planners use similar and other figures they are not intended to be predictions. They are simply figures used to show what your position would be if those returns were achieved.

The actual returns might be better, zero, or there could be a significant loss and plans would need to be adjusted accordingly.

If you look probe a little deeper you'll often find that people who give such figures as predictions will often have put as much as they could into the last NS&I index-linked bonds paying them inflation plus 0.5% for the next five years.

Asked why, they'll tell you it's for diversification to reduce risk: i.e. to reduce the risk that the return they apparently so confidently predict was unrealistic and will in reality be less than the 0.5% return on NS&I I/L.

So by all means use such figures as guestimates for your calculations, but please don't rely on them as predictions.

You should also be aware that the FSA now wants those using figures for projections to use lower figures that are more realistic given the economic outlook than those previously used. See http://www.moneymarketing.co.uk/pensions/fsa-confirms-plans-to-cut-projection-rates/1052336.article

Thanks, in a sock under the bed it is then!:)

I apprecate that there are no guarantees and to take any advice given with a large degree of caution, but 4-5% gross doesn't seem to me to be overly ambitious when, even with today's historically low interest rates, you can still get 3-3.5% gross by just leaving in a bank account for a fixed term.

gadgetmind

Rollinghome wrote: »

In fact, as a prediction, it barely matters because although it's a figure you'll often seen bandied about on internet forums, unless you believe the guru making the statement has a better crystal ball than yours, it's largely meaningless.

It's a figure based on backtesting "what if" models on over ten decades of data going back through quite a few "sticky patches". Of course, this time it really might be different, but it probably won't be.

Asked why, they'll tell you it's for diversification to reduce risk

Yes, diversity to allow rebalancing, and also to allow you to not sell equity investments at the bottom of the market. As Mr. Hale says, the simplest portfolio is one equity tracker and some NS&I bonds, and it's a combination that's actually very hard to beat.

to reduce the risk that the return they apparently so confidently predict was unrealistic and will in reality be less than the 0.5% return on NS&I I/L.

Only over the very short term.

gadgetmind

bigchipper wrote: »

even with today's historically low interest rates, you can still get 3-3.5% gross by just leaving in a bank account for a fixed term.

That figure from the bank account is *not* index linked whereas the 4-5% from investments very much is. Trying to live off cash savings, even if the interest rate is above inflation, is *very* difficult.

Of course, there are a lot of wrinkles to that 4-5%, and lots of strategies to give better results by tightening your belt over the short term.

I can recommend "Smarter Investing" by Tim Hale and also playing with firecalc.com if you want a better understanding.

Rollinghome

gadgetmind wrote: »

Of course, this time it really might be different, but it probably won't be.

Which of course brings it back to being no more than a guestimate masquerading as a "science" and no more credible than any other guestimates. .

Of course people find certainty more reassuring and even in its absence try to pretend it exists. But regrettably, we can't be certain of an afterlife and we can't be sure that the future will replicate the past.

In fact, if we rely on history to predict the future, we can see that history repeats itself only for selected relatively short periods and, at some point, there's always a major change of direction.

Or you can believe something more reassuring if you prefer.

gadgetmind wrote: »

As Mr. Hale says, the simplest portfolio is one equity tracker and some NS&I bonds, and it's a combination that's actually very hard to beat.

Which equity tracker would that be? As always, the period selected determines the outcome but for someone to rely on their returns for income they need them to be reasonably consistent over the period

The return for a FTSE all share tracker since 2000, assuming one with charges as low as are available today and including all dividends, after inflation, would have been around zero. Zilch.

The return on various issues of NS&I IL certificates would have been about 1% pa.

That would have given a total return somewhere between 0% and 1% depending on the balance.

If that's really "a combination that's actually very hard to beat" then how do we get from there to "a sustainable income of around 4-5% pa" after inflation without assuming regular wins on the lottery?

Rollinghome

bigchipper wrote: »

you can still get 3-3.5% gross by just leaving in a bank account for a fixed term.

For any figure to be useful you have to take into account inflation.

If you get 3% interest on savings but inflation is also 3% then your real return is 0%. Unfortunately, despite getting a real return of zero the government will still tax you so that for a basic rate payer the real return would be minus 0.6%.

N1AK

SliAbhaile wrote: »

I couldn't agree more. Not only will the costs associated with getting to work disappear but you will discover you don't need to 'reward' yourself with little gifts "Oh, it's been a hard day I'll treat myself to a new ....whatever". It's amazing how your expenditure falls when you are not in the rat race.

This is certainly true for many but not all. I find I spend less when I am busy with work/training etc than when things are quiet. Once you finish work you'll want to do things with the time freed up and many of those things may require considerable expenditure.

Based on your figures so far I think you are unlikely to be able to stop work now with the lifestyle you would desire. I think you need to consider very hard how you can minimise spending if you do take the retirement offer so you can ensure you don't weaken your position before entering you sixties.

gadgetmind

Rollinghome wrote: »

In fact, if we rely on history to predict the future, we can see that history repeats itself only for selected relatively short periods and, at some point, there's always a major change of direction.

Agreed. This is why you need a long term view and a diversified portfolio.

The return for a FTSE all share tracker since 2000, assuming one with charges as low as are available today and including all dividends, after inflation, would have been around zero. Zilch.

And this is why you need a long term view.

The return on various issues of NS&I IL certificates would have been about 1% pa.

And over other time periods, the equities would have trounced this.

This is why you need a long term view and a diversified portfolio.

You don't know what the future will bring so you put together a "portfolio for all seasons".

If we back-test such a diversified portfolio over every single 30 year periods over (from memory) the last 110 years we can see that a 4% pa drawdown is fairly low risk but anything over 5% starts getting dodgy.

Now try testing it with an all cash portfolio, even one that's index linked. What drawdown (index linked, natch) pa can you manage?

Guess what figure I have in my retirement projections for my annual income from my cash reserves? None, zero, ziltch, nada. My cash is *not* there to generate an income because it can't.

bigchipper

gadgetmind wrote: »

Agreed. This is why you need a long term view and a diversified portfolio.

And this is why you need a long term view.

And over other time periods, the equities would have trounced this.

This is why you need a long term view and a diversified portfolio.

You don't know what the future will bring so you put together a "portfolio for all seasons".

If we back-test such a diversified portfolio over every single 30 year periods over (from memory) the last 110 years we can see that a 4% pa drawdown is fairly low risk but anything over 5% starts getting dodgy.

Now try testing it with an all cash portfolio, even one that's index linked. What drawdown (index linked, natch) pa can you manage?

Guess what figure I have in my retirement projections for my annual income from my cash reserves? None, zero, ziltch, nada. My cash is *not* there to generate an income because it can't.

Thanks guys but I didnt want to start a fight!:)