Is the stock market over heating?

talexuser

gadgetmind wrote: »

how some active fund companies show their "outperformance". They find the tracker with the highest fees and worst tracking error, and then compare against which of their many funds managed to beat it over a carefully selected period.

Wise words!

JoeCrystal

Glen_Clark wrote: »

If I'm reading it right, to retire at 60 with the UK average wage (£27k) index linked would cost a million pounds.
Scary isn't it.:eek:

Yes but you still need to bear in mind the length of time it takes before you actually retire. The annuity rate for the current year is not likely to be useful in three decades! Unless it is to work out the worst possible annuity rate and use that for the forecast but that's likely to be very expensive overall.

Cheers,
Joe

Glastoun

Glen_Clark wrote: »

If I'm reading it right, to retire at 60 with the UK average wage (£27k) index linked would cost a million pounds.
Scary isn't it.:eek:

Who the hell needs a pension of £27k? What would you spend it on? (genuine question)

cepheus

Glastoun wrote: »

Who the hell needs a pension of £27k? What would you spend it on? (genuine question)

I guess you could blow this on private healthcare, holidays, home improvements and being ripped of by tradesmen quite easily. You should get the state pension of around 7k as well though.

grey_gym_sock

you wouldn't be well-advised to buy an annuity at 2.7% with a large pension fund. use drawdown, and you could sensibly reckon on taking perhaps 4% income.

if you have £7k state pension, you'd only need a £500k pension fund to generate the other £20k income.

with that, you'd actually be a bit better off than somebody earning £27k, since:

(a) you wouldn't pay employee NI, saving c. £2.5k per year

(b) you'd actually take £125k out of the pension as a lump sump, and invest it outside, and that part of your income (£5k) wouldn't incur income tax, since dividends don't incur tax in the basic rate band, and you could gradually feed the capital into S&S ISAs anyway (starting with investments in bonds or REITs, where there is a tax saving) ... so that's £1k income tax saved.

so your £500k pension makes you £3.5k per year better off than somebody on a salary of £27k. so actually, a pension fund of only £400k would give you a similar income to a £27k salary.

if you're used to living on a £27k salary, out of which you're been making mortgage payments, and your mortgage will be paid off by the time you've retired, then surely you'll need a lot less than £400k.

obviously, many ppl are used to living off a lot more or less than £27k, and will therefore "need" a larger or smaller pension fund.

the only sure way to make saving for retirement easier is to save a very high proportion of your earnings. since that both increases what you can save, and decreases what you will "need" in retirement.

srcandas

grey_gym_sock wrote: »

the only sure way to make saving for retirement easier is to save a very high proportion of your earnings. since that both increases what you can save, and decreases what you will "need" in retirement.

Just one possible scenario of many ::: remember to budget for depression treatments as you realise you haven't done those things that now health, despite your wealth, stops you doing

grey_gym_sock

srcandas wrote: »

Just one possible scenario of many ::: remember to budget for depression treatments as you realise you haven't done those things that now health, despite your wealth, stops you doing

the idea that spending more money makes you happier is a popular myth. i don't mean you should always spend as little as possible. some things are worth spending on.

the mistakes ppl make are often to do with spending on something automatically, because everybody else does the same. this can be "keeping up with the jones". or it can just be unthinking.

it pays to be aware of how much your spending habits are costing you. how much will it cost if i keep doing this for the next 10 years? and then ask youself: how much benefit does it give me? answering this may require actually trying the alternatives which you've only assumed are out of the question.

i certainly don't mean you shouldn't follow you dreams.

Glen_Clark

grey_gym_sock wrote: »

you wouldn't be well-advised to buy an annuity at 2.7% with a large pension fund. use drawdown, and you could sensibly reckon on taking perhaps 4% income.

if you have £7k state pension, you'd only need a £500k pension fund to generate the other £20k income.

with that, you'd actually be a bit better off than somebody earning £27k, since:

(a) you wouldn't pay employee NI, saving c. £2.5k per year

(b) you'd actually take £125k out of the pension as a lump sump, and invest it outside, and that part of your income (£5k) wouldn't incur income tax, since dividends don't incur tax in the basic rate band, and you could gradually feed the capital into S&S ISAs anyway (starting with investments in bonds or REITs, where there is a tax saving) ... so that's £1k income tax saved.

so your £500k pension makes you £3.5k per year better off than somebody on a salary of £27k. so actually, a pension fund of only £400k would give you a similar income to a £27k salary.

if you're used to living on a £27k salary, out of which you're been making mortgage payments, and your mortgage will be paid off by the time you've retired, then surely you'll need a lot less than £400k.

obviously, many ppl are used to living off a lot more or less than £27k, and will therefore "need" a larger or smaller pension fund.

the only sure way to make saving for retirement easier is to save a very high proportion of your earnings. since that both increases what you can save, and decreases what you will "need" in retirement.

that doesn't guarantee the average salary (£27k) index linked for the rest of your life (like a public sector pension) does it?

gadgetmind

Glastoun wrote: »

Who the hell needs a pension of £27k? What would you spend it on? (genuine question)

I'd spend it on half of our current outgoings and then have a bit of a problem with the rest.

Yes, we could live on £27k pa but choose not to. We like scuba diving holidays, decent cars, a nice house, good food and drink, and much more. If this means we have to make work/life sacrifices before retirement, then so be it.

grey_gym_sock

Glen_Clark wrote: »

that doesn't guarantee the average salary (£27k) index linked for the rest of your life (like a public sector pension) does it?

no, it doesn't. so if given the choice of a £400k pension fund or a £17.5k* guaranteed index-linked pension, the guaranteed pension is probably the better option.

the £400k fund might do better, but it's riskier. the 4% withdrawal rate i assumed is fairly cautious, when you allow that, if you end up depleting the real value of your remaining pension fund, you have the option of buying an annuity later on, when your actuarial life expectancy is low enough that you can get better rates.

final salary pensions are great if you can get them (and they're not only in the public sector). but the best thing you can do if you can't get them is not usually to buy something strictly equivalent. if you insist on doing that, you make retirement provision more difficult than it has to be.

*£17.5k guaranteed pension, because after adding on £7k state pension, and again with £2.5k NI saved compared to a salary, that's about equivalent to a £27k salary.