contributions and pot required to retire at 55 with stable income

marathonic

FatherAbraham wrote: »

It would be more prudent to adjust the 1% real return on the invested lump sum to be 0%.

That's possible, but it won't make TOO much of a difference to the figures given it's only 1% over a 15 year timeframe and only applied to the 25% lump sum.

FatherAbraham wrote: »

It would be sensible to reduce the 3% investment return on the pension fund to be 2.5%, in line with the FCA guidance on pension projections

This would make more of a difference given it's over 35 years and applied to the entire pension fund. Personally, I think the guidance is too low. I'm happy using a higher rate and the margin of error can be handled by pushing the age of retirement out from 55. I don't want to sacrifice TOO much now by using overly pessimistic figures in my assumptions.

FatherAbraham wrote: »

Finally, the state pension is more like an index-linked annuity than draw-down. Rather than using 3.3% drawdown, I think you should use a rate of 2.4%, based on the information for a single-life index-linked annuity for a 55-year-old

Again, this is a totally valid point depending on what assumptions the person wants to use within their retirement plans. Personally, I see plenty of companies that have been known to increase dividends by an amount in excess of inflation for multiple decades. A lot of these are relatively stable companies and it should be relatively easy to build up a portfolio with an average yield of 3.3% from them.

I don't like the idea of drawing down on capital but using dividends like this for income should be sustainable, regardless of the time spent in retirement.

gadgetmind

bigadaj wrote: »

Trying to accrue enough to live on in barely thirty working years for many people nowadays to sustain them for a similar to longer period.

Closer to 35 years, surely?

bigadaj

gadgetmind wrote: »

Closer to 35 years, surely?

Probably not. A combination of not far off half of all people doing degrees, many of those people then going onto postgraduate studies, problems in getting an initial job and the fact that many will suffer periods of unemployment, career change, sickness, caring responsibilities etc

Of course you will have people who leave school at 18, or possibly younger I'm unsure of educational restrictions, and then having continuous work for thirty, forty or more years, but many people's working lives will be shorter and more disjointed.

My point is should you lead your life undertaking something that people dislike to the extent that they want to finish doing it when they are relatively young. Surely it's better to find something you like doing and carry on as long as you want, or undertake the opportunity to try different things.

Having the ability to retire when you want is great, but from middle age I certainly don't regret job hopping in my twenties, taking time out and travelling, it's always a better experience when youre younger than older in my opinion.

gadgetmind

Most people finish degrees at 21 and then only a small percentage continue their studies.

As for finding a job, I've never had to do that as I create jobs for myself (and others) but it's really not hard if you have the right degree.

However, I do take the point that not everyone will have 35 years under their belts by just after age 55.

FatherAbraham

marathonic wrote: »

This would make more of a difference given it's over 35 years and applied to the entire pension fund. Personally, I think the guidance is too low. I'm happy using a higher rate and the margin of error can be handled by pushing the age of retirement out from 55. I don't want to sacrifice TOO much now by using overly pessimistic figures in my assumptions.

I think you've certainly hit the nail on the head. The real problem in pension planning is that being prudent means taking a massive loss of lifestyle today.

Working an extra year or two makes a massive difference to the income in retirement -- not so much because of the extra year of contribs and investment growth, but because of the giving up of a year or two of income distribution from the retirement fund.

Of course, there's no free lunch. The year we postpone our retirement will be the best year of retirement, when we were youngest, fittest, strongest and healthiest.

Nevertheless, building in contingencies against every bad outcome is astoundingly expensive. It's difficult to know whom to short-change -- current self or future self? For certain, there's not really enough money to go round for most of us.

Warmest regards,
FA

bigadaj

gadgetmind wrote: »

Most people finish degrees at 21 and then only a small percentage continue their studies.

As for finding a job, I've never had to do that as I create jobs for myself (and others) but it's really not hard if you have the right degree.

However, I do take the point that not everyone will have 35 years under their belts by just after age 55.

I don't disagree but I wonder if what you say is a true reflection of the world as it currently is, things have changed a lot.

The average age for people completing a degree is now probably between twenty two or twenty three, excluding mature students. This is down to the prevalence of gap years and or resits before entry, but also because of the uk higher education system trying to become more similar to the rest of the eu, where four year courses are the norm. You find this when trying to convert from a ceng in the uk to the eur ing qualification, as they want in uk terms an msc rather than a bsc/ beng. Many people have the drive to succeed and generate work but to many it is an alien concept.

Were all aware of supply and demand on any system, and the dramatic expansion of higher education hasn't been matched by the expansion of graduate and professional jobs, whether including media studies type courses or not. If you're a stem graduate from a lowly ranked university you're going to find it difficult to gain employment at a reasonable level. This has had a consequent effect on the expansion of postgraduate courses, as what used to be a degree level job now becomes a masters or doctorate level, with people then not becoming employed until their mid or late twenties.

Once these people start work there are student loan repayments to be made, house deposits to be saved and mortgages to be paid. Then kids, so it's a good effort to be at retirement by 55, not including the 25k wedding!

gadgetmind

FatherAbraham wrote: »

I think you've certainly hit the nail on the head. The real problem in pension planning is that being prudent means taking a massive loss of lifestyle today.

Yes, but even a squirrel has the smarts to bury some nuts for later rather than scoff the lot today.

If a squirrel can do it, why can't "higher" lifeforms?

bigadaj

gadgetmind wrote: »

Yes, but even a squirrel has the smarts to bury some nuts for later rather than scoff the lot today.

If a squirrel can do it, why can't "higher" lifeforms?

Well people are logical and act to stimuli, everything is a carrot or stick. For many people there is little spare income, and if you own below average wage it's questionable whether it's worthwhile to save, when you look at means tested benefits, housing benefit and the like. This also applies at retirement as professional advice to many people is not to save for retirement as they would simply be missing out on means tested benefits.

It's all very well saying this shouldn't be allowed, isn't sustainable and people should take responsibility but it's not a sensible approach for people to do that.

Things are changing, which is why people feel much poorer than a few years ago, and I'm surprised more hasn't been done to knock back benefits and tax breaks on the better off. In particular pension provision for the high earners within the oublic sector is very generous, though constrained in tax terms by the lifetime limit.

atush

Well people are logical and act to stimuli, everything is a carrot or stick.

The problem is there it too much carrot (benefits from pension credit to help with council tax etc)

and not enough stick (ie no one is scared they will be on the street).

gadgetmind

bigadaj wrote: »

if you own below average wage it's questionable whether it's worthwhile to save, when you look at means tested benefits, housing benefit and the like.

Own? Earn?

Either way, it's always better to be salting something away for a rainy day.

professional advice to many people is not to save for retirement as they would simply be missing out on means tested benefits.

Rubbish. Means testing in retirement is being phased out such that making your own provision is of far more value.

And who the hell wants to be dependent on hand outs at any stage. Come on guys, man up and be self reliant!

it's not a sensible approach for people to do that.

Yes it is.

I'm surprised more hasn't been done to knock back benefits and tax breaks on the better off.

Hard workers don't receive benefits and tax breaks (including private pensions, where you create your own retirement pot) have been under attack for many years.