Is this calculator right?

jumperabv3

LXdaddy wrote: »

Firsty congratulations on thinking seriously about your pension at age 29. Far too many people don't think about it until much later in their working life.

I'm only going to talk about your investment strategy. Between now and your desired retirement age you have 26 years. If you add to your current pot of £6,000 at the rate of £300 (gross) per month you would get to contributions of £99,600. You will throw in some additional contributions you say and might get to a pot of £120,000 if things go well for you - that's not unreasonable.

You view the additional 25% that you get as tax relief as being your "interest". For the £100 you earn you pay the governemnt £20 in tax (assuming basic rate for a moment) you put £80 into the pension pot and the government adds £20 to it. You are viewing the £20 as an additional 25% added to your £80. Others describe it as 20% of the £100 that ends up in your pot.

But you have this in a Deposit account earning virtually zero interest. The basic theory of saving for your pension is that early in your savings time you need to be looking for larger returns which means a level of risk but you have time to recover from adverse swings; later in your career as you approach retirement you need to switch the strategy so taht you have less risk and accept lower returns. This is often called a "Lifestyle strategy". The early years could be a balance like 80% equities and 20% bonds; later moving towards 50% equities and 50% bonds and in the last year of so moving more to 20% equities, 30% bonds, 50% cash (deposits).

My company pension (defined contribution style) and AVCs were originally in a balance of equities and bonds but a few years ago I switched to a lifestyle fund where the fund operator changes the balance automatically each year as I approach my desired retirement age (I gave that to the scheme operator). So I don't do anything myself they do the maths of rebalancing.

The error in your choice of Deposit fund at 26 years away from retirement is that you are going to miss out on the potential growth over the next 20 odd years. And worse, in that time inflation is going to erode that value of the money in your pot.

If inflation is ONLY 1% higher than the return in your deposit fund the £120,000 will be worth less than £93,000 in today's values. If as is more likely inflation is 2.5% higher than the returns you will get on your deposits your £120,000 will have the buying power of only £63,000 in today's money.

You should change the fund that you are using. I am sure that Aviva will have more appropriate funds available for you.

Thank you so much for the detailed response. :T
It's so nice to see that someone actually reads your post and understand you completely in 100%.

Yes, Aviva has other schemes ... in fact I see they have personal pension scheme if you deposit £10,000 with them:

http://www.aviva.co.uk/personal-pension/is-personal-pension-right-for-you.html

Can I ask if I get to £10,000 with the pension pot, would I be allowed to "transfer" it to a personal scheme, or they want me to deposit freshly new funds i.e. the current pot is not eligible to be transferred to a personal scheme?

FatherAbraham

jamesd wrote: »

Your claims appear to be completely ignoring the simple fact that since April 2006 people are no longer forced to buy an annuity ...

That would be because compulsion to buy annuities has no bearing whatsoever on the "claims" I was making, which related to advancing or deferring the purchase of annuities, and the effect on cumulative income level.

So, your observation, while true, is somewhat pointless.

Warmest regards,
FA

FatherAbraham

jamesd wrote: »

At all ages, though, there will be some people who simply have low risk tolerance or low interest in learning or paying experts and will not want to invest or accept much chance of income variation but will choose cash savings followed by annuity purchase to get that low variability result.

That's a terrible strategy, James, and fairly high risk. If the intention is to buy an annuity, then an accumulation phase investing in long-dated gilts is far more appropriate than holding cash, since there's a high level of correlation between the value of such securities and the cost of annuities.

Warmest regards,
FA

atush

ffacoffipawb wrote: »

That is a cash-type fund so it's as near cash as you can get. The clue is in the name 'Deposit'.

Which is why I called it cash.:eek:

atush

jumperabv3 wrote: »

Thank you so much for the detailed response. :T
It's so nice to see that someone actually reads your post and understand you completely in 100%.

Yes, Aviva has other schemes ... in fact I see they have personal pension scheme if you deposit £10,000 with them:

http://www.aviva.co.uk/personal-pension/is-personal-pension-right-for-you.html

Can I ask if I get to £10,000 with the pension pot, would I be allowed to "transfer" it to a personal scheme, or they want me to deposit freshly new funds i.e. the current pot is not eligible to be transferred to a personal scheme?

You realize you can have a pension and pay in each month rather than lump sums? This is called drip feeding and uses pound cost averaging. AS a nervous investor this reduces volatility so should calm your nerves with investing.

somethingcorporate

IF you pay tax when you retire that uplift you receive initially is then taxed when the pension is paid to you so it not the magic amount of money you are probably hoping for.

As per everyone elses advice you are young enough to ride the waves of investment for a few decades yet otherwise you'll wonder where all your money went as 30 years of inflation eats away at it.

atush

jumperabv3 wrote: »

Thank you for your comments.
My intentions are of course to raise the deposited amount so it won't remain £300 gross per month for the rest of my life ... in fact I hope to start raising it to £360 soon, and hopefully after a year or two get to £400 - £500 per month.

However I always like to consider the worst case scenario, where I'm financially down and can only afford to set aside £300 or maybe even less god forbid.

I'm not too sure what's the difference between doing that and/or risking the funds through riskier products?

Markets go up, markets go down. Shares go up, shares go down. Funds go up and funds go down.


However, every so many months, they pay an income which you reinvest (compounded investment returns) and every month you put in money, you buy x units.


But if prices go down that is actually GOOD for you not bad, esp in the first 20-30 years. AS if the markets drop 20%, you get x+ 20% units for the same money. And eventually when markets go back up as they always do, you then have more units than if the price remained the same (pound cost averaging).


In general you invest in funds, not shares. And some funds invest all over the globe, so you aren't bashed so hard if one market drops (like ours might with Scottish independence as markets don't like uncertainty). And some funds invest in shares plus other assets like property, bonds etc. which is Diversification.


So look up the terms I mentioned and see if you get the gist. If not, come back.

jumperabv3

atush wrote: »

Markets go up, markets go down. Shares go up, shares go down. Funds go up and funds go down.


However, every so many months, they pay an income which you reinvest (compounded investment returns) and every month you put in money, you buy x units.


But if prices go down that is actually GOOD for you not bad, esp in the first 20-30 years. AS if the markets drop 20%, you get x+ 20% units for the same money. And eventually when markets go back up as they always do, you then have more units than if the price remained the same (pound cost averaging).


In general you invest in funds, not shares. And some funds invest all over the globe, so you aren't bashed so hard if one market drops (like ours might with Scottish independence as markets don't like uncertainty). And some funds invest in shares plus other assets like property, bonds etc. which is Diversification.


So look up the terms I mentioned and see if you get the gist. If not, come back.

I totally understand, it sounds reasonable, but how do you buy all these funds you're talking about? I don't have the ability to do so myself..

atush

then you hire someone who is a professional called an IFA (independent financial adviser). the emphasis on the I.

Or you read up on investing, building a balanced portfolio, passive investing,pound cost averaging etc and DIY using a low cost pension platform.

jumperabv3

atush wrote: »

then you hire someone who is a professional called an IFA (independent financial adviser). the emphasis on the I.

Or you read up on investing, building a balanced portfolio, passive investing,pound cost averaging etc and DIY using a low cost pension platform.

Are you an IFA?