How much is enough?

mlv-1967

atush wrote: »

I would think quite the opposite, as such replies are only given to left leaning posts?

I respect other people's opinions even though they may not agree with me. Please respect mine. Thank you.

mlv-1967

dunroving wrote: »

(18 years x .34 x £61k) + £300k = £673k by my calculations, even with no growth (or assuming growth only matches inflation). Where do you get £500k from?

I got around £500k by playing with the Hargreaves Lansdown forecast calculator.

mlv-1967

Linton wrote: »

You are investing just over £20K per year. Assume an investment return of 3% above inflation which isnt wildly ambitious and assume that your salary and contribution increase with inflation by 65 your pot should be worth £1M in todays terms. You should be able to withdraw 4% = £40K gross broadly inflation matching per year without a serious risk of running out of money before you die.

And the risk of a stock market crash? It happened in 1987 and many gurus are predicting dire trouble, especially if there is more trouble in the middle east or China and Russia misbehave. The world is an unpredictable place.

saver861

mlv-1967 wrote: »

Anyway I'm happy to work until age 65 as I like my job and enjoy the buzz of management.

Good on ya bro .... do come back when you are 64 and tell us you are still buzzing ....

Well you are a busy little bee .... joined today and 38 posts and counting .... hmmm .... now what could possibly be wrong here ....

jamesd

mlv-1967 wrote: »

I got around £500k by playing with the Hargreaves Lansdown forecast calculator.

The HL calculator uses assumptions which are significantly worse than historical growth rates:

5% growth with 2.5% inflation default. Real 2.5% growth.
8% growth with 4.5% inflation. Real 3.5% growth.
2% growth with 0.5% inflation. Real 1.5% growth.

The actual historic growth of the UK market over the last hudred plus years has been 5% after inflation. The result is that HL will tell you that you need to pay in more than you probably need to, hence increasing their profits which are based on the total amount of money that you have with them.

They probably also assume something like 1.5% for charges, I use a bit over 0.5% because I think that's achievable.

For income they assume an inflation-linked annuity will be used, those currently pay something like 2.5% of the capital value as income vs 4% as the common drawdown assumption and more like 5-6% that well managed drawdown might reasonably pay, both drawdown ones increasing with inflation.

jamesd

mlv-1967 wrote: »

Ok, so as you appear to be very good with figures

Just takes knowing how to do the calculations, I'll explain as I go now I have more time.

mlv-1967 wrote: »

I am now 47 with a current pension fund of £300k. I'm investing 22% of my income (£61k a year) with my employer contributing 12%, making a total of 34% of salary (a lot in my view). Assuming a retirement age of 65, how much do you think I can expect to receive as a private pension? I estimate a fund of around £500k in today's money, generating perhaps £18-20k a year income. Is that a fair assumption?

Existing pot first. To calculate the value at 65 open Windows calculator and ensure it's in scientific mode using View/Scientific. You want to be able to see the button x superscript y (x ^ y meaning x raised to the power of y) just to the right of cos. To calculate the future value type 300000 x 1.045 x^y button 18 = and the answer is 662543 and some pence. That's in today's money because I used the after inflation growth rate for the UK stock market and assumed a bit over 0l.5% for charges of all sorts.

Now your regular contributions, using a regular savings calculator. Monthly contribution is 0.34 x 61000 / 12 = £1,728. Put that as the monthly payment, 18 as the duration and 4.5 as the interest rate and the future value assuming you increase this with inflation each year is £573,467 in today's money.

That gives a total pension pot value at age 65 of £662,453 + £573,467 = £1,235,920. Multiply that by 0.04 for the 4% income assumption and it's a gross income of £49,436. Add 8k state pension and that takes you to £57,436 a year of gross income. Since you don't have NI to pay on this and you could move much into S&S ISA over time the result is that at age 65 you'd have a sustainable income level that after tax is above your current one even before allowing for your pension contributions and possible mortgage costs.

It is prudent to allow a safety margin of 50-100% for investing, though, so that's not an unreasonable excess.

Could you retire now if you had access to the pension money? Not really. The safe withdrawing rate goes down with age and I'll assume 3.5% at your age, it's perhaps 3% instead. 3.5% would be a sustainable income of only £10,500 for life. However, you don't need that for life, just until the state pension starts, so you could actually draw more until then, keeping some back to top up the state pension. Even so, you wouldn't meet your desired income target today.

gallygirl

jamesd wrote: »

Existing pot first. To calculate the value at 65 open Windows calculator and ensure it's in scientific mode using View/Scientific. You want to be able to see the button x superscript y (x ^ y meaning x raised to the power of y) just to the right of cos. To calculate the future value type 300000 x 1.045 x^y button 18 = and the answer is 662543 and some pence. That's in today's money because I used the after inflation growth rate for the UK stock market and assumed a bit over 0l.5% for charges of all sorts.

Slow down I'm trying to keep up here :rotfl:. So 1.045 is the calc giving 5% growth less 0.5% charges so if I wanted to be cautious and use 3.5% & 0.5% charges it would be 1.03? and the 18 is number of years.

Edit: Yup, managed to reperform

jamesd

Correct. Though my personal preference is to use more historic growth rates and then an explicit safety margin added later because that also encourages thinking about ranges of acceptable incomes and the need to deal with investment variability.

dunroving

mlv-1967 wrote: »

I got around £500k by playing with the Hargreaves Lansdown forecast calculator.

That's the trouble with putting your faith in black box calculators. My (very) basic mental arithmetic clearly shows that £500k was a mammoth underestimate, even before modelling for growth!

dating_thoughts

bigfreddiel wrote: »

Often quoted is that a couple needs £15k household income for a comfortable retirement. Is that your experience?

fj

I think it's important to know when you're going to retire. This is because inflation is very important to consider. Although £15,000 may be okay in today's money it may not be enough when you plan to retire. For example if you were to retire in 25 years I believe the average salary may be about £85,000. This originates from if the average salary today is about £20,000 at 3% inflation year this would be £80,000 for the next 25 years. And salary rises are roughly in line with inflation rises over the long-term.