customising pension plan funds

Linton

danlightbulb wrote: »

......
I have been playing about with some numbers.

Starting in 2015 with £40k in my pot and with 2045 as my retirement and assuming I pay in the same as I do now over that period. If I have an average 5% growth per year then I'll end up with a pot of about £375k. If I then switch to safe funds (1% growth) and draw it down at £20k per year it will last me 20 years before the money is all gone.

If however I can grow at 10% per year until retirement, then my pot ends up at £1.2 million when I'm 65. Wow, big difference. I could draw that down at 20k a year at 1% growth and still have over a million left by the time I'm 85 to hand over to the kids.

So what average growth is realistic and how do I invest to get closer to 10% growth than to 5%?

Alanps's description of his approach based on Excel spreadsheets, with presumably one column or line per year, is very similar to mine,

Some comments on your numbers...

When I planned my early retirement which started 10 years ago I assumed 3% inflation and 4% return (1% more than inflation).. Despite an intervening credit crunch both have proved to be very pessimistic. The actual return is nearer 6% and inflation has averaged around 2.2%. During retirement most of your investments should continue to be in equity so there is no reason to drastically cut the return.

Drawing down an initial 5%/year is a little high if you aim to increase your income with inflation. Have a play with firecalc. It is US based but gives a good picture of what sort of drawdowns are sustainable. That suggests 3.5% or 4% is a better assumption.

Basing your plans on death at 85 is foolish unless you have a history of poor health. Current ONS life data suggests your life expectancy is around 90. You dont want to plan on that as it would give a 50% chance of you living too long, so I would suggest you use a figure nearer 99 which gives a 20% chance of living too long. Though I havent considered your wife who if she is the same age of you can be expected to live on average until she is 93.

danlightbulb

85 was just plucked out the air to start with. I do plan on beating this lol!. But what i found by looking at the numbers is that once a certain size of pot is achieved, drawing it down is outweighed by the growth. That seems like the position i want to be in.

Btw im divorced and still single so i just have to worry about me at the moment. Im also saving for a house deposit but not there yet. This 40k pension pot is by far my biggest asset so im keen to make the most of it.