What is a "proper" pension pot nowadays?

atush

It depends on what you track really.

Global trackers have exposure to the most markets so would be lower risk thru diversification.

greenglide

Do you think a pot of £100,000 would do anything or would be helpful in 25 years from now?

Look at the income level it can bring and see whether this can support you.

If we assume £100,000 can bring 4% income inflation linked (which is optimistic these days) this is £4,000 plus current State Pension of around £8,000 (assuming the new State Pension starting from 6/4/2016 at full rate) gives £12,000.

Do you think you can live on that throughout you retirement? I certainly couldnt or wouldnt want to. Will you have a house with mortgage paid off or will you be renting?

Linton

BananaRepublic wrote: »

Yes, you should be in so-called higher risk funds when young. Generally tracker investment funds are seen as low risk, managed funds are seen as high risk, but I'd argue the converse. The UK and European markets are lower risk, the US might be higher, and Asian markets are even higher. Personally I avoid Asian and South American markets. I once made the mistake of buying into Japanese market. after 15 years I have just about got my money back, but with inflation losses. Put in as much as you can as early as you can. But beware that many pension funds are rubbish. Sadly you tend to be stuck with the one your employer chooses, but you can transfer funds to a better provider.

As an example, one of my tracker funds rose ~50% in 10 years, a managed fund rose ~200% in 10 years.

The state pension is actually quite good. The full amount is about £8,000 in todays money, which will cover the basics of living. You need about £100,000 to buy a £4,000/year index linked annuity.

Sorry but some things here I would disagree with .....

Trackers in general are not inherently safer or riskier than managed funds. It's what the fund invests in that determines the risk factor.

The UK, European,US and Japanese markets are similar risk. Arguably the UK is the most risky as it is not as well diversified as the others. Japan is a totally different market to the rest of Asia being a developed country similar to US/UK/Europe. In my view it is very sensible putting some money in developing Asia.

At the moment £100K wont buy you an £4K inflation linked annuity, at least not until you are about 72.

jumperabv3

Linton wrote: »

At the moment £100K wont buy you an £4K inflation linked annuity, at least not until you are about 72.

So at the moment how much would it buy at the age of 55, approximately? (without taking any 25% lump sum i.e. I would take 0% from the pot, i.e. leave it as is without touching it) ... So just a rough figure is more than sufficient for me for planning etc.

ffacoffipawb

jumperabv3 wrote: »

So at the moment how much would it buy at the age of 55, approximately? (without taking any 25% lump sum i.e. I would take 0% from the pot, i.e. leave it as is without touching it) ... So just a rough figure is more than sufficient for me for planning etc.

A non increasing pension (no widow pension) of £3,000 or an inflation linked £2,000 per £100,000 fund.

i.e. not a lot!

Linton

jumperabv3 wrote: »

So at the moment how much would it buy at the age of 55, approximately? (without taking any 25% lump sum i.e. I would take 0% from the pot, i.e. leave it as is without touching it) ... So just a rough figure is more than sufficient for me for planning etc.

If you want an inflation linked annuity at 55 H-L say the current rate is £2281 for a single person - ie no widow pension. See here for further examples.

You could do much better with drawdown - perhaps £3500-£4K. But inflation matching would be a hope rather than a guarantee and you would have to manage or pay someone to manage your investments.

EdSwippet

Linton wrote: »

At the moment £100K wont buy you an £4K inflation linked annuity, at least not until you are about 72.

Indeed it won't. However, historically(*) and academically, 4% as a rule-of-thumb has been viewable as a 'safe withdrawal rate' from a sensible and well diversified portfolio. My own plan is to drawdown in early retirement, and then consider an annuity at around age 70-75 when rates should have improved (both for increased age and through less economic repression from the government).

(*) Past performance is of course no guarantee of future results. But it is at least slightly reassuring, absent anything else...

jumperabv3

Can I ask if I'm only 30 years old now and got at least 25 years ahead ... then linking the pension pot to the safest products (e.g. investments like fixed deposits) isn't this a good choice because as you can see ... the rates in the US have gone up finally ... and maybe at "worst" case scenario 3-4 years from now the rates in the UK will be lifted high enough to generate those 3% profits on the pot per year ... so let's say this way the pot would grow by 3% per year for 20 years at least or something like that? I mean we won't stay with low rates forever, won't we?

greenglide

then linking the pension pot to the safest products (e.g. investments like fixed deposits) isn't this a good choice

Using "safe" investments will almost certainly mean that you will need to invest much more to get a target level.

Using higher risk investments during the early years will almost certainly get you more over the longer term.

The key is really the earlier years, making for these afterwards would tend to require huge sums of money which may, or may not be achievable.

There are other risks apart from investment risks. If you plan to increase pension savings in the longer term you may find that your earnings have not reached the level you hoped or planned and may have gone down (redundancy, illness etc).

EdSwippet

jumperabv3 wrote: »

Can I ask if I'm only 30 years old now and got at least 25 years ahead ... then linking the pension pot to the safest products (e.g. investments like fixed deposits) isn't this a good choice...

The further out you are from retirement, the larger the risk you can (and perhaps should, depending on your tolerance) take. Higher risk usually produces higher return, and you have longer to recover from market crashes at 30 than you do at 50.

Conventional wisdom is to de-risk over time as you age (so-called 'lifestyling'). Another rule of thumb is age-in-bonds, so 70% stock at age 30 down to 50% at age 50. However, this hasn't necessarily worked well for some years now. Low interest rates have meant that 'safe' dividend paying stocks produce more return than bonds but with only marginally higher risk. Some folk even suggest that a 100% stock portfolio can be appropriate for those already in retirement. (Personally that's too rich even for me, but I certainly wouldn't argue anyone else out of it; could be entirely appropriate in some circumstances.)