Regret retiring too early with not enough money?

MallyGirl

Thanks again - I work a massive multi-national so there won't be chance of negotiation but I am going to play with some calculations now. They don't pass on any employer NI savings but do give 10% contribution if I give 5% so not bad. I AVC a further 20% at the moment. I'd rather my pension got the 12% NI than hm gov.

update:
I have changed from adding £1k pcm AVCs to adding £3.5k pcm for the next 3 months (max allowed to not drop below min wage) and then dropping to no AVCs (probably, will see how I feel after seeing so little salary coming in). This is projected to save nearly £800 in NIC.

Anonymous101

michaels wrote: »

It is almost certainly running your expected contributions through a spreadsheet including your planned retirement date and seeing what income you might expect including however much state pension you think you will have earned. Probably no need to do anything too complicated, just work in today's prices with 2% real investment growth, whatever date you anticipate any TFLS being available based on your age and needing a fixed amount per year to go from retirement to state pension and then 4% of remaining pot PA thereafter.

I've run several scenario's based upon likely growth returns and a range of retirement ages. 25% contribution seems a reasonable amount but as a 40% tax payer at this stage (with tax relief and 20 years compound interest minimum) I'm just looking to put whatever I can in.

2% real growth seems very cautious, what is this based upon?

michaels

Historically 2% and 4% 'drawdown' are conservative but if we have entered a period of permanently lower real interest rates (look at what the govt has most recently offered on index linked bonds compared to historically) then my thinking is it is better to play it safe and be pleasantly surprised than to overestimate and be stuck.

There is a thread on this board 'The number' - are you happy with the number your current plan is likely to provide at your hoped for retirement date?

aldershot

2 days to go. It all feels a bit surreal :eek:

jerrysimon

Surreal is exactly the word I used when I left five months ago.

Initially the first few months I was euphoric but its amazing how quickly not getting up and going to work becomes the norm.

Enjoy it!

jamesd

michaels wrote: »

Historically 2% and 4% 'drawdown' are conservative but if we have entered a period of permanently lower real interest rates (look at what the govt has most recently offered on index linked bonds compared to historically) then my thinking is it is better to play it safe and be pleasantly surprised than to overestimate and be stuck.

I hope we're in a period of low interest rates for a while because past periods of high rates tended to coincide with relatively high inflation. No particular reason to believe that equities are in for sustained lower real returns, though now is not a good time to be buying them in quite a lot of markets. Guyton's sequence of returns risk reduction method deals with that by cutting equity holdings at times of high valuations.

Another way to deal with the possibility of being retired during a period of low returns is to adjust income if it turns out that you are. That allows a higher initial income and drops only if the bad news happens. You do still need to accumulate enough so that the bad news case produces an acceptable income level.

Anonymous101

michaels wrote: »

Historically 2% and 4% 'drawdown' are conservative but if we have entered a period of permanently lower real interest rates (look at what the govt has most recently offered on index linked bonds compared to historically) then my thinking is it is better to play it safe and be pleasantly surprised than to overestimate and be stuck.

There is a thread on this board 'The number' - are you happy with the number your current plan is likely to provide at your hoped for retirement date?

I think its a wise move. I'm currently working on 4% for both growth and drawdown forecasts based upon 100% equity allocation for the next 10 years. Perhaps that will need some adjusting as the following 10 years are likely to be involve an increased allocation to bonds.

Based upon my previous assumptions I was happy with my number for a 20 year retirement horizon.

gadgetmind

jamesd wrote: »

Guyton's sequence of returns risk reduction method deals with that by cutting equity holdings at times of high valuations.

After decades of being an equity hog, and nearly 10 years at 80%+, I'm now roughly 40% bonds and 10% property. I've also split bonds 50:50 government and corporate, and within these 50:50 between blended duration (9 years corporate, 17 years gilts) and holdings of 1-5 year duration ones.

Hedging my bets? Retirement is maybe 6 months off, and I'll have 12 years until state pension kicks in, so yes!

Note that I don't intend to touch ISAs for 12+ years so they are still heavy with equities.

aldershot

jamesd wrote: »

Guyton's sequence of returns risk reduction method deals with that by cutting equity holdings at times of high valuations.

..and does what with the cash? If it's buying bonds, what happens if we get into a 20 year bond bear market that sees a constant negative real return (where the coupon plus the change in principle value is < inflation)? Not an unlikely scenario IMHO.

Linton

aldershot wrote: »

..and does what with the cash? If it's buying bonds, what happens if we get into a 20 year bond bear market that sees a constant negative real return (where the coupon plus the change in principle value is < inflation)? Not an unlikely scenario IMHO.

Safer corporate bonds or other forms of lending? More risky goverment bonds? Property (REITs)? Infrastructure funds? There are quite a range of options in between full blooded equity and gilts.