Have we got our sums right?? Appraise our plan.

Sea_Shell

If the Equities based portion of our pots dropped by 40%, day one, but then recovered by 3% pa, and allowing for 2.5% inflation, we'd still have £130k by the time both our SP's are payable. If the growth didn't materialise, or inflation was higher then we'd run out of money by then.

Inflation is always a tricky one...as we all have our own personal inflation %, depending on what we spend and where. We're on track to spend pretty much exactly the same as last year, doing similar things, so for us, that would be a 0% inflation rate 2017-2018! There is scope to trim spending, should we feel that inflation is getting the better of us, as about £3300 pa of our spending is on purely discretionary things (holidays, gym, haircuts, 2nd Car), which equates to 25%

DairyQueen

Sea_Shell wrote: »

If the Equities based portion of our pots dropped by 40%, day one, but then recovered by 3% pa, and allowing for 2.5% inflation, we'd still have £130k by the time both our SP's are payable. If the growth didn't materialise, or inflation was higher then we'd run out of money by then.

Inflation is always a tricky one...as we all have our own personal inflation %, depending on what we spend and where. We're on track to spend pretty much exactly the same as last year, doing similar things, so for us, that would be a 0% inflation rate 2017-2018! There is scope to trim spending, should we feel that inflation is getting the better of us, as about £3300 pa of our spending is on purely discretionary things (holidays, gym, haircuts, 2nd Car), which equates to 25%

My spreadsheet has different rows for each source of income (column headings are years up to age 90). I decided to create an annual variable for inflation % given that it could have such a significant impact from year to year. This allows me to model different ways to make-up income deficits should we need to suspend drawdown whilst still making the most of our different tax positions.

I may do the same thing for investment growth/reduction to model the impact of different sequences of returns. Possibly overkill but micro-analysis helps take the stress out of the unknowable for me.

It's highly unlikely that any model will match reality but at least by doing this I can sleep nights knowing that, short of another world war or the collapse of capitalism, we will survive.

JohnnyJet

Excellent discussion, I'm always interested in how others plan for retirement. If I was in Sea Shell's position I would have already given up work, or at least gone part-time. Having a final salary pension also helps as you don't necessarily have to save any additional funds for retirement.

I have a CARE pension which I can access 67-68ish and also save into an ISA which I plan to access as soon as I feel I have saved enough to live on between now and retirement age. It will be nowhere near the op's total but every month that goes by it means that I have less months to divide the pot by, also in the knowledge that I can spend every penny of it and rely on the SP and CARE pension to see me through.

I think that a relevant point that hasn't been mentioned is that even if the OP does not save any more money they will still be 'saving' monthly as the amount of months to have to share the money between is getting reduced as they have a defined date for which this money needs to last.

Sea_Shell

I am part time!! Only 20 hrs pw. :j
And, yes, every month I choose to work, is another month the pot doesn't need to last.

MK62

DairyQueen wrote: »

I may do the same thing for investment growth/reduction to model the impact of different sequences of returns. Possibly overkill but micro-analysis helps take the stress out of the unknowable for me.

I agree - I think it's folly to model a 30yr drawdown retirement based on historical return averages, and average inflation projections etc, without ever considering the potential impact of sequence risk.....once into drawdown, sequence risk is very real - a couple of bad years at the start can devastate a pension pot.....

crv1963

MK62 wrote: »

I agree - I think it's folly to model a 30yr drawdown retirement based on historical return averages, and average inflation projections etc, without ever considering the potential impact of sequence risk.....once into drawdown, sequence risk is very real - a couple of bad years at the start can devastate a pension pot.....

I'm not sure it's quite as foolish as you think, you have to base your figures on something. Once you've worked out what your absolute baseline income needs are, you may need to model a few scenarios or what if cases to double check you can run the course. How far to take it is up to the individual. Risk is always measured against history because that is known, past behavior is used to predict future behavior.

When current stressors are written into history there will be something else to worry about, when I was at school, it was oil crisis, the next ice age was coming and the Russians were going to bomb us to oblivion!

MK62

crv1963 wrote: »

I'm not sure it's quite as foolish as you think, you have to base your figures on something. Once you've worked out what your absolute baseline income needs are, you may need to model a few scenarios or what if cases to double check you can run the course. How far to take it is up to the individual. Risk is always measured against history because that is known, past behavior is used to predict future behavior.

I'm not suggesting not modelling various scenarios, of course you should - all I'm saying is that perhaps you shouldn't just feed 30yr average projections for returns and inflation into a spreadsheet and assume that's it, job done.

Identical averages over 30yrs can have quite different outcomes for a drawdown pot if the sequence of real returns is different.

crv1963 wrote: »

When current stressors are written into history there will be something else to worry about, when I was at school, it was oil crisis, the next ice age was coming and the Russians were going to bomb us to oblivion!

And all those things could still happen.....;)....but I agree, there is always something......

Terron

crv1963 wrote: »

I
When current stressors are written into history there will be something else to worry about, when I was at school, it was oil crisis, the next ice age was coming and the Russians were going to bomb us to oblivion!

We are in an ice-age, in a relatively warm period called an inter-glacial, which has already lasted longer than average. So we can expect it to get cold again any moment*.

*Moment in geological terns = a few thousand years.

mjatkey

Hi, this is all interesting stuff, quick question are there any good spreadsheets available or have people just put their own together to track things. Thanks

DairyQueen

mjatkey wrote: »

Hi, this is all interesting stuff, quick question are there any good spreadsheets available or have people just put their own together to track things. Thanks

We will have the option to take some of our income from different sources each year and I needed to 'what if' model how best to optimise tax. I couldn't find a sufficiently flexible and comprehensive calculator so I built my own spreadsheet. Nothing fancy but it does the job.