£270K to £450K in 4 years?

Prism

tony4147 wrote: »

So I've increased contributions to £2K / month and if I have too I'm prepared to work until 62 (6 years from now) surely that would get me in the ballpark of £450-500K if my pot is £270K now.

It might well do as all that requires is a growth rate of about 4%. However, depending on what you invest in you could experience a significant drop in value at any time throughout that period so be careful not to go for too much risk to try and get your desired figure earlier.

bowlhead99

tony4147 wrote: »

The contributions are gross, I work via my own ltd company which may all change next year due to the 'off payrole' rules that are coming in

tony4147 wrote: »

So I've increased contributions to £2K / month and if I have too I'm prepared to work until 62 (6 years from now) surely that would get me in the ballpark of £450-500K if my pot is £270K now.

As the contributions are only £2k gross rather than £2.5k gross in my example, you would get about £40k less than the £495k I'd guesstimated. So yes you are in the ballpark of getting the £450k in real terms as long as (a) you follow the assumptions of increasing the £2k a month contributions in line with inflation and (b) your investments deliver the annualised return target of inflation plus 2% a year, on average over the period.

Unfortunately you can't guarantee inflation plus *anything* over a relatively short timescale like four to six years, as the investments might not play ball. In order to achieve the inflation-beating return, you need to take investment risk. Higher-risk, equities-focused investing might get you inflation plus five percent a year over the long long term. But in the short term perhaps you would see a 40%+ loss with a long recovery period needed. And fail to meet the target. Whereas lower risk investments that only target inflation plus two percent in the first place (instead of inflation plus five percent) could easily miss that target, lose money and still be at a loss in six years time.

If you only got a return equalling inflation, you would be short of your target because even assuming you increased the £24k per year by inflation each year, you'd have 6 years of £24k in real terms (£148k), plus the £270k only maintaining its value in real terms, which is £414k total. If the target is half way between £450k and £500k (i.e. £475k) in today's money, you'd be a good £10k short of even having 90% of that amount in your pot.

So:
- if you keep contributing as much as you can for now and growing your contributions in line with inflation or more, you have the best chance of meeting the objective;

- but it's quite possible you won't meet the objective because it relies on you growing the pot on excess of inflation which your can't guarantee will happen over a relatively short timescale no matter what investments you pick.

Thrugelmir

What does your portfolio consis of. As ideally heading towards retirement you should start derisking the portfolio.

pensionpawn

232607 wrote: »

With the money you’re putting in you’d need returns of just under 7% to achieve your aim.
Possible but a bit of a stretch.
You’d have to be heavily in to equities to have any chance & accept the possible down side.
Note - this doesn’t consider inflation, IE this will give you £450K in 4 years.

I agree with the maths.

Dox

tony4147 wrote: »

So I've increased contributions to £2K / month and if I have too I'm prepared to work until 62 (6 years from now) surely that would get me in the ballpark of £450-500K if my pot is £270K now.

Why only £2K a month if you're so anxious to get to around £450K? Pay more via your limited company - it's a legitimate business expense provided it meets the usual test for any business expense.

tony4147

Dox wrote: »

Why only £2K a month if you're so anxious to get to around £450K? Pay more via your limited company - it's a legitimate business expense provided it meets the usual test for any business expense.

Why only £2K??? if I could pay more I would, its a one man LTD Company, to be honest I thought that £2K / month was a lot in comparision to what a lot of people pay

vulcanrtb

£2k a month is a decent monthly amount, way higher than average I would expect.

bowlhead99

tony4147 wrote: »

Why only £2K??? if I could pay more I would, its a one man LTD Company, to be honest I thought that £2K / month was a lot in comparision to what a lot of people pay

You are right, it's a lot in comparison to what most people pay. Some people are only earning and investing at the gross level of £2k a year rather than a £2k a month.

Still, those people don't have the same objective as you: which in your original post was to start with £270k today and somehow grow it by £180k in only 4 years. Even with the increased contributions to £24k a year you would be putting in only £96k over the next 4 years and hoping that investment growth would take care of the rest of the £180k, (plus presumably more on top to make it £450k in today's money rather than £450k of 2023 spending power).

Realistically you shouldn't expect such growth or you'll have a big risk of being disappointed. Three ways to get there are:

- put all the money into higher risk investments and hope you get lucky rather than have the investments be flat or unlucky or very unlucky;

- contribute for longer

- contribute more per year.

The last two are the most practical way to get there because they are things you can control rather than relying on investment returns you can't control.

Most answers to 'what do I need to do' would be variations on the above themes. You should expect questions like "why only £2k" because if it is very important to you to get £180k into your pension pot, why would you only put in some smaller amount and rely on hope for the rest? Why not change your lifestyle to a much more frugal and depressing existence for four years, to give yourself a higher chance of successfully funding the following four decades?

At the end of the day it's personal choice, but with investing the main two ways of going about it are:

- contribute a lot and take low investment risk, accepting some risk of falling short;

- contribute less and rely on potential investment returns, with a greater risk of falling far short in the timescale due to investment performance.

If your £450-500k pot within 4-6 years is a hard target rather than some lofty 'ideal' target which you can afford to miss, you're more likely to be disappointed whichever route you choose. If in four or six years you can shrug and think "ah fair enough I guess I'll keep on working then", that's a good backstop.

GingerJim

I think the post above really sums it up. There is no magic solution. You either pay in even more, pay for longer, or increase the risk, or a combination of two or mor of these. I’m risk averse so that avenue would not be an option for me. If you are of the same mindset, and if you really can’t afford to pay in more, then the two remaining options are to accept you need to work and pay in longer [this option could include major changes to your working pattern, maybe closing your own company and just taking on employment under someone else] or the other option is to alter the target you originally set yourself. I think fewer and fewer people are going to be able to retire at 60, myself included.

tony4147

Fortunately my intended retirement age of 60 is not cast in stone, if I have to work a year or two longer I can.
As for dropping my company and working for someone else I would probably not earn enough to pay the contributions at the level I do now.
I think £24k for 6 years will get me in the ballpark of £450k in todays money, it is what it is, if I could afford to pay £40k a year into a pension I would.