ASI UK Smaller Companies Pension Fund and my retirement plan

Notepad_Phil

GazzaBloom says
What's a sensible growth rate to work with? all of the above funds appear to be doing better than 5% pa

My worst case calculations were based on an immediate 50% drop in the global stockmarket, then an inflationary growth rate from then on. If things work out better then that's great, but better in my view to be pessimistic so that you can sleep easy at night knowing that you are safe from all but the very worst. I didn't want my wife to have any concerns at any time should I not be around.

You might want to be less pessimistic then I was, but building your plans based on continued good performance could land you with problems in 20 years or so when it could be difficult to overcome them.

bostonerimus

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

GazzaBloom

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

bostonerimus

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

Why not be prudent and diversify now. I did not preclude market gains post Brexit, but the trade negotiations have definitely increased the uncertainty in the UK economy.
You are obviously an optimist, but that can lead to nasty surprises. You need a plan that has a high probability of success in tough times as well as good.

GazzaBloom

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

Why not be prudent and diversify now. 
You are obviously an optimist, but that can lead to nasty surprises. You need a plan that has a high probability of success in tough times as well as good.

Have a look at the spreadsheet I uploaded a few post back, what do you think?

bowlhead99

GazzaBloom said:

What's a sensible growth rate to work with? all of the above funds appear to be doing better than 5% pa

Assume five years of 0% or inflation-plus-0% to compensate for the fact that we have been in a bullish period for both equities and bonds for a long time (last major crash being over a decade ago).

Then assume inflation-plus-5% for the long term if you are ballsy enough to be going equities-only for the rest of your days, and inflation-plus-3% if you are looking to lower the volatility by using a mix of equities and non equities.  If the eventual results are better than that, it will be a welcome surprise to the upside, rather than a catastrophic surprise to the downside. 

I appreciate you have gone back much more than 5 years to get your ASI Smaller performance figures for a backtest.  However,
(a) that performance period includes a big crash near the beginning, and one near the middle, but doesn't include one at the end, which might be on the near horizon for all you know;
(b) you are doing a backtest on the fund that you found which happened to be  one of the best-performing with hindsight. It is not guaranteed (or expected) to be the top of the charts over the next 22 years just because it did well in the last 22 years.  Smallcaps could have a torrid time compared to largecaps, or ASI 's active choices could perform much worse against their rivals and be middle or bottom of the league tables  for UK smallcap instead of the top. So ASI's worst sequence-of-returns looking back is nowhere near the worst case scenario.

When looking at what sort of growth rate to work with, generally an equities growth rate would be presumed to encompass returns of all different sort of equities, diversified by region and industry sector. If you are only going for one small region (UK) and the particular mix of industry sectors we have available from which to choose within UK smallcap, it is more of a crapshoot.

bostonerimus

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

Why not be prudent and diversify now. 
You are obviously an optimist, but that can lead to nasty surprises. You need a plan that has a high probability of success in tough times as well as good.

Have a look at the spreadsheet I uploaded a few post back, what do you think?

The standard deviation on the returns scares me. But single country, single sector is going to be volatile. The worry with such a choice are the scenarios not shown in the historical data. If you were using data on diverse markets that stretched back maybe 100 years, then I would be more sanguine about your plan.

GazzaBloom

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

Why not be prudent and diversify now. 
You are obviously an optimist, but that can lead to nasty surprises. You need a plan that has a high probability of success in tough times as well as good.

Have a look at the spreadsheet I uploaded a few post back, what do you think?

The standard deviation on the returns scares me. But single country, single sector is going to be volatile. The worry with such a choice are the scenarios not shown in the historical data. If you were using data on diverse markets that stretched back maybe 100 years, then I would be more sanguine about your plan.

I struggle with the relevance of market data that includes 2 world wars and precedes computers and modern technology but I take your point. There is some research in US SmallCaps using data that goes back 90 years here: (edit and add "ttp" as I'm not allowed to post links yet)

h***s://www.fa-mag.com/news/small-cap-withdrawal-magic-28553.html

The crux of it:

"It is pretty astonishing to me, having dealt with recommended withdrawal rates in the 4% to 4.5% range for many years, to observe that certain lucky retirees could have withdrawn 25% from their portfolios for 30 years by taking extreme measures with their asset allocation.
Even withdrawal rates in the teens amaze me. But the data evinces that about one-third of all retirees could have safely withdrawn 13% or better over their lifetimes. And another one-half of all retirees could have safely withdrawn between 8% and 12%.
One source of this plenty is, of course, the strong long-term returns of small-cap stocks, which have exceeded the returns of large-cap stocks by 2 full percentage points over the last 90 years. And, of course, the elimination of bonds, a low-return asset, also dramatically elevates portfolio returns and, consequently, withdrawal rates.
Now, please understand me: I am not recommending that advisors abandon diversified portfolios and blindly adopt the asset allocations of Figure 1. After all, the gaudy withdrawal rates of the all-in allocation are backward-looking. Who could have accurately foreseen whether someone could withdraw 12% one year, or that the next year 5% would be the limit? But I do believe that the dramatic improvements in withdrawal rates illustrated should give the advisor community pause. Are retirement clients being allowed to leave too much money on the table in the interests of “absolute safety”? (Perhaps you never thought you would read such a statement from me.)"

GazzaBloom

The real fear I have is not year to year volatility but more the decade long downturn with little or no growth. That's harder to spot and adjust your portfolio to compensate until you are 2-3 years into it. But, I reckon a decade long slowdown will be a global markets problem across the board, not just isolated markets..so we'll all be !!!!!!.

bostonerimus

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

bostonerimus said:

GazzaBloom said:

Notepad_Phil said:

GazzaBloom said:
 2) Stare pension may be nearer £12K by the time I reach 67 if it index link at 2% a year so more like £24K for me & the wife (yes we have full NI contributions) 

 However... I assume you want your retirement income to be inflation proofed, so the amount of income you will want to drawdown will also be affected by inflation. I.e. instead of £35k you'll be looking for approx £48k or so (following your figures of the state pension going from £8.7k to 12k due to inflation).

Yes I have that factored in. The DB pension is indexed as well. I have created a plan that covers from 55-100 years of age where I can adjust the growth rates, drawdown amounts accordingly with a 2% assumption on inflation covered by a 2% increase after tax of the amount from drawdown. Plus I have included fund fees and income tax allowing the £12.5K tax free allowance and assuming a 20% rate after that. 

What I need is a crystal ball so I can predict growth rates and so tweak the drawdown accordingly.

Your reliance on the highly volatile UK small company sector is a basic flaw in your plan. That is compounded by the UK having to negotiate post Brexit trade deals which add to the uncertainty, particularly in the small company sector.

Yes, I plan to diversify at some point. Post Brexit developments could lead to market gains in the UK as well. 

Why not be prudent and diversify now. 
You are obviously an optimist, but that can lead to nasty surprises. You need a plan that has a high probability of success in tough times as well as good.

Have a look at the spreadsheet I uploaded a few post back, what do you think?

The standard deviation on the returns scares me. But single country, single sector is going to be volatile. The worry with such a choice are the scenarios not shown in the historical data. If you were using data on diverse markets that stretched back maybe 100 years, then I would be more sanguine about your plan.

I struggle with the relevance of market data that includes 2 world wars and precedes computers and modern technology but I take your point. There is some research in US SmallCaps using data that goes back 90 years here: 

So why aren't you investing in US small caps as well.
The use of small caps is very old news. French and Farma advocated it a long time ago. The article does not endorse your strategy and contains phrases like "lucky" and "I am not recommending...". But if you are ok with the risk you are taking on then go for it.