How fast should I assume my pot of money will grow?

dunstonh

If you are looking to retire in 6 years time at 55, that is too short a time frame to be sure that you will get further growth of your pot during that time. 
Of course growth is never 'sure' and the shorter the time frame the less sure .  I think for planning purposes though you could sensibly plan for at least keeping up with inflation and then maybe plus 1% ?

At the end of the day, any projection is synthetic and the individual needs to decide how much safety they wish to place in their assumptions.   At 6 years, using current values plus premiums builds in a safer element.   

In the scheme of things, no growth vs inflation plus 1% over 6 years is not going to be much different.  

Historically, people tend to underestimate their spending needs and inflation.   I would prefer to understate the growth as it gives some wriggle room later.  Plus, we must not forget that the last 10 years have had better than average for low risk assets.  The next ten years could be woeful.    Low risk assets have gone through periods of around a decade not making a penny before and they can do so again.

AlanP_2

Albermarle said:

 If you are looking to retire in 6 years time at 55, that is too short a time frame to be sure that you will get further growth of your pot during that time. 
Of course growth is never 'sure' and the shorter the time frame the less sure .  I think for planning purposes though you could sensibly plan for at least keeping up with inflation and then maybe plus 1% ?

Just adding to the thoughts on this:

If you know what your NUMBER (target income) is you can have a few variations arouind returns and see what works and what would cause problems, ranging from Dunston's zero growth through to youtr 5.9% say.

You need to factor in future income sources and future "anticipated" large / one off expenditures as you are hoping to be living off that income for the 30-50 years of retiurement.

Assuming your DB pension has inflation linked increases of some kind I'd hang on to it. By all means ask for a CETV quote if you want, and also an up to date pension forecast, to see if it looks even potentially worthwhile. Giving up £6k of guaranteed income for £600k might be a no-brainer, but not for £120k

What's your wider financial / family situation as that needs to be factored in - mortgage / dependents / other savings / debts / partner working + has pensions etc? Not saying you need to write your life story on here so long as you are considering those aspects in your planning

Audaxer

dunstonh said:

If you are looking to retire in 6 years time at 55, that is too short a time frame to be sure that you will get further growth of your pot during that time. 
Of course growth is never 'sure' and the shorter the time frame the less sure .  I think for planning purposes though you could sensibly plan for at least keeping up with inflation and then maybe plus 1% ?

Plus, we must not forget that the last 10 years have had better than average for low term assets.  The next ten years could be woeful.    

Thanks dunstonh, that's exactly what I was thinking as the OP probably has had good growth of maybe more than 5.9% over the last 8 or 9 years he has been investing. So quite possible we could have a bear market and no growth over the next 6 years. That might still average out to over 4% growth over the 15 year period his money has been invested. Also on the plus side, assuming the bulk of his fund(s) is staying invested and he goes into drawdown when retired, then he could be invested for another 30 years or more, so he is likely to have a good average growth over the longer term. 

mark55man

That's an important point.  you don't stop your pot when you hit 55.  I think if you get to 60 you average life expectancy is to 87 or thereabouts.  so it is OK to keep a riskier element even as you build up to retirement - UNLESS you absolutely you have something you need a specific lump sum for.  if you do have specific needs then you need to go cautious early,  but that would typically cost you in the long run.

also it is generally recommended to have at least one year living expenses in cash, so you are never a forced seller during a crash.  some recommend 3 years others have 5.

two schools of thought about the DB - one added to you state pension it would be an amount that would support a basic but comfortable  lifestyle - possibly leaving you more flexibility to invest more aggressively with your DC pot.  BUT it will have to wait until 65 which is a long while to wait, so most of your problem might be in the first 10 years, in which case you need to follow dunstonh assumptions, as you will have no time to recover from a sharp drop.  I am slightly the opposite, have 20 years of DB which at the last CETV would be 60% of my income in retirement (5 - 8 years) so it would take quite a large transfer value to tempt me away from that - however with a small amount it might buy you the ability to retire earlier at the cost of risking more certain income later in life.   

jamesd

Eggy1971 said:

1) How fast should I assume my DC pot will grow?  I have based all my calculations on 5.9% growth per year.  I arrived at that figure by taking an 10 year average of the fund I was invested in and then taking half a % off. 

Nil or slightly negative because the time is too short to have high confidence of average performance. Add what you can, retire when you can afford it and be happy with any growth. UK stock market growth is a bit over 5% plus inflation before investing costs.

When it comes to actually being retired you shouldn't use growth rates to determine income. That's done using safe withdrawal rates that are calculated to work even if you live through bad times. 3.2% increasing with inflation or 5% initial usually increasing with inflation are calculated for two common rules, 4% and Guyton-Klinger, for the UK with 1.5% total costs.

Eggy1971 said:

3) All of the pot is in the default fund.  With the value of my pot and the time until I hope to retire does it make sense to leave it that way or should I spread it between different funds.?

Change is probably useful but it's very challenging now with your timeframe if you don't want to accept substantial risk of lower value on some arbitrary date.

High equities is likely to be best long term but as a start retirement date approaches you'll want to arrange enough lower volatility bonds and cash to live on for a while.

Eggy1971 said:

5) I started my career at L&G (general insurance not pensions) when they still had a final salary scheme.  I believe it will pay an index linked £6k per year when i am 62.  I have heard that it is possible to convert these pensions into an amount that can be added to the DC pot.  Do you think that is worth considering or given that most of my income will come from a DC pot is it worth leaving as is so I get some fixed income?

Could be best or not depending on things like transfer value and life expectancy. Some can get more guaranteed income by transferring due to lower life expectancy, others not. Some value flexibility or inheritance or spousal payments more than others. You're going to have lots of DC so my bias is towards keeping this bit of extra guaranteed income but I'd still look at the numbers when closer to retiring.

Eggy1971 said:

6) I will have worked 35 years by the time I am 53 so should get my full state pension from the age of 67.  Is it worth considering deferring this?

It's 35 years for those who started work in April 2016 or later. Get yourself a state pension forecast to find your situation. Before 2016 accrual as based partly on earnings and the earnings-related part could be opted out of so everyone is different.

Often worth deferring for five years to get more guaranteed income as a form of longevity insurance but you can't do it until you reach state pension age so you'll need to see how it looks then.

Eggy1971

A huge thank you to everyone for your comments and advice