What number are you aiming for - solely DC pot

Anonymous101

No problem - I think the visual nature of tables like these really hits home.
I too feel pretty strongly that this sort of information should be taught to kids in school.

badger09

veryintrigued said:

Deleted_User said:

This is a thread for boasting.  Cool

For anyone who remembers old school calculators the Holy Grail number to achieve was 5,318,008

In Australia?

T&Cs: Other places in the Southern Hemisphere are available (but not at the moment )

[Deleted User]

veryintrigued said:

Deleted_User said:

This is a thread for boasting.  Cool

For anyone who remembers old school calculators the Holy Grail number to achieve was 5,318,008

I have achieved that. Now let’s earn some money

[Deleted User]

Anonymous101 said:

I’ve shared this, or something like it, many times with younger posters. Again the investment amounts or growth rates aren’t the main information. I think it illustrates the key take away that compounding is incredibly powerful and by investing whilst you’re letting time do most of the hard work.

Nice table but optimistic and constant growth rate assumption. Crucially, $100 invested in year 59 is worth a fraction of that in year 25. Half, assuming 2% inflation. Even less as a fraction of salary  between a 25 year old graduate and a 59 year old director. So, not a full picture

pensionpawn

MrJamez said:

I’m 24 and all I’ve ever known is a DC pension.

Total value of all my pensions combined is £8k. Long way to go!

My daughter has had part time jobs stacking shelves and operating the tills at two supermarkets for the last two years to generate a cash fund (including a gap year) for university. She's now 19 and has £2k in her pension(s). I agree, get them young. I've also popped £100 in a SIPP for her to encourage her to experiment, however she's not that motivated yet!

Pile_o_stone

Interestingly, the size of my retirement pot isn't the deciding factor for my retirement, it's being mortgage free in an eco home.

I earn a reasonable salary and my wife has a low income (due to caring responsibilities). Our combined income is therefore on a par with a working couple who both pay basic rate tax, but we are hit more heavily with tax due to our antiquated tax system. I pay 40% tax on my income while my wife often struggles to earn above the tax free allowance. I also have a good private pension while my wife does not.

In retirement I therefore want to structure our finances to avoid this imbalance of taxation. I want us both to completely use up our £12,500 tax free allowance, so when I hit 55 I'm going to withdraw the 25% tax free lump sum from my main pension and feed it into my wife's pension. She has a low income so I'll be drip-feeding as much as I'm allowed over a number of years. I'll also drip feed it into an ISA. When I finish working I'll do the same with my company pension. The tax benefit of feeding this money into her pension is that I will have received 40% tax rebate when I saved it in my pension and my wife will receive a 20% tax rebate when it goes into her pension. The tax benefit of feeding the remainder into an ISA is that ISAs are tax free when you take money out because the money was taxed on the way in. In my case, it wasn't taxed as it has come from my pension tax free lump sum.

We will both receive the full state pension at around £9k each and we will drawdown from our pensions to take us both to the £12,500 mark. That means a tax free income of £25k. The tax free ISA will supplement our income until it runs out - this is fine as I envisage that we will want more income at the start of retirement and less towards the end.

To allow us to live on such a relatively low income, I'm planning on reducing our day to day outgoings by having an eco house with little or no space heating requirements and with solar power and battery combo providing much of the electricity. An allotment will provide a lot of our food and rainwater harvesting will provide a lot of the water (Ideally I'm looking for a house with a spring to take away even that reliance). My plan is to be as off-grid as possible so that external factors (like covid-19) can't touch us.

garmeg

veryintrigued said:

Deleted_User said:

This is a thread for boasting.  Cool

For anyone who remembers old school calculators the Holy Grail number to achieve was 5,318,008

I thought it was 71,077,345 but it turns out to have been a poor investment.

Anonymous101

Deleted_User said:

Anonymous101 said:

I’ve shared this, or something like it, many times with younger posters. Again the investment amounts or growth rates aren’t the main information. I think it illustrates the key take away that compounding is incredibly powerful and by investing whilst you’re letting time do most of the hard work.

Nice table but optimistic and constant growth rate assumption. Crucially, $100 invested in year 59 is worth a fraction of that in year 25. Half, assuming 2% inflation. Even less as a fraction of salary  between a 25 year old graduate and a 59 year old director. So, not a full picture

Oh I absolutely agree, its not a full picture at all and I wouldn't ever suggest it should form part of an investment strategy. However I think it does serve a purpose as a pure mathematical demonstration of the effect compounding can have. So for someone new to the concept I think its simplicity is key.
If you were to (rightly) reflect just one of the points you raise you'd lose the message. 

kinger101

veryintrigued said:

Deleted_User said:

This is a thread for boasting.  Cool

For anyone who remembers old school calculators the Holy Grail number to achieve was 5,318,008

Were you ever in the Pen 15 club?

BritishInvestor

cfw1994 said:

BritishInvestor said:

cfw1994 said:

Mistermeaner said:

BritishInvestor said:

garmeg said:

BritishInvestor said:

Mistermeaner said:

Thinking about how much you want a year is great but dc pot only people don’t have that luxury - best rule of thumb is 3-4% of your pot as sustainable draw down income increasing each year with inflation 

I'd be wary about relying on this "rule of thumb"

3% seems a reasonable rule of thumb. What else do DC pot holders have to go on? Annuity rates make them barely worthwhile, at least before 65.

Reasonable on what basis?

I understand a number of studies have shown this to Be sustainable over a 30+ year period with your withdrawal increasing by inflation each year 

do you have a better way to calculate it ? 

Pretty sure BritishInvestor is a FA/IFA: maybe they could explain why 3-4% is unreasonable.   

Most every study I’ve read on SWR suggests that is entirely reasonable. 

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ is pretty solid read.

https://www.cnbc.com/2017/02/09/that-4-percent-rule-could-spell-trouble-for-early-retirees.html warns of “trouble”, but still suggests 3.5% is okay.  Maybe you are Sam Dogan on that page.....
I’ve read some who suggest the UK should use 3-3.5%....although not really with any logic, to me, when one might be invested in precisely the same funds as an American....but either way, it still falls in the 3-4% range.

So: BritishInvestor, show us what you’re made of: why do you think 3% is unreasonable?

1. The SWR assumption is based upon benchmark returns of broad asset classes. When you consider the potential real-world slippage that the "average" investor may experience such as:
Platform fees
Active fund fees
Passive fund tracking error
Human behaviour (buying winning fund managers etc)
You'd need to be 100% sure that you were going to achieve returns pretty close to the benchmark.
2. Longevity. 30 years might be too conservative, especially if you are a couple.

That said, SWR is catering for the worst possible historical case, and most people, fortunately, didn't experience this.
There is the option of varying your spending dynamically according to market/inflationary outcomes.
https://finalytiq.co.uk/guyton-klinger-sustainable-withdrawal-rules/

You made it sound like 3-4% wasn’t reasonable.  “Reasonable on what basis”, you said.
Then you quote Abraham’s post, which starts off with “More than 100 years of market data for a 60/40 portfolio puts the SWR for the UK at 3.7%”.
That article goes on to talk about the Guyton-Klinger rules, which aim to improve on things, and following those should see you being able to use 5.5%.
So.
Back to your first post on this topic: ‘ I'd be wary about relying on this "rule of thumb" ‘
Why are you wary of using 3-4%?

Or were you mysteriously building up to a punchline of “because you may die leaving too much money - take more!”?

I am wary for the reasons I mentioned. I'll reiterate again:
Mr Perfect Retiree with a 50/50 portfolio and a 30 year life expectancy and paying no fees and achieving benchmark returns of the broad asset classes may well be able to secure a SWR of 3.5%. However, when you consider that the "average" retiree may instead be someone that:

1. Pays a wealth manager >2% a year to "manage" their money
2. Purchases a "recommended" multi-asset fund(s) on a popular platform costing a total of >1.5% that has generated nothing like the expected benchmark returns.
3. DIYs and buys winning fund managers (the latest fad is US tech-focused funds) that have had a successful few years and when the manager's luck turns, sells at a loss.
4. Employs a natural yield income approach (see #5)
5. Picks investments that are inappropriate from a risk POV and bales out when the market has a prolonged downturn.
6. Holds a crusty old-style pension that charges 1% pa and generates nothing like the returns of the returns used to give SWR numbers.

I'd be reluctant to assume that the SWR numbers represent realistic real-world numbers for the majority of retirees (which is most likely a different cohort from this forum?).

Longevity is another discussion. For a 60 year old male with a 55 year old wife, is 30 years a reasonable number? I would suggest it's north of 40 to be prudent.