What number are you aiming for - solely DC pot

HarryGray

As a 26 year old with £65,000 in my pension, I am aiming for around £1m in todays money. That should equate to around £1,400 a month (inflation increased) from now until 65. I prefer savings for pension than a house at the moment to benefit from the compound and tax savings. We'll see if it pays off! 

jimi_man

Pile_o_stone said:

georgehere said:

Another possibility is that folk have converted sizeable DB pensions to lump sums, that they now consider their pension 'pot'. A DB of £25k/annum would convert potentially to a £1m+ pot.

I agree with this, and I have pals who work in the NHS and other public sector jobs with huge DB pension pots. 

Don't forget that not all public sector workers end up with huge pensions. Often with things like the LGPS, people may only do a few years of low paid work and accrue a tiny pension. 

pensionpawn

As others have posted, 'the number' for us is just a piece of the overall jigsaw. We're not driven by the maximum we can accumulate by a certain age but more by doing what we've always wanted to do along the journey as well as by how soon after 55 can we be fiscally independent. One of my fathers sayings was 'tomorrow isn't promised' and I've be mindful not to mortgage the present (past) for a future that may not be (sorry for the sombre mood). Of course save, however enjoy life along the way. A sort of mathematical analogy is I'm maximising the area under the curve rather than aim for exponential growth. The time to spend the money is finite. I've had well paid jobs, average jobs and no job along the way, however as a family of five we've also been lucky enough to enjoy regular holidays, and to Florida every 6/7 years, new cars for over 20 years and live in a nice detached house in the countryside.  Our kids are now adults with two having bought their own homes and the third off to university in September. With that in mind we are aiming to be financially independent and start to take it easy from 57 with a forecast combined pots of around £430k. My own pensions currently usually 'earn' more than I do (net) in a month. The idea being that, as a minimum we can both draw our personal allowance each year, occasionally taking more for essential costs. My intention is to ensure we have enough drawdown capacity to enjoy the initial (active) years of retirement and keep us safe, fed and warm during the later less active years. Helping our adult kids (future grandkids) along the way, if necessary, whilst ensuring we can cover reasonable medical  / care issues. I don't intend to have a treasure chest in our pots by our 80's, if we get there (https://www.marketwatch.com/story/youre-saving-all-wrong-if-you-die-with-a-pile-of-money-2020-07-28). We don't need anything like our in work net income with the kids in their own houses, no commuting costs and our energy bills paid for by a larger than average array of solar panels.  We may continue to work in some capacity, however that will be because we enjoy it. Both my wife and myself have been paying into pensions since our first job after graduating and can expect a full state pension each from 67. That's the safety net as like other posters I also believe that although the future of the state pension is not set in stone for those with less than half qualifying years, for those of us with more than half qualifying years it would be political suicide for any party to contemplate anything more than just fiddling with the triple lock. The spread of incomes on this forum I believe is huge, and we probably represent the top 10% of pension savvy people in the country. However the important issue, from my perspective, is achieving financial independence, whether than be with a pot pushing LTA, or one hoping to get near £100k. 

[Deleted User]

Pile_o_stone said:

Prism said:

Pile_o_stone said:

If I’m understanding this correctly, it’s not feasible to expect more than 4% return on investments but this thread seems to be full of pension pot millionaires. Unless MSE is full of lottery winners or people earning £+200k a year, then how did these people acquire DC pensions of £1m plus without huge gains?

I have seen between 7-8% rather than 4% over the last 25 years or so, and a chunk of that was in a old fashioned high fee (by todays standards) default multi asset fund. Going forwards, who knows.

Investors on forums always seem to make huge gains, always seem to be out if the market just before a corona crash or a banking crash and always seem to be millionaires by the time they’re in their 40s. It’s amazing really, I just wish I knew their secret.

A few reasons:

1. Selection bias. Somehow those who lose money in the market don’t tend to post about their wonderful pension pots.  And many get out of the market altogether and stop visiting these boards. 

2. Many people can’t count their returns properly. Hardly anyone here knows their money weighted returns. Timing the market consistently is impossible. To time it right for a single event you have to guess not once but twice. Those who do this underperform, but as they can’t count returns, they still brag. 

3. Last 10 years have been quite spectacular for people with diversified world-wide assets. 

4. For a British investor who counts in pounds and holds assets in N America and Europe, the value of his pot got boosted by a massive GBP drop a couple of years ago. 

I kinda think that this thread is unhelpful, other than for boosting ego here and there. A young worker should focus on saving and investing and repaying debt. The size of the pot is “whatever it will be when time comes”.  Can’t predict the future.  Pay yourself first and you’ll be fine. 

Prism

Deleted_User said:

Pile_o_stone said:

Prism said:

Pile_o_stone said:

If I’m understanding this correctly, it’s not feasible to expect more than 4% return on investments but this thread seems to be full of pension pot millionaires. Unless MSE is full of lottery winners or people earning £+200k a year, then how did these people acquire DC pensions of £1m plus without huge gains?

I have seen between 7-8% rather than 4% over the last 25 years or so, and a chunk of that was in a old fashioned high fee (by todays standards) default multi asset fund. Going forwards, who knows.

Investors on forums always seem to make huge gains, always seem to be out if the market just before a corona crash or a banking crash and always seem to be millionaires by the time they’re in their 40s. It’s amazing really, I just wish I knew their secret.

A few reasons:

1. Selection bias. Somehow those who lose money in the market don’t tend to post about their wonderful pension pots.  And many get out of the market altogether and stop visiting these boards. 

2. Many people can’t count their returns properly. Hardly anyone here knows their money weighted returns. Timing the market consistently is impossible. To time it right for a single event you have to guess not once but twice. Those who do this underperform, but as they can’t count returns, they still brag. 

3. Last 10 years have been quite spectacular for people with diversified world-wide assets. 

4. For a British investor who counts in pounds and holds assets in N America and Europe, the value of his pot got boosted by a massive GBP drop a couple of years ago. 

I kinda think that this thread is unhelpful, other than for boosting ego here and there. A young worker should focus on saving and investing and repaying debt. The size of the pot is “whatever it will be when time comes”.  Can’t predict the future.  Pay yourself first and you’ll be fine. 

On point 2 I think some people 'forget' to include the bit thats not invested in their return ie the cash. It helps people feel clever when they hold a bunch of cash back and then invest during a crash or correction. The numbers in the platform look good but the reality is there was a chunk of cash dragging the real return down for months if not years before that moment.

Anyway, I use XIRR to calculate my return and keep dates of all contributions and over the long term its a decidedly average 7-8% made to look slightly better by the last few years running at about 15%.

I think you are right and the total amounts are not worth comparing and for most not guaranteed anyway since they typically rely on future market return. I have a couple of friends who earn a few hundred grand a year and another over a million (and many who don't). What point would there be comparing my pot to theirs. Also why set a target that you cannot control. If someone wants to compare to a % return then just pick a benchmark or index fund. I usually use MCSI All World if I am so inclined though my allocation is a bit more like VLS with a bit of a home bias. 

[Deleted User]

Prism said:

Deleted_User said:

Pile_o_stone said:

Prism said:

Pile_o_stone said:

If I’m understanding this correctly, it’s not feasible to expect more than 4% return on investments but this thread seems to be full of pension pot millionaires. Unless MSE is full of lottery winners or people earning £+200k a year, then how did these people acquire DC pensions of £1m plus without huge gains?

I have seen between 7-8% rather than 4% over the last 25 years or so, and a chunk of that was in a old fashioned high fee (by todays standards) default multi asset fund. Going forwards, who knows.

Investors on forums always seem to make huge gains, always seem to be out if the market just before a corona crash or a banking crash and always seem to be millionaires by the time they’re in their 40s. It’s amazing really, I just wish I knew their secret.

A few reasons:

1. Selection bias. Somehow those who lose money in the market don’t tend to post about their wonderful pension pots.  And many get out of the market altogether and stop visiting these boards. 

2. Many people can’t count their returns properly. Hardly anyone here knows their money weighted returns. Timing the market consistently is impossible. To time it right for a single event you have to guess not once but twice. Those who do this underperform, but as they can’t count returns, they still brag. 

3. Last 10 years have been quite spectacular for people with diversified world-wide assets. 

4. For a British investor who counts in pounds and holds assets in N America and Europe, the value of his pot got boosted by a massive GBP drop a couple of years ago. 

I kinda think that this thread is unhelpful, other than for boosting ego here and there. A young worker should focus on saving and investing and repaying debt. The size of the pot is “whatever it will be when time comes”.  Can’t predict the future.  Pay yourself first and you’ll be fine. 

On point 2 I think some people 'forget' to include the bit thats not invested in their return ie the cash. It helps people feel clever when they hold a bunch of cash back and then invest during a crash or correction. The numbers in the platform look good but the reality is there was a chunk of cash dragging the real return down for months if not years before that moment.

Anyway, I use XIRR to calculate my return and keep dates of all contributions and over the long term its a decidedly average 7-8% made to look slightly better by the last few years running at about 15%.

I think you are right and the total amounts are not worth comparing and for most not guaranteed anyway since they typically rely on future market return. I have a couple of friends who earn a few hundred grand a year and another over a million (and many who don't). What point would there be comparing my pot to theirs. Also why set a target that you cannot control. If someone wants to compare to a % return then just pick a benchmark or index fund. I usually use MCSI All World if I am so inclined though my allocation is a bit more like VLS with a bit of a home bias. 

Exactly.
And by the way, to compare our portfolios’ performance vs a benchmark or with other investors, we should be using time weighted returns rather than XIRR.  And for comparison to be meaningful it should be over significant periods of time. 

And you are spot on that people saying “expect my DC pot to be X in five years” are making wild guesses. If you want a target of X, thats ok but “how long it will take” is unpredictable. If X is important then keep working until you get there. 

[Deleted User]

I posted mine earlier, but I think they key to having a large pot is to start early and keep putting in.
I have also posted earlier about adding an extra 1/2 or 1% to the pension pot when you got an inflation pay rise and then when you got a promotion taking that rise as the lifestyle change event (that sounds very American) ie better holidays, better car
I think the event that pushed me to early retirement was the two year period 2016-2017 when all my DC pension pots grew around 25-30% (from memory). I will let other people talk about why that happened (I think it was GBP falling due to Brexit thus the value of global funds went up - but I am just guessing)

[Deleted User]

Deleted_User said:

Pile_o_stone said:

Prism said:

Pile_o_stone said:

If I’m understanding this correctly, it’s not feasible to expect more than 4% return on investments but this thread seems to be full of pension pot millionaires. Unless MSE is full of lottery winners or people earning £+200k a year, then how did these people acquire DC pensions of £1m plus without huge gains?

I have seen between 7-8% rather than 4% over the last 25 years or so, and a chunk of that was in a old fashioned high fee (by todays standards) default multi asset fund. Going forwards, who knows.

Investors on forums always seem to make huge gains, always seem to be out if the market just before a corona crash or a banking crash and always seem to be millionaires by the time they’re in their 40s. It’s amazing really, I just wish I knew their secret.

A few reasons:

4. For a British investor who counts in pounds and holds assets in N America and Europe, the value of his pot got boosted by a massive GBP drop a couple of years ago. 

Ahh - mentioned that in my above thread.

DairyQueen

Pile_o_stone said:

I agree with this, and I have pals who work in the NHS and other public sector jobs with huge DB pension pots. I just thought that this thread was going to be about the unfortunates like myself who missed out on that gravy train and have had to make do with the paltry DC pensions with quite derisory employer contributions (5-20%DC  instead of 30 to 40%DB) and being at the mercy of market crashes and ‘golden boy’ share dealers instead of guaranteed returns.  I thought it would show the stark difference between the type of retirement a (taxpayer funded) public sector  worker is going to look forward to opposed that which a private sector worker will have. Instead everyone here seems to have a £1m D.C. pension on a par with DB ones. All I can say is that this has not been my experience, nor that of my ‘real-life’ peers.

That isn't typical but, yes, many posters have chunky pensions whether DC or DB. IMO selection bias is the number one reason why so many here have above-average retirement income/assets.

A large %age of people eye-glaze at the mention of pensions. Lack of understanding is driven by lack of interest. The regulars here are the exceptions who are genuinely interested in all matters financial and many have taken an interest in retirement planning from a younger age. Some are IFAs or experienced investors. Most are keen, if less-experienced, amateurs. They may have pocketed the spoils from their higher financial education but not all will have the luxury of a DB pension.

I was in my 50s before I began unravelling the complexity of our multitude of pension plans. Like many of the private sector, boomer generation we have a mix of DB and DC and some of the latter were legacy and high-charge. I neglected those with dire consequences for far too long. Despite that, and despite being a second-marriage couple (divorce is a great asset-destroyer), we have been sufficiently financially-savvy, thrifty and hard-working to achieve a comfy retirement income. This hasn't been achieved without sacrifice but also not without a good chunk of luck.

We are therefore also in the top decile retirement income bracket although this came as a surprise to us both. Nobody should reach their mid 50s and not know a ballpark of their retirement income but it seems that there are millions like us.

Since the demise of private sector DB schemes the disparity between public and private sector pension provision is becoming controversial. As successive generations retire with increasingly inequitable pension arrangements IMO it will be politically unsustainable to maintain the status quo. It is arguably already financially unsustainable to provide a DB pension for every public sector worker.

20 years ago the pronounced  difference in pay rates between the sectors was understood to be compensated by DB pensions. Times have changed.

It's my belief that DB pensions will be withdrawn for some categories in the public sector over the next decades. For example, essential workers such as doctors, nurses, police, firefighters, military, etc must work in the public sector and the DB pension will likely remain an important retention mechanism for essential workers such as these. OTOH administrators are more likely to see pay scales and benefits reflect those offered in the private sector - and that means no DB pension.

There are still many new retirees who are benefiting from the legacy of private sector DB schemes. Mr DQ is onesuch. I have also benefited as, unlike most public sector schemes, I was able to transfer-out of my private sector DB scheme, and at a generous CETV. Caveat - I was also one of the few who received a genuinely best-advice, positive transfer recommendation. 

The 'stark difference' you mention is not yet exclusively the outcome of a career in one or other sector but it's heading in that direction. 

Pile_o_stone

DairyQueen said:

Pile_o_stone said:

I agree with this, and I have pals who work in the NHS and other public sector jobs with huge DB pension pots. I just thought that this thread was going to be about the unfortunates like myself who missed out on that gravy train and have had to make do with the paltry DC pensions with quite derisory employer contributions (5-20%DC  instead of 30 to 40%DB) and being at the mercy of market crashes and ‘golden boy’ share dealers instead of guaranteed returns.  I thought it would show the stark difference between the type of retirement a (taxpayer funded) public sector  worker is going to look forward to opposed that which a private sector worker will have. Instead everyone here seems to have a £1m D.C. pension on a par with DB ones. All I can say is that this has not been my experience, nor that of my ‘real-life’ peers.

That isn't typical but, yes, many posters have chunky pensions whether DC or DB. IMO selection bias is the number one reason why so many here have above-average retirement income/assets.

A large %age of people eye-glaze at the mention of pensions. Lack of understanding is driven by lack of interest. The regulars here are the exceptions who are genuinely interested in all matters financial and many have taken an interest in retirement planning from a younger age. Some are IFAs or experienced investors. Most are keen, if less-experienced, amateurs. They may have pocketed the spoils from their higher financial education but not all will have the luxury of a DB pension.

I was in my 50s before I began unravelling the complexity of our multitude of pension plans. Like many of the private sector, boomer generation we have a mix of DB and DC and some of the latter were legacy and high-charge. I neglected those with dire consequences for far too long. Despite that, and despite being a second-marriage couple (divorce is a great asset-destroyer), we have been sufficiently financially-savvy, thrifty and hard-working to achieve a comfy retirement income. This hasn't been achieved without sacrifice but also not without a good chunk of luck.

We are therefore also in the top decile retirement income bracket although this came as a surprise to us both. Nobody should reach their mid 50s and not know a ballpark of their retirement income but it seems that there are millions like us.

Since the demise of private sector DB schemes the disparity between public and private sector pension provision is becoming controversial. As successive generations retire with increasingly inequitable pension arrangements IMO it will be politically unsustainable to maintain the status quo. It is arguably already financially unsustainable to provide a DB pension for every public sector worker.

20 years ago the pronounced  difference in pay rates between the sectors was understood to be compensated by DB pensions. Times have changed.

It's my belief that DB pensions will be withdrawn for some categories in the public sector over the next decades. For example, essential workers such as doctors, nurses, police, firefighters, military, etc must work in the public sector and the DB pension will likely remain an important retention mechanism for essential workers such as these. OTOH administrators are more likely to see pay scales and benefits reflect those offered in the private sector - and that means no DB pension.

There are still many new retirees who are benefiting from the legacy of private sector DB schemes. Mr DQ is onesuch. I have also benefited as, unlike most public sector schemes, I was able to transfer-out of my private sector DB scheme, and at a generous CETV. Caveat - I was also one of the few who received a genuinely best-advice, positive transfer recommendation. 

The 'stark difference' you mention is not yet exclusively the outcome of a career in one or other sector but it's heading in that direction. 

The other worrying aspect is that the majority of public sector pensions are not fully funded. A third of council tax payments are used to pay the pensions of council workers, and this keeps increasing. We are finding ourselves in the odd situation where young taxpayers are funding the pensions of public sector workers who retired before the taxpayer was even born. With falling birth rates and increasing longevity we will have more pensioners funded by fewer taxpayers. Taxpayers who will receive worse services because a large portion of the money they pay for these services are used for pensions. It's just not sustainable. Nothing will happen though until the whole Ponzi scheme comes crashing down because politicians are at the front of the gravy train.