Approximate value of pot?

Thrugelmir

Mickey666 said:

garmeg said:

GaryBC said:

Hi guys 
I've got a final salary pension quote which includes a transfer out option. I'm trying to get a very rough idea of what sort of income this pot could provide.
If it's in the ballpark I'll go forward and get formal quotes, but if it'll only likely get me 50p a week then I'll not waste any more time on the exercise. 
I'm 65 and the CETV is £614k. Can anyone give me a clue as to [very] roughly what sort of [lifetime] income this could provide?
Thanks 
Gary 

At a safeish 3% drawdown it would generate about £18,000 per year gross (or £1,500 per month).

How much is the actual pension you are giving up per year?

I assume that 3% drawdown is just the annual fund growth, ie without dipping into the overall pot total itself.

Growth is extremely unlikely to be linear. 

Mickey666

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

coyrls

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

A Thrugelmir says growth will not be linear.  A spreadsheet with a constant annual growth figure is completely misleading.  The 3% is set at the start and subsequently increased by inflation; it is not 3% each year.  A major risk is a poor sequence of returns in the early years of drawdown.

cfw1994

coyrls said:

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

A Thrugelmir says growth will not be linear.  A spreadsheet with a constant annual growth figure is completely misleading.  The 3% is set at the start and subsequently increased by inflation; it is not 3% each year.  A major risk is a poor sequence of returns in the early years of drawdown.

Yup.
This is why my spreadsheet (© !) has a % increase that aligns to each year......starts by being the same (2%, 3%, 5% - whatever you think you will get), but it is very easy then to drop in a -10% or -20% (or more) in the early years to see how things shape up.
Of course it is still 'making things up' - none of us know how things will play out! - but can at least you can play some 'bad scenarios' early on to look at them.

Mickey666

coyrls said:

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

A Thrugelmir says growth will not be linear.  A spreadsheet with a constant annual growth figure is completely misleading.  The 3% is set at the start and subsequently increased by inflation; it is not 3% each year.  A major risk is a poor sequence of returns in the early years of drawdown.

Agreed, which is why I include an inflation figure.  Actually, I include different inflation figures for different things.  Thus general inflation can be over-estimated for things that cost, while things that give (or should give) a return can be under-estimated.  These things can be as simple or as complex as you wish.  They are planning tools.  I tend to be as pessimistic as sensibly possible with my planning, which has proved to be a good strategy over the years (decades!).   Hope for the best, but plan for the worst

michaels

Mickey666 said:

garmeg said:

GaryBC said:

Hi guys 
I've got a final salary pension quote which includes a transfer out option. I'm trying to get a very rough idea of what sort of income this pot could provide.
If it's in the ballpark I'll go forward and get formal quotes, but if it'll only likely get me 50p a week then I'll not waste any more time on the exercise. 
I'm 65 and the CETV is £614k. Can anyone give me a clue as to [very] roughly what sort of [lifetime] income this could provide?
Thanks 
Gary 

At a safeish 3% drawdown it would generate about £18,000 per year gross (or £1,500 per month).

How much is the actual pension you are giving up per year?

I assume that 3% drawdown is just the annual fund growth, ie without dipping into the overall pot total itself.

How long does the OP expect to live?  Let's say another 30 years (to age 95) so another £20k per year could be withdrawn for 30 years.  OK, extreme example and probably not prudent either, but what about taking an additional £10k per year, which would leave around £300k in the pot at age 95. (remember that £150k-ish could be drawn down tax-free as well).

Yes, inflation will have an impact on that, plus the £18k interest/month would gradually reduce as well, but it's an option.

Also, does the OP get a state pension?  That could also be a useful additional income stream. 

I guess we need to know more about the OP's outgoings, but assuming they have no rent or mortgage to pay then theor state pension could probably pay the bills, leaving around £18k pa as disposable income.  Not bad.  Plus the ability to drawdown lump sums as required for fancy holidays perhaps - after all, retirement is a time to enjoy yourself and it's better to doing at the front end than the back end, so to speak.

It would be interesting to know what the pension income would be if it is not transferred.

Also, if there is no transfer and the OP dies at 70 (hopefuly not!!) that £600k-ish just disappears into the pension scheme's coffers never to be seen again.  If it has been transferred out, then it remains in the OP's estate but not subject to IHT.  Effectively, it becomes a tax-free lump sum for the OP's beneficiaries.

Lots to think about, but my feeling is that transferring out is the way to go.

Hmm. Is this post a wind up?

ZeroSum

happyandcontented said:

ZeroSum said:

Mickey666 said:

garmeg said:

GaryBC said:

Hi guys 
I've got a final salary pension quote which includes a transfer out option. I'm trying to get a very rough idea of what sort of income this pot could provide.
If it's in the ballpark I'll go forward and get formal quotes, but if it'll only likely get me 50p a week then I'll not waste any more time on the exercise. 
I'm 65 and the CETV is £614k. Can anyone give me a clue as to [very] roughly what sort of [lifetime] income this could provide?
Thanks 
Gary 

At a safeish 3% drawdown it would generate about £18,000 per year gross (or £1,500 per month).

How much is the actual pension you are giving up per year?

I assume that 3% drawdown is just the annual fund growth, ie without dipping into the overall pot total itself.

How long does the OP expect to live?  Let's say another 30 years (to age 95) so another £20k per year could be withdrawn for 30 years.  OK, extreme example and probably not prudent either, but what about taking an additional £10k per year, which would leave around £300k in the pot at age 95. (remember that £150k-ish could be drawn down tax-free as well).

Yes, inflation will have an impact on that, plus the £18k interest/month would gradually reduce as well, but it's an option.

Also, does the OP get a state pension?  That could also be a useful additional income stream. 

I guess we need to know more about the OP's outgoings, but assuming they have no rent or mortgage to pay then theor state pension could probably pay the bills, leaving around £18k pa as disposable income.  Not bad.  Plus the ability to drawdown lump sums as required for fancy holidays perhaps - after all, retirement is a time to enjoy yourself and it's better to doing at the front end than the back end, so to speak.

It would be interesting to know what the pension income would be if it is not transferred.

Also, if there is no transfer and the OP dies at 70 (hopefuly not!!) that £600k-ish just disappears into the pension scheme's coffers never to be seen again.  If it has been transferred out, then it remains in the OP's estate but not subject to IHT.  Effectively, it becomes a tax-free lump sum for the OP's beneficiaries.

Lots to think about, but my feeling is that transferring out is the way to go.

Unless OP is married, then widow will get widows pension from it

Not necessarily, our DB pot only repaid contributions paid in by the person (not employer conts) until the pension was in payment, and if it was then it was 50% of the monthly amount to the widow.

How does that work given that with DB pensions there isn't a 'pot'? 

Think mine is just 50% of my pension, but my OH is a bit younger than me. So going on usual life expectancies, she should get an extra 10-15 years worth after I'm gone. 

AnotherJoe

cfw1994 said:

coyrls said:

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

A Thrugelmir says growth will not be linear.  A spreadsheet with a constant annual growth figure is completely misleading.  The 3% is set at the start and subsequently increased by inflation; it is not 3% each year.  A major risk is a poor sequence of returns in the early years of drawdown.

Yup.
This is why my spreadsheet (© !) has a % increase that aligns to each year......starts by being the same (2%, 3%, 5% - whatever you think you will get), but it is very easy then to drop in a -10% or -20% (or more) in the early years to see how things shape up.
Of course it is still 'making things up' - none of us know how things will play out! - but can at least you can play some 'bad scenarios' early on to look at them.

There are tools such as cfiresim and firecalc which will do that, arguably better / more realistic than you can model it yourself.

Thrugelmir

cfw1994 said:

coyrls said:

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

I find that a spreadsheet is useful for such planning.  Enter the appropriate formulae in each monthly column over 20/30/whatever years then tweak a small number of variables to model various scenarios, ie initial pot value, inflation, annual fund growth, drawdown etc.

I find that creating a chart is the easiest way to visualise the effect of tweaking the variables and the whole exercise can be quite an eye-opener.

A Thrugelmir says growth will not be linear.  A spreadsheet with a constant annual growth figure is completely misleading.  The 3% is set at the start and subsequently increased by inflation; it is not 3% each year.  A major risk is a poor sequence of returns in the early years of drawdown.

Yup.
This is why my spreadsheet (© !) has a % increase that aligns to each year......starts by being the same (2%, 3%, 5% - whatever you think you will get), but it is very easy then to drop in a -10% or -20% (or more) in the early years to see how things shape up.
Of course it is still 'making things up' - none of us know how things will play out! - but can at least you can play some 'bad scenarios' early on to look at them.

Scenarios don't even have to be bad. Might simply be an extended period of flat performance. That simply drifts on. 

NedS

Mickey666 said:

Fair enough, but on that basis shouldn't the 3% drawdown suggestion have been accompanied by the fixed perod envisaged?  Besides, a 3% pa fund growth is not an unreasonable expectation, so a 3% drawdown could reasonably be expected NOT to dip into the pot capital.

3% might not have been an unreasonable expectation over the last decade but who knows what is reasonable going forward. We are currently in a 40 year bond bubble - would you expect bonds to continue to perform at historic rates for the next 40 years? Likewise, stock markets have out performed over the last 20 years - do you expect them to continue to do likewise over the next 20 years? Look back further and you will see evidence of prolonged periods of under-performance or bear markets, or as @Thrugelmir said, prolonged periods where markets just move sideways (not uncommon before or after large market movements, either up or down). Personally, I don't think it unreasonable that markets could be 40-50% lower in a year than where they are now. I'm not saying it's going to happen, but it's not unreasonable if we have a huge second wave towards the end of this year and into next year, with no effective vaccine or treatment for coronavirus. How would you feel if you'd cashed in a DB pension for £600K and find it's only worth £300K 12 months later?

At this point in time, where we are right now, I would take certainty over uncertainty any day of the week and would think long and hard before considering exchanging the certainty that a DB pension provides over the uncertainly of a transfer valuation. Ask yourself, why are DB pensions offering such high transfer rates? Because they understand the value of the product you are giving up and the true cost to provide that guarantee for the rest of your life (maybe another 40 years).