Pension Cashflow Retirement Planner - Key Info?

BritishInvestor

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

GSP

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

BritishInvestor

GSP said:

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

Pg 21 has some info that might be of use
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf

GSP

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

Pg 21 has some info that might be of use
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf

Really appreciate you putting this link up on the board, but sorry it just went over my head. Is it possible you can please summarise it in a couple or so lines what it’s saying. Thanks

BritishInvestor

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

Pg 21 has some info that might be of use
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf

Really appreciate you putting this link up on the board, but sorry it just went over my head. Is it possible you can please summarise it in a couple or so lines what it’s saying. Thanks

The report shows the long (long ) run real return (i.e. adjusted for inflation) of equities and bonds. You could use this as a starting point for working out a reasonable (straight line) growth assumption for your portfolio.

So if long run equity return was 5%, bonds were 1% and you had a 50/50 portfolio, you could assume gross real returns of 3%. You'd then need to consider taking off fees (see below), and a "comfort factor" to get you to a reasonable starting point.

 I recall you saying your portfolio was 65% equities but the 3-year return seemed low vs a global equity bond split (even after assumed charges) so I'm guessing you could have a UK bias in there.

You'll need to work out your total fees:
Adviser + platform + funds
as this will have a drag on expected returns. For a pot of your size, 1% is what I would hope for (if passive funds are used).

But.......

As I mentioned previously straight-line assumptions have to be taken with a pinch of salt, so realistically you'd have to consider what you will gain from the exercise.

GSP

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

Pg 21 has some info that might be of use
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf

Really appreciate you putting this link up on the board, but sorry it just went over my head. Is it possible you can please summarise it in a couple or so lines what it’s saying. Thanks

The report shows the long (long ) run real return (i.e. adjusted for inflation) of equities and bonds. You could use this as a starting point for working out a reasonable (straight line) growth assumption for your portfolio.

So if long run equity return was 5%, bonds were 1% and you had a 50/50 portfolio, you could assume gross real returns of 3%. You'd then need to consider taking off fees (see below), and a "comfort factor" to get you to a reasonable starting point.

 I recall you saying your portfolio was 65% equities but the 3-year return seemed low vs a global equity bond split (even after assumed charges) so I'm guessing you could have a UK bias in there.

You'll need to work out your total fees:
Adviser + platform + funds
as this will have a drag on expected returns. For a pot of your size, 1% is what I would hope for (if passive funds are used).

But.......

As I mentioned previously straight-line assumptions have to be taken with a pinch of salt, so realistically you'd have to consider what you will gain from the exercise.

Thanks BI. Your last paragraph is very thought provoking as well. It seems a planner can be obsolete within a year and needs constant reviews and adjustments to bring it back on track with reality. How can you look at 5 years, even 3 years down the line with any confidence. There are just too many metrics and unknown factors at this stage to get a true picture.
It seems to me the general advice out there is to protect your pot and give or take the 4% rule still stands true.
Back on my thread about drawdown of 750k and sort of tied into this one as well, I was seeing or asking if there was a way withdrawals could be fluctuated due to the health of your pot. Say that average withdrawal is 4%, could people withdraw say 6% when there is good growth, but at a contracting time reduce that to say 2% or less if need be.
I suppose drawdowns are flexi access, maybe they could be seen as that rather than using a same 4% rule throughout because variations in growth should determine withdrawal amounts perhaps.

BritishInvestor

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

BritishInvestor said:

GSP said:

This is interesting yet eye opening looking at certain data.
I was interested in how my wife and my funds have grown since we started just over 3 years ago. Our holdings are identical and as she is yet to drawdown, its a clean run of data with just fees excluded.
It really is interesting at the point in time you calculate growth from, such different results.
2019 data is not there but according to Moneyfacts data, average pension growth fund for 2018 (which I assume is end Dec 97 to end Dec 98) was -6.2%. This stacks up well with numbers from my wife’s fund of -5.9%.
When you compare growth at the point we were invested to year end, the results are quite different.
With fees included

Year on Year Growth Aug 17-18  3.8%.
YoY 18 -5.9%.
The big driver in this appears to a dip in Dec 18 (anyone know what that was), but while the Aug on Aug balance was c£5k higher, Dec on Dec was down c£10k.
My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?

Here is the rest of the Moneyfacts data. Is this more about catching things right.

Calendar year	% pension fund growth
2018	-6.2%
2017	10.5%
2016	15.7%
2015	2.6%
2014	5.8%
2013	13.9%
2012	10.8%
2011	-4.6%
2010	13.8%
2009	22.3%
2008	-19.7%

"My question is, if basing any decisions, shouldn’t this be from when your fund was invested or should you use the end year stats, though as you can see they can tell a different story?"

I'm not sure that yearly fund growth should be used to plan with. Typically in a cashflow model, prudent assumptions are used based on long-run returns of asset classes (~100 years). So the first step for you is to understand what reasonable assumptions to use - this can be done by working out your asset allocation and doing some research (the Credit Suisse returns yearbook is useful).
The next step is to stress test this using historical data to evaluate worst case historical outcomes. 

I know in the absence of anything else, but how can people use anything like this to project.
What I was also trying to bring in is how volatile funds are. To me, it seems timing is crucial. You can withdraw when growth is good, but put up the shutters when growth is negative (£ ravaging).

Pg 21 has some info that might be of use
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf

Really appreciate you putting this link up on the board, but sorry it just went over my head. Is it possible you can please summarise it in a couple or so lines what it’s saying. Thanks

The report shows the long (long ) run real return (i.e. adjusted for inflation) of equities and bonds. You could use this as a starting point for working out a reasonable (straight line) growth assumption for your portfolio.

So if long run equity return was 5%, bonds were 1% and you had a 50/50 portfolio, you could assume gross real returns of 3%. You'd then need to consider taking off fees (see below), and a "comfort factor" to get you to a reasonable starting point.

 I recall you saying your portfolio was 65% equities but the 3-year return seemed low vs a global equity bond split (even after assumed charges) so I'm guessing you could have a UK bias in there.

You'll need to work out your total fees:
Adviser + platform + funds
as this will have a drag on expected returns. For a pot of your size, 1% is what I would hope for (if passive funds are used).

But.......

As I mentioned previously straight-line assumptions have to be taken with a pinch of salt, so realistically you'd have to consider what you will gain from the exercise.

Thanks BI. Your last paragraph is very thought provoking as well. It seems a planner can be obsolete within a year and needs constant reviews and adjustments to bring it back on track with reality. How can you look at 5 years, even 3 years down the line with any confidence. There are just too many metrics and unknown factors at this stage to get a true picture.
It seems to me the general advice out there is to protect your pot and give or take the 4% rule still stands true.
Back on my thread about drawdown of 750k and sort of tied into this one as well, I was seeing or asking if there was a way withdrawals could be fluctuated due to the health of your pot. Say that average withdrawal is 4%, could people withdraw say 6% when there is good growth, but at a contracting time reduce that to say 2% or less if need be.
I suppose drawdowns are flexi access, maybe they could be seen as that rather than using a same 4% rule throughout because variations in growth should determine withdrawal amounts perhaps.

"It seems a planner can be obsolete within a year and needs constant reviews and adjustments to bring it back on track with reality."
Yep, spot on. And that's why you would pay an adviser to help with this (if that's the path you choose), not to bore you with talk of fund performance .
 Sometimes people ask for hard copies of a financial plan (which they are free to have), but the value is in the planning (both initially and ongoing), not the plan itself. On an ongoing basis, a little adjustment (see below) can make a big difference to the success (or not) of the plan

 "How can you look at 5 years, even 3 years down the line with any confidence. There are just too many metrics and unknown factors at this stage to get a true picture."
With retirement planning you will always be dealing with uncertainty, there's no escaping that. But I can also assure you that if you partner with someone that works in this space (if, as you say, DIY is not for you) then you will have in place a robust, flexible plan that caters for these uncertainties and at the outset explicitly spells out how the plan may need to be adjusted if we have unfavourable market outcomes.

"It seems to me the general advice out there is to protect your pot and give or take the 4% rule still stands true."

You've got to really understand the assumptions that go into all general rules. 4% may be right for you, it may not.

"Back on my thread about drawdown of 750k and sort of tied into this one as well, I was seeing or asking if there was a way withdrawals could be fluctuated due to the health of your pot. Say that average withdrawal is 4%, could people withdraw say 6% when there is good growth, but at a contracting time reduce that to say 2% or less if need be."

Jamesd has covered this. It really depends what your spending goal/flexibility is in retirement.

NottinghamKnight

Varying the amounts withdrawn is an inherent part of drawdown, also drawdown would typically be combined with fairly large cash allocations of several per cent which would flex as investment returns vary; the other thing to remember is that even if you maintain a 4% drawdown this won't be the same from year to year, as the pot size varies so will the amount being withdrawn vary if it is a fixed percentage. 

BritishInvestor

NottinghamKnight said:

Varying the amounts withdrawn is an inherent part of drawdown, also drawdown would typically be combined with fairly large cash allocations of several per cent which would flex as investment returns vary; the other thing to remember is that even if you maintain a 4% drawdown this won't be the same from year to year, as the pot size varies so will the amount being withdrawn vary if it is a fixed percentage. 

"Varying the amounts withdrawn is an inherent part of drawdown"
It depends what approach you have chosen to take. Some prefer a withdrawal rate that increases with inflation each year and is unaffected by market performance (within agreed parameters)

"also drawdown would typically be combined with fairly large cash allocations of several per cent which would flex as investment returns vary"
Large cash allocations can have a detrimental impact on the sustainability of the plan, so you'd need to be aware of this.

" the other thing to remember is that even if you maintain a 4% drawdown this won't be the same from year to year"
The % drawdown figure tends to be based on the starting withdrawal amount and balance if you have gone for an approach as detailed above (withdrawals increasing with inflation each year)

GSP

NottinghamKnight said:

Varying the amounts withdrawn is an inherent part of drawdown, also drawdown would typically be combined with fairly large cash allocations of several per cent which would flex as investment returns vary; the other thing to remember is that even if you maintain a 4% drawdown this won't be the same from year to year, as the pot size varies so will the amount being withdrawn vary if it is a fixed percentage. 

That’s true NK with a 4% withdrawal being a different amount and the idea is that the pot depletes this will mean less money. That’s when you hope state pension kicks in and helps out somewhat. The secret or goal is trying to gauge how to get through ‘to the end’, whenever that is!