Retirement Planner - Importance of Inflation?

Secret2ndAccount

If your portfolio remains mostly in equities, and your exepcted annual return is above 6%, there would be no reason to deplete your pot in order to increase your SP 5.8%.   If, on the other hand, you have switched your portfolio to low risk investments, perhaps returning 2-3%, then spending your pot makes more sense than taking your SP.

If you have good reason to believe your lifespan will be significantly more or less than the average, that would play into your calculation too.

garmeg

pensionpawn said:

garmeg said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

It is 5.8% pa simple interest for post April 2016 state pensioners.

In that case even less reason to defer!

Indeed.

NottinghamKnight

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

pensionpawn

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

31.5 years.

pensionpawn

Stubod said:

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.

I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

I am not depleting any pension, but I am happy to swap the uncertainty of an investment "pot" for the certainty of a higher index linked state pension....each to their own..

What are you living off then? How can you be certain of a higher index linked pension? You may die before you start to take it. (Nothing is certain except death and income tax!) What then for your spouse? Your private pension is now lower than it would have been had you taken your SP as soon as you could. If you have no spouse, or any family to pass your estate to, then no problem.

NottinghamKnight

pensionpawn said:

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

31.5 years.

Over 10% annual return since 1988? You must be worth several million  by now then.

Thrugelmir

Secret2ndAccount said:

If your portfolio remains mostly in equities, and your exepcted annual return is above 6%, there would be no reason to deplete your pot in order to increase your SP 5.8%. 

If only investing in equities were only that easy. 

pensionpawn

NottinghamKnight said:

pensionpawn said:

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

NottinghamKnight said:

pensionpawn said:

Stubod said:

Assuming you are not too fussed about leaving loads to next of kin / charity, it makes sense to me to burn through your "pot" and defer the state pension, particularly if you are a little risk averse. I think it offers around 5% increase for each year deferred?

Why defer your state pension? Yes your SP will increase by around 10% each year however you will then be depleting your private pension instead. This isn't for me as my investments should (are) growing near that rate and secondly, if you croak it before you start taking your pension you've lost a chunk of money that you could have passed to your estate.
I'd be more interested in the opposite, taking your pension earlier at a reduced rate. Also, as with annuities, taking your pension at a reduced rate from your SP age which allows for a significant percentage to be passed onto your wife / husband. 

Its very 'optimistic' to assume you can consistently get 10% returns from your pension investments, how long have you been investing for?

31.5 years.

Over 10% annual return since 1988? You must be worth several million  by now then.

Alas, unfortunately not. I started my first pension in April 1989 and stopped paying into it in April 1996. By then it was worth £12k4 from £2k7 worth of contributions. Now it's worth £112k. That's one of my 'less adventurous' funds and it's managed around 10% pa. If I last as long as my father, my funds have exactly the same amount of time to continue growing. Across a diverse portfolio, 10% pa is quite attainable.

Stubod

What are you living off then? How can you be certain of a higher index linked pension? You may die before you start to take it. (Nothing is certain except death and income tax!) What then for your spouse? Your private pension is now lower than it would have been had you taken your SP as soon as you could. If you have no spouse, or any family to pass your estate to, then no problem.

????...I am living off my deferred DB pension and my S&S ISAS, my spouse already has an index linked pension and will get also get the full (index linked) SP and I am certain that if I defer my SP It will be increased by approx 5% for every year I defer it and my private pension is what it is, why would it be "lowered" ???

pensionpawn

GSP said:

Deleted_User said:

Some people use less money later on. Some more.  

Subtracting inflation from the assumed growth and assuming you will be spending  today’s pounds makes sense to me. Easier to count costs as we know them now. You are always free to change the assumptions if you disagree. 

Thanks. So if your fund was £750k and grew 3%, that’s £22.5k. If you calculate 2% inflation on withdrawal of £36k, that’s £720.
£22,500 less £720 = £21,780 growth.
This compares to 3% growth less 2% inflation = 1% ‘real return”.
1% of £750k = £7,500.
Quite a different outcome when you apply inflation to withdrawals only, rather than combining with growth?

I agree with you GSP. I grow my pot and expenditure separately. I then subtract the new inflated annual expenditure from the new pot value. Then repeat annually. Why? For the same reasons you have stated. I don't annually spend the equivalent of the inflation rate applied to my pot value. What I need to know is whether my pot is growing at a rate sufficient to meet my annually inflated expenditure extrapolated to my expected expiry date! I accept that just taking the inflation rate away from the growth rate can make the arithmetic quicker, however I believe that it distorts the forecasting of needs and demands. Lets be honest, when we are looking to retire your household costs have fallen to rock bottom. I'm presently targeting retiring on a minimum of a his and her tax allowance (i.e. £25k pa) though accessed as UFPLS permits £33333 pa. Now lets say inflation is 2% you would need to draw £34000 the following year, an extra £667. Reducing growth on a £500k pension pot by 2% would equate to £10k being lopped off the value of your fund, which is clearly bonkers and would lead to you throwing more money at your fund in the pre-retirement years than is actually necessary.