Pension growth question

snookered1

After a  sub-discussion on a separate thread I thought I would ask the following question, which I hope may also serve as useful guide to those setting up projections.

By way of crystal ball gazing what do you use as a long term growth projection for your pension investments, before and after inflation and costs such as platform, financial advisors etc is accounted for, and why are you using the numbers I don't want to know how many £££,000's you have invested but it would be interesting and educational to see how people break this down as a rough percentage, along with the why, and finally a perspective of where they are in the accumulation, decumulation phase. 
E.G. headline annual growth/return 6%, inflation 2%,  costs 1%, projected annual growth after inflation and costs  3%, 5 years until retirement.

Alexland

Given current economic circumstances and market valuations a nominal return of around 4.5% pa on global equities, 1% on bonds, average total fees of 0.5% (mine are under 0.2%) and inflation at around 2% seems reasonable for the next 10 years. Pretty grim but maybe better after that. Long term I would be happy if my adventurous asset allocation could return 2% pa above inflation and fees.

[Deleted User]

I do not assume anything for growth. That number is inherently uncertain.  Inflation is also uncertain.  The only known factor is cost, so I keep that down to 0.1% per year.  

Linton

It rather depends on what your projection is for.  If it's to plan your retirement it would clearly be sensible to be pretty cautious because if it doesnt work out there is not very much you can do to recover.  On the other hand if you are over cautious you wont retire, so it's a fairly fine balance.  For my retirement I assumed 1% return above an inflation rate of 3% and continue to use that as the basis of future plans.  Fortunately that has so far proved to be wildly pessimistic.  However in the next 20 years, who knows?

For monitoring my investments on a day to day basis, like Mordko I have no expectations but rather accept the world as it is.

Cus

So long as my wage inflation at least matches real inflation, I try to contribute/save/invest at a regular % of my income, and assume an inflation level growth of those pensions/savings/investments.  That way it should not go wrong in the future (10 years to retirement) based on how it stands today.
Then occasionally I will get out the compound interest calculator and enter growth numbers like 8 or 10 % over inflation, and think about retiring much earlier...

Heisenberg01

That's grim reading for people wanting to pack up early.

Linton

Heisenberg01 said:

That's grim reading for people wanting to pack up early.

Not really.   Whatever happens happens, your projections wont change that.  What the projections do change is your attitude to what happens,  Be pessimistic in your plans and you will spend the years to retirement happy especially as you update your plans each year with reality.  Be optimistic in your plans and you will have ongoing  misery as retirement slips further out year by year.

Albermarle

Heisenberg01 said:

That's grim reading for people wanting to pack up early.

We see a lot of posters on here planning/dreaming of retiring early but making over optimistic/unrealistic/mistaken assumptions.
( we also see the opposite - people with more than enough to retire early but hesitating ) 
If you were accumulating and still some years off retirement and invested in high equity % , then you could be looking at 5 or 6% minus inflation over the next few years ( a bit less than the last ten years). If you were retired or close and with a 50% equity portfolio then maybe 1 or 2 % above inflation.
It's all guesswork though.

jamesd

For income drawdown I don't project growth or inflation because they aren't what sets my income limit. I use safe withdrawal rates, which have been set to cover a very wide range of  possible sequences.

If I have reason to project I'll use after inflation 5% for equities, +1% for small cap, and 3% for bonds. Subtracting 2-3% from each for the next ten years seems sensible in current market conditions.

[Deleted User]

Heisenberg01 said:

That's grim reading for people wanting to pack up early.

Not really. If you want to stop earning soon then the answer is obvious: get rich fast. That equation hasn’t changed.
If, on the other hand, you are looking for certainty in something that is by definition uncertain (stock market returns) then you are reading a dose of reality. 

Having said this, the optimists have done well in the past.  Its all about investing as much as you can and staying fully invested. Time in the market will make you rich sooner or later. 

mark13

I aim for 5%, though in real terms averaging 13% from SIPP.