Pension growth question

itwasntme001

Deleted_User said:

Apart from everything else, we have just had a fundamental change in monetary policy. Federal Reserve and several other central banks have just changed from an inflation based target to a growth based objective.  Recent datasets are no longer valid because the rules of the game have changed. 

Which effectively means they will let inflation run a little hot without concern in order to support nominal GDP growth.  Does this mean value stocks are the place to be or will growth still continue to be the current fad.  I suppose it will depend on if we get GDP growth surprising to the upside (good for value) or GDP growth will fail to materialise (in which case the current growth style has more room to run).  Of course no one really knows so, whilst the rules of the game may have changed, it still makes sense as always to be diversified.

pensionpawn

You've opened a can of worms with this question. There are so many variables. For example one person could happily retire on 2% above inflation, another needs 8%. The growth rate is just one small element. When do you want to retire? What size pot do you need, and why? What do you earn? What will you need in retirement? How much does your company contribute? Will there be a state pension in your late 60s (early 70s?) Will tax relief still exist in 5, 10 years? Will the TFLS still exist in it's present form? Do you need the same growth rate throughout your accumulation period?
Looking back to myself at the start of my pension planning, aged 23, all I knew was to contribute as much as I could afford at any given time. However remember to also live in the day as tomorrow isn't promised! I've encouraged my daughters to at least contribute the minimum that triggers that maximum employer contribution. Once you have 10 - 20 years of contributions behind you you can gauge what level of growth (risk) you need to achieve your now crystallising goal.
Good luck.

barnstar2077

pensionpawn said:

You've opened a can of worms with this question. There are so many variables. For example one person could happily retire on 2% above inflation, another needs 8%. The growth rate is just one small element. When do you want to retire? What size pot do you need, and why? What do you earn? What will you need in retirement? How much does your company contribute? Will there be a state pension in your late 60s (early 70s?) Will tax relief still exist in 5, 10 years? Will the TFLS still exist in it's present form? Do you need the same growth rate throughout your accumulation period?
Looking back to myself at the start of my pension planning, aged 23, all I knew was to contribute as much as I could afford at any given time. However remember to also live in the day as tomorrow isn't promised! I've encouraged my daughters to at least contribute the minimum that triggers that maximum employer contribution. Once you have 10 - 20 years of contributions behind you you can gauge what level of growth (risk) you need to achieve your now crystallising goal.
Good luck.

Statistically it is better to do it the other way around.  Put in as much as you can for the first ten years and then make an assessment.  That early money compounding over another thirty years would give them an improved likely hood of being able to retire earlier without having to shove half their wage in twenty years from now. 

pensionpawn

barnstar2077 said:

pensionpawn said:

You've opened a can of worms with this question. There are so many variables. For example one person could happily retire on 2% above inflation, another needs 8%. The growth rate is just one small element. When do you want to retire? What size pot do you need, and why? What do you earn? What will you need in retirement? How much does your company contribute? Will there be a state pension in your late 60s (early 70s?) Will tax relief still exist in 5, 10 years? Will the TFLS still exist in it's present form? Do you need the same growth rate throughout your accumulation period?
Looking back to myself at the start of my pension planning, aged 23, all I knew was to contribute as much as I could afford at any given time. However remember to also live in the day as tomorrow isn't promised! I've encouraged my daughters to at least contribute the minimum that triggers that maximum employer contribution. Once you have 10 - 20 years of contributions behind you you can gauge what level of growth (risk) you need to achieve your now crystallising goal.
Good luck.

Statistically it is better to do it the other way around.  Put in as much as you can for the first ten years and then make an assessment.  That early money compounding over another thirty years would give them an improved likely hood of being able to retire earlier without having to shove half their wage in twenty years from now. 

I think I said that..... Putting money away as soon as you can and let time do the work. My youngest daughter has been working part time for a major supermarket, stacking shelves and operating the tills etc since she was 17 (lower sixth through gap year now whilst an undergraduate). She has just under £3k already invested, and it will remain so for at least another 40 years. If she achieves just 5% above inflation on just that amount she's looking at over £21k. Not bad considering of that £3k, only £1.5k was deducted from her pay.

Alexland

pensionpawn said:
If she achieves just 5% above inflation on just that amount 

Seems very optimistic for money invested at current valuations hardly a minimum level of anticipated return.

pensionpawn

We are all individuals with different strategies / risk profiles / fund choice etc that will lead to differing returns. We choose strategies (based on what we read and from our own evidence) and work from there going forward. My original point being that time (40 years in this example) works the magic with whatever growth rate you can achieve. My least adventurous fund has averaged 5.75% over the last 10 years, my SIPP 7.5% over the last 18 months. UK inflation has averaged around 3% over the last 10 years. Across my whole portfolio my personal performance just about supports inflation + 5%, however everyone is different. Some will achieve more, others less.

NottinghamKnight

pensionpawn said:

We are all individuals with different strategies / risk profiles / fund choice etc that will lead to differing returns. We choose strategies (based on what we read and from our own evidence) and work from there going forward. My original point being that time (40 years in this example) works the magic with whatever growth rate you can achieve. My least adventurous fund has averaged 5.75% over the last 10 years, my SIPP 7.5% over the last 18 months. UK inflation has averaged around 3% over the last 10 years. Across my whole portfolio my personal performance just about supports inflation + 5%, however everyone is different. Some will achieve more, others less.

The last decade has been more abnormal than most, returns have been significantly higher than most previous decades.

Thrugelmir

pensionpawn said:

barnstar2077 said:

pensionpawn said:

You've opened a can of worms with this question. There are so many variables. For example one person could happily retire on 2% above inflation, another needs 8%. The growth rate is just one small element. When do you want to retire? What size pot do you need, and why? What do you earn? What will you need in retirement? How much does your company contribute? Will there be a state pension in your late 60s (early 70s?) Will tax relief still exist in 5, 10 years? Will the TFLS still exist in it's present form? Do you need the same growth rate throughout your accumulation period?
Looking back to myself at the start of my pension planning, aged 23, all I knew was to contribute as much as I could afford at any given time. However remember to also live in the day as tomorrow isn't promised! I've encouraged my daughters to at least contribute the minimum that triggers that maximum employer contribution. Once you have 10 - 20 years of contributions behind you you can gauge what level of growth (risk) you need to achieve your now crystallising goal.
Good luck.

Statistically it is better to do it the other way around.  Put in as much as you can for the first ten years and then make an assessment.  That early money compounding over another thirty years would give them an improved likely hood of being able to retire earlier without having to shove half their wage in twenty years from now. 

 If she achieves just 5% above inflation on just that amount she's looking at over £21k. Not bad considering of that £3k, only £1.5k was deducted from her pay.

£21k in today's terms isn't much to potentially last decades of retirement.  First brick in a very large wall that needs to be built. Future years have less time to compound. 

Alexland

NottinghamKnight said:
The last decade has been more abnormal than most, returns have been significantly higher than most previous decades.

Yup its picking a strong decade during which future returns were pulled forward into higher valuations and lower yields and then extrapolating that forward like it can keep happening (despite the problems it has already caused) on average for the next 40 years which seems very unlikely.

Prism

NottinghamKnight said:

pensionpawn said:

We are all individuals with different strategies / risk profiles / fund choice etc that will lead to differing returns. We choose strategies (based on what we read and from our own evidence) and work from there going forward. My original point being that time (40 years in this example) works the magic with whatever growth rate you can achieve. My least adventurous fund has averaged 5.75% over the last 10 years, my SIPP 7.5% over the last 18 months. UK inflation has averaged around 3% over the last 10 years. Across my whole portfolio my personal performance just about supports inflation + 5%, however everyone is different. Some will achieve more, others less.

The last decade has been more abnormal than most, returns have been significantly higher than most previous decades.

I don't have full world data to hand but if we take the US S&P 500 which has been one of the driving forces behind this last decades growth it is pretty much middle of the pack. 4 decades have been better and 5 worse over the last 100 years. Inflation has been higher at times but also lower at others.

I would say that things are pretty much in line with historical returns.