Pension growth question

Thrugelmir

garmeg said:

Thrugelmir said:

Prism said:

Thrugelmir said:

Prism said:

NottinghamKnight said:

Prism said:

NottinghamKnight said:

Prism said:

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.

I'd disagree, after all until early 2020 we had the longest bull market in american history. Also inflation by most recorded means has been far lower than in most previous decades so I'd say valuations are full to say the least. That obviously doesn't take into account QE to any great extent of course.

Disagree with what? You in the previous post that returns have been significantly higher in the last decade. They haven't, they have been better than some decades and worse than others, even if you count for inflation. I didn't mention valuations. I have little opinion on those.

I'm disagreeing with your figures, I think your total returns numbers may not be far out but your real return numbers will be, as inflation will historically have been far higher than in recent years, at least for those time periods when higher total returns were recorded.

Make me do all the work
S&P real total annualized returns grouped by decade for the last 100 years are..
16.3%, 2.1%, 3.4%, 16.7%, 5.1%, -1.4%, 11.6%, 14.6%, -3.2% and 11.3% for the last one
So as I said, 4 decades have been better and 5 worse. 11.3% is better than the total average. There are times when you get get two great decades back to back and times when you get two poor ones. What does the next decade have awaiting us? Who knows.

And in sterling terms?  Those figures are only relevant to a domestic US investor. 

I doubt anyone has bother to calculate 100 years of US data but using sterling rather than dollars and UK CPI rather than US CPI. That not really the point. No real investor got those returns. The point is that the last decade for US markets has been a higher return that average but is not out of the ordinary. We might have a flat decade to come while the UK markets do well, or we might have another 10 years of double digit returns - nobody knows.

UK only forms around 4% of the MSCI world index. Not large enough or interesting enough to be on international investors radars. With the takeover of RSA the market value and number of listed companies declines yet further. 

The loss of RSA is insignificant but it does show the direction of travel.

FTSE100 companies aren't created overnight. 

shinytop

Apologies for bumping this thread.  If the SWR for a 30 year retirement is 3.5% then what is the underlying assumed growth rate to achieve this?  Isn't that what we should be using as a minimum?  Because if it turns out to be lower than that rate then a lot of people are going to run out of money.  And surely it can't be lower than annuity rates, which seem to be about 2.5% for a single 3% increasing at 60yo?  

Linton

shinytop said:

Apologies for bumping this thread.  If the SWR for a 30 year retirement is 3.5% then what is the underlying assumed growth rate to achieve this?  Isn't that what we should be using as a minimum?  Because if it turns out to be lower than that rate then a lot of people are going to run out of money.  And surely it can't be lower than annuity rates, which seem to be about 2.5% for a single 3% increasing at 60yo?  

SWR is based on actual returns over 30 (or whatever you want) year periods during the past 100 years or so.  The average return is not the driver as an early period taking income whilst the returns are negative could seriously damage the core of your portfolio before you get the chance to benefit from any higher growth later on.

shinytop

I understand that but I was wondering what the average returns over these 30 year periods are.  Agreed not much use in themselves for a SWR but maybe of some use to those looking more at growth.  Most people seem to use an arbitrary 2, 3 or 4 % or whatever; it would be good to know the real historic numbers.  Something like, "based on the last 100 years there is a X% probability of averaging Y% over the next 30 years.  Not to be relied on I know but neither is just making a number up which is what most people (including me) seem to do.  Somebody will have done this somewhere.  

arnoldy

Just as a ranging shot FTSE 250 total returns from launch to 2017 were just under 12% a year.
Last year obviously difficult but that's been the been long term outcome trend - so going forwards maybe a good starting point?
Remember to buy the underlying FTSE250 stocks your self to form a market proxy, which can be held for basically nothing (platform charge £12.50 pa), unit trust @1 % charges declared  + all the dealing costs are a no no IMO, and low cost trackers better but still 0.2% plus all the dealing charges and stamp duties and other costs they don't put in OCF.
How FTSE 250 could earn you 11% a year | This is Money

Thrugelmir

shinytop said:

Somebody will have done this somewhere.  

For what purpose. Too many variables. Not as if acccessing international stock markets was even possible. Nor was the internet available allowing the exchange of information and freedom to trade. 

Linton

shinytop said:

I understand that but I was wondering what the average returns over these 30 year periods are.  Agreed not much use in themselves for a SWR but maybe of some use to those looking more at growth.  Most people seem to use an arbitrary 2, 3 or 4 % or whatever; it would be good to know the real historic numbers.  Something like, "based on the last 100 years there is a X% probability of averaging Y% over the next 30 years.  Not to be relied on I know but neither is just making a number up which is what most people (including me) seem to do.  Somebody will have done this somewhere.  

That would not be a sensible way of estimating  the next 30 years.  In the past 100 years the majority of complete 30 year periods included at least part of the 2nd World War.  Are you planning on a 50% chance of a world war? 100 years is nowhere near long enough to get a meaningful average.  But 100 years ago the global economy was very different and so would be unlikely to provide much meaningful guidance about the future.

A better way could be for you to use a spread sheet model to determine the minimum real return you need to achieve your desired retirement date and income.  Then if you track your pension pot and update your spreadsheet model with real data you will soon see if you are in danger of missing your objective  or can afford to make your date earlier or increase your planned retirement income.

shinytop

Linton said:

shinytop said:

I understand that but I was wondering what the average returns over these 30 year periods are.  Agreed not much use in themselves for a SWR but maybe of some use to those looking more at growth.  Most people seem to use an arbitrary 2, 3 or 4 % or whatever; it would be good to know the real historic numbers.  Something like, "based on the last 100 years there is a X% probability of averaging Y% over the next 30 years.  Not to be relied on I know but neither is just making a number up which is what most people (including me) seem to do.  Somebody will have done this somewhere.  

That would not be a sensible way of estimating  the next 30 years.  In the past 100 years the majority of complete 30 year periods included at least part of the 2nd World War.  Are you planning on a 50% chance of a world war? 100 years is nowhere near long enough to get a meaningful average.  But 100 years ago the global economy was very different and so would be unlikely to provide much meaningful guidance about the future.

A better way could be for you to use a spread sheet model to determine the minimum real return you need to achieve your desired retirement date and income.  Then if you track your pension pot and update your spreadsheet model with real data you will soon see if you are in danger of missing your objective  or can afford to make your date earlier or increase your planned retirement income.

I've actually just retired  and have the required spreadsheets up and running. My basics are covered by DB/SP.  Projected spend of my DC/investments is less than 2% of the total annually so I shouldn't have to worry too much.  I was just curious how others worked it out because everyone does it.   

AnotherJoe

shinytop said:

Linton said:

shinytop said:

I understand that but I was wondering what the average returns over these 30 year periods are.  Agreed not much use in themselves for a SWR but maybe of some use to those looking more at growth.  Most people seem to use an arbitrary 2, 3 or 4 % or whatever; it would be good to know the real historic numbers.  Something like, "based on the last 100 years there is a X% probability of averaging Y% over the next 30 years.  Not to be relied on I know but neither is just making a number up which is what most people (including me) seem to do.  Somebody will have done this somewhere.  

That would not be a sensible way of estimating  the next 30 years.  In the past 100 years the majority of complete 30 year periods included at least part of the 2nd World War.  Are you planning on a 50% chance of a world war? 100 years is nowhere near long enough to get a meaningful average.  But 100 years ago the global economy was very different and so would be unlikely to provide much meaningful guidance about the future.

A better way could be for you to use a spread sheet model to determine the minimum real return you need to achieve your desired retirement date and income.  Then if you track your pension pot and update your spreadsheet model with real data you will soon see if you are in danger of missing your objective  or can afford to make your date earlier or increase your planned retirement income.

I've actually just retired  and have the required spreadsheets up and running. My basics are covered by DB/SP.  Projected spend of my DC/investments is less than 2% of the total annually so I shouldn't have to worry too much.  I was just curious how others worked it out because everyone does it.   

I dont. 

Prism

shinytop said:

I understand that but I was wondering what the average returns over these 30 year periods are.  Agreed not much use in themselves for a SWR but maybe of some use to those looking more at growth.  Most people seem to use an arbitrary 2, 3 or 4 % or whatever; it would be good to know the real historic numbers.  Something like, "based on the last 100 years there is a X% probability of averaging Y% over the next 30 years.  Not to be relied on I know but neither is just making a number up which is what most people (including me) seem to do.  Somebody will have done this somewhere.  

The trouble with average returns is that it doesn't give you the full picture. For example, a US retiree in 1959 would have got a return from the S&P 500 of 5% (after inflation) for the next 30 years. Another US retiree in 1969 would have got a return of 7.7% (after inflation) over the following 30 years. So based on just those returns it looks better to have retired in 1969 but in fact due to the sequence of those returns it was actually much worse and unless the 1969 retiree was very careful with their withdrawal rate they would have begun run out of cash before they got to the good times in the late 80s and 90s.