Inflation again

Nick9967

Need some clarification that what I'm doing is logical or wildly wrong if you can please, 

My calcs for early retirement have various parts to them as you'd expect.

• PP into DD - calculated using "Which" drawdown calculator on medium settings zero inflation

Pension will mainly be invested in a mix of fixed interest products and stocks and shares.
cash investment grows at an average of 0.50% a year, fixed interest at 4.75% a year and equities at 7.25% a year.

• Part time income from me for 4/5 years
• FT income from wife , standard increase of 0.75% pa as an average
• Both have full GPS 
• Some cash and bits and pieces

All of the calculating against my estimated monthly costs (which include pretty much everything I could think of) 

My remaining monthly cash is calculated as = (Net income - (expenses+2.5% inflation))

so essentially I have used zero inflation on my drawdown calculation and instead used it on top of my monthly expenses.

Can anyone see a hole in that of is it a sensible approach 

 thanks

chiefie

What fixed interest products give 4.75% ? 

Marcon

What's 'full GPS' ?

Linton

chiefie said:

What fixed interest products give 4.75% ? 

And assuming a return of 7.25% from equity is I think rather ambitious for planning purposes.  Better to make pessimistic assumptions and be pleasantly surprised than the reverse.  I used a return of 4% gross.

Albermarle

chiefie said:

What fixed interest products give 4.75% ? 

A couple of my bond funds have gone down by this much this year. Not totally unexpected and I had reduced the amounts in them .

Thrugelmir

Nick9967 said:

• PP into DD - calculated using "Which" drawdown calculator on medium settings zero inflation

Pension will mainly be invested in a mix of fixed interest products and stocks and shares.
cash investment grows at an average of 0.50% a year, fixed interest at 4.75% a year and equities at 7.25% a year.

Far too optimistic for investment returns. Zero inflation at the current time is the least expected outcome.  

[Deleted User]

chiefie said:

What fixed interest products give 4.75% ? 

Junk bonds, for example. Behave like stocks though. 

Its a very optimistic assumption 

GeordieGeorge

Nick9967 said:

Need some clarification that what I'm doing is logical or wildly wrong if you can please, 

My calcs for early retirement have various parts to them as you'd expect.

• PP into DD - calculated using "Which" drawdown calculator on medium settings zero inflation

Pension will mainly be invested in a mix of fixed interest products and stocks and shares.
cash investment grows at an average of 0.50% a year, fixed interest at 4.75% a year and equities at 7.25% a year.

• Part time income from me for 4/5 years
• FT income from wife , standard increase of 0.75% pa as an average
• Both have full GPS 
• Some cash and bits and pieces

All of the calculating against my estimated monthly costs (which include pretty much everything I could think of) 

My remaining monthly cash is calculated as = (Net income - (expenses+2.5% inflation))

so essentially I have used zero inflation on my drawdown calculation and instead used it on top of my monthly expenses.

Can anyone see a hole in that of is it a sensible approach 

 thanks

The first two mistakes I can see are that you’ve assumed you can get a risk-adjusted return of 4.75% on fixed income investments, and 7.25% on equities. These seem wildly optimistic.

Inflation-adjusted I’d suggest;

Cash -1% (negative one percent)
Fixed income securities 0.5%

Equities 2.5%

Or thereabouts.

Nick9967

I’m really no investment expert, can’t tell can you!
but over the past 10 years , bit more to be fair I’ve had no where near returns that low, not even close, not my choice of investments , I use Aspira so nothing flash and always has done me well

is Which that far out as a calculator? Even their pessimistic option does 0%, 4% and 6%

my PP only needs to last me 25 years , I have alternatives after that,

Full GPS , government pension scheme


Thrugelmir, sorry think you misunderstood, my point was that my inflation was on my costs and not applied to my pension pot , which is what most calculators do?

cfw1994

Your ‘GPS’ is usually referred to on here as SP - State Pension.
Cash will typically loose out to inflation all the time...UK Gov aim for around 2% inflation, so 0.50% savings would be -1.5%
Equities have had a fair old bull run these past 10 years: getting 7-8% for those on average is perhaps normal....but will it continue?  

I tend to use 4% for planning purposes, & then play with an early -20% in one year to try to test out some ‘sequencing risk’.

Steve182

I generally base my retirement planning on an equity return forecast of 4% net above inflation, BUT

1. I know that's at the top end of the spectrum.
2. I invest in higher risk trusts/funds and direct shareholdings that in a good year (like 2020) may give many times that return
3. I have things up my sleeve, like expected significant future inheritance, not factored into my sums, just in case they are swallowed up by care home costs for my parents