Pension Returns

Dazza1902

Albermarle said:

Is this 5.9% after inflation ?

I understand the need to play safe when guessing on potential returns. If indeed 5.9  % is an average return at what point throughout all the monetary stimulus over the last 13 years have we seen an average of  4.9% inflation ? 

JohnWinder

Deleted_User said:

There are several strategies for ensuring safety:

I’ll endorse this line of thinking.

You’re right to try to model your retirement income, and you’ve chosen to estimate returns. Some good points are already made about not being able to guess future returns from past and the dreaded bad sequence of returns, but there’s also the ‘tricks’ or shortcomings with averages. A minus 50% return this year, followed by a 100% return next year just takes you back to where you were, but the average return is 25%/year (up) which is clearly unhelpful. You need compound average growth rate to address that issue. It’s never as high as ‘average’ so it’s often not reported, although rarely as discordant as this example.

But the whole different approach you might at least look at is Mordko’s, so let me assist in finding it.

If you don't know it, search for the ‘4% rule’, and a read a few articles to get a feel for its implementation and shortcomings. It’s a good strategy for choosing your own ‘x.y%’ rule as a great guide to your spending prospects.

Secondly, you can read up on the ‘variable’ VPW approach here. Plenty of spreadsheet fun for young and old.  https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

Thirdly, if you’re still wondering, read up on ‘liability matching portfolios’, Mord’s #2.

shinytop

Nick9967 said:

SW Baillie Gifford North American Equity PensionFund code: CQ	21.31%
SW Fidelity Asia PensionFund code: ZH	16.54%
SW Invesco-Perpetual Corporate Bond PensionFund code: VH	9.33%
Scottish Widows Cash PensionFund code: CA	5.09%
Scottish Widows European PensionFund code: EE	3.18%
Scottish Widows Fixed Interest PensionFund code: FI	9.25%
Scottish Widows International PensionFund code: IN	15.69%
Scottish Widows Property PensionFund code: PY	1.10%
UK EquityFund code: EQ	18.51%

That's quite a high risk and volatile portfolio to my untrained eye. 

SouthCoastBoy

To me the swr should be considered along with a equities cash split in my case 60:40. This means I will be able to decide when to cash in equities as if there is a dip I can ride it out. My cash reserves should be able to last 10 to 15 years. If inflation moves up I may put more into equities.

ex-pat_scot

shinytop said:

Nick9967 said:

SW Baillie Gifford North American Equity PensionFund code: CQ	21.31%
SW Fidelity Asia PensionFund code: ZH	16.54%
SW Invesco-Perpetual Corporate Bond PensionFund code: VH	9.33%
Scottish Widows Cash PensionFund code: CA	5.09%
Scottish Widows European PensionFund code: EE	3.18%
Scottish Widows Fixed Interest PensionFund code: FI	9.25%
Scottish Widows International PensionFund code: IN	15.69%
Scottish Widows Property PensionFund code: PY	1.10%
UK EquityFund code: EQ	18.51%

That's quite a high risk and volatile portfolio to my untrained eye. 

Nope. I think the OP was trying to prove that there are such a thing as pension fund returns.
They have made the mistake of reading the fund title and assuming that these are "pensions" and that these are the returns of pensions (and by implication anything without "pension" in its title is not).

shinytop

ex-pat_scot said:

shinytop said:

Nick9967 said:

SW Baillie Gifford North American Equity PensionFund code: CQ	21.31%
SW Fidelity Asia PensionFund code: ZH	16.54%
SW Invesco-Perpetual Corporate Bond PensionFund code: VH	9.33%
Scottish Widows Cash PensionFund code: CA	5.09%
Scottish Widows European PensionFund code: EE	3.18%
Scottish Widows Fixed Interest PensionFund code: FI	9.25%
Scottish Widows International PensionFund code: IN	15.69%
Scottish Widows Property PensionFund code: PY	1.10%
UK EquityFund code: EQ	18.51%

That's quite a high risk and volatile portfolio to my untrained eye. 

Nope. I think the OP was trying to prove that there are such a thing as pension fund returns.
They have made the mistake of reading the fund title and assuming that these are "pensions" and that these are the returns of pensions (and by implication anything without "pension" in its title is not).

Ah I see now.

Nick9967

Hi all 
thanks for your input , just to clarify something which I didn't at the beginning , my entire strategy, for what its worth, is based around my pension pot lasting 22 years, if it's not at zero at that point then bonus but I wont require it, that's all I need this pot for. I've actually based it on a growth of 4.5% pa, including 2% inflation. The amount I draw each varies somewhat,

 

1	£20,000	12	£16,000
2	£20,000	13	£25,000
3	£20,000	14	£27,000
4	£20,000	15	£27,000
5	£20,000	16	£27,000
6	£25,000	17	£27,000
7	£25,000	18	£25,000
8	£25,000	19	£20,000
9	£25,000	20	£20,000
10	£16,000	21	£20,000
11	£16,000	22	£20,000

Notepad_Phil

You're planning on taking out £486,000 (presumably valued in today's money) but you've not specified how much you have in your initial pot.

Theoretically, with a constant 2.5% real return on your investments you could manage those drawdowns if you started out with something like £375,000, however even just a few years of underperformance at the beginning would throw that completely out and so I'd want to hold quite a bit more (unless you have some leeway over how much you can drawdown) and would probably hold at least a few years in cash.

gm0

Planning with a static figure for "long term average equity returns" is a useful stage in making income/expenditure and life event plans. Many of us start by trying to model retirement as an extension of working life and family budgets.  Events such as property downsizing if relevant (variable timing) and the arrival of state pensions (known timing) can be factored in.  These 40 year models are inevitably going to be wrong whether you think equities long term averages are nearly 7% or 4.5% or indeed zero real from here.  What is interesting about 40 year cashflows is what happens if you do vary the long term equity return down by a few % from historic values.  When does it definitely break because your income goals are not met by your pot.  When are savings exhausted. This is a useful data point about macro guard rails when reviewing what is happening in the world as you go along.

When you have a drawdown shape you broadly like then it is possible to play with MC sims (Excel or RetirementPlanner or similar) to throw distributions of returns and random sequences and observe the possible (wide) ranges of behaviour of your plan in the presence of sequence of return.

There are numerous specific techniques to handle indexing income, variable income planning, target fund values, allowable draw calculations - both simple and complex ones.  Choose your poison appropriate to need.

Nick9967

Notepad_Phil said:

You're planning on taking out £486,000 (presumably valued in today's money) but you've not specified how much you have in your initial pot.

Theoretically, with a constant 2.5% real return on your investments you could manage those drawdowns if you started out with something like £375,000, however even just a few years of underperformance at the beginning would throw that completely out and so I'd want to hold quite a bit more (unless you have some leeway over how much you can drawdown) and would probably hold at least a few years in cash.

You're right i missed pot starting point !  
it should be circa £325,000