SIPP Growth calculation

Retirebefore50

I wondered if anyone can confirm my calculations. I used an online growth calculator (not sure how to calculate on a spreadsheet).

I'm 44 with current SIPP at £199k. Monthly pension contributions are £1k per month approx (gross) so if I wanted to aim to stop working at 50 but I cant take the pension till 57. Is the following correct in terms of the end balance with growth:

Fund now £199k
Contributions £1k p/m for 6 years = £72,000
Growth at 3% for those 6 years (taking me to 50) = £45k
Then no contributions for 7 years only growth (again 3%) = £73k approx

Fund at 57 = £389k ? 

Does that look correct?. If yes I'll be very happy 😀

I have separate calcs for the gaps between 50 and 57 and 60 and 67 (ISA/LISA and a small normal investment acc). So I'm ok there.

Many thanks

Linton

Your overall figure looks about right.  I made the same calculation with a crude spreadsheet model and got £388K. 

QrizB

Using this calculator in two stages - now to 50, then 50 to 57 - I get £391k if I compound monthly and £388k if I compound annually.

So yes, I think your calculation is correct.

Good luck with your plan; I originally hoped to retire at 50 but life got in the way. I'm now aiming for 58-ish.

Retirebefore50

Linton said:

Your overall figure looks about right.  I made the same calculation with a crude spreadsheet model and got £388K. 

@Linton thank you. I thought it looked high initially but good to know I'm not miscalculating

Retirebefore50

QrizB said:

Using this calculator in two stages - now to 50, then 50 to 57 - I get £391k if I compound monthly and £388k if I compound annually.

So yes, I think your calculation is correct.

Good luck with your plan; I originally hoped to retire at 50 but life got in the way. I'm now aiming for 58-ish.

Thanks @QrizB I actually low balled the contributions so I'm happy I'm not far off. Good luck with your plan too

Rustin

I'll be saving a similar amount every month into an AVC from October. Is it practical to estimate 3% for future planning? 

Thrugelmir

Retirebefore50 said:

Does that look correct?. If yes I'll be very happy 😀

Markets rarely move upwards in a linear fashion unfortunately. 

cfw1994

Thrugelmir said:

Retirebefore50 said:

Does that look correct?. If yes I'll be very happy 😀

Markets rarely move upwards in a linear fashion unfortunately. 

A cheerful submission to the thread, as always….accurate, yes, undeniably……but needs more explanation, I would suggest…

What Thrugelmir perhaps failed to add:

OP, 3% is a broadly very reasonable average growth rate to assume over a long period.  

As the period shortens, however, so there is the possibility that the gain to be larger, smaller or indeed negative.  

To see this on display, as an example, take a look at Vanguard LS100: click the ‘performance’ tab and see how the cumulative performance happily went up over the 5 year period, but if you look below at the ‘discrete performance’ figured, you see that the valued dropped 1.3% for the 12-24 month period:



This is why many might prefer money they could need during their immediate 1-5yr future to be kept in cash (eg premium bonds), even though in the long term, cash ‘assets’ (savings) are eroded over the long term by inflation.

If you google ‘average stock market growth’, you will find the past century saw returns averaging 10%…..but that isn’t the window you are working to!

ETA: decent read on this topic on the Motley Fool here 👍
hope this helps! 

Albermarle

Fund now £199k
Contributions £1k p/m for 6 years = £72,000
Growth at 3% for those 6 years (taking me to 50) = £45k
Then no contributions for 7 years only growth (again 3%) = £73k approx
Fund at 57 = £389k ? 

The calculation is only strictly correct if you have taken account of inflation.

If the 3% growth is after predicted inflation of say 2 or 2.5% ( so actual growth after fees of say 5.5%) , then the £389K is in todays money which is good.

If the 3% is not after inflation , then the £389K figure is correct but in real terms it will be significantly lower due to the effects of 13 years inflation . So in real terms /todays money it will only be worth less than £300K  , based on estimated inflation.

I'll be saving a similar amount every month into an AVC from October. Is it practical to estimate 3% for future planning? 

Of course everybody has a different opinion and it also depends on what you are invested in . If there is a consensus it is that the next 10 years will not be as good as the last decade . A medium risk portfolio will hopefully return a couple of percent real growth/after inflation , so actual growth will probably need to be over 4 % after fees. Should be a realistic assumption but who knows.

dunstonh

Rustin said:

I'll be saving a similar amount every month into an AVC from October. Is it practical to estimate 3% for future planning? 

I would probably assume 0% growth with that timescale.  There is a high chance of a market crash in that period and you have to consider rising inflation potential.        Whatever assumptions you use, you will be wrong.   So, rather than trying to project as accurately as possible, you should project as cautiously instead.

What if the markets fell for three years in a  row and took five years to recover?  Your 3% per annum compound growth model would be way out.  If you over project and underdeliver then it impacts on your plans.   Whereas if you under project and over deliver, it will not impact on your plans, other than in a positive way.

The long term average return of medium risk investments would see an average that makes 3% reasonable.  However, you are not looking at the long term with your timescale until hitting retirement.   

Rustin

dunstonh said:

Rustin said:

I'll be saving a similar amount every month into an AVC from October. Is it practical to estimate 3% for future planning? 

I would probably assume 0% growth with that timescale.  There is a high chance of a market crash in that period and you have to consider rising inflation potential.        Whatever assumptions you use, you will be wrong.   So, rather than trying to project as accurately as possible, you should project as cautiously instead.

What if the markets fell for three years in a  row and took five years to recover?  Your 3% per annum compound growth model would be way out.  If you over project and underdeliver then it impacts on your plans.   Whereas if you under project and over deliver, it will not impact on your plans, other than in a positive way.

The long term average return of medium risk investments would see an average that makes 3% reasonable.  However, you are not looking at the long term with your timescale until hitting retirement.   

Good advice...will be avc pension saving from ages 49 to 57 so will assume no growth with main focus on DB and partners TPS.

Apologies OP for the butt in to the thread, im neck deep in pension provision anxiety.