Final Salary Pension Transfer

arty688

It does seem odd to me that a financial advisor could give advise that not the best thing to do financially? It’s like you have to beg and justify why you should have your money . ( that’s a bit ranty).

Pablo7474

Haha, we all love a good rant! 😁

I think the system is not ideal, but why would an adviser want to advise you to do something where you are taking on more risk, when you could retire and live life off your DB. 

As you have probably heard, it is not deemed your money, or at least the pot isn’t. You have been guaranteed an income, not the pot.

It must be tough to be an adviser on this with the regulations, I am glad I don’t do it. 

Pablo7474

Re GMP, I had a friend who received about £2k per year at 60, then when got to 65 his GMP came into payment which was about another £5k. He therefore realised the transfer value he had been offered was not as good as he thought as he was basing it on £2k per annum. 

RoadToRiches

It’s not your pot until you have found someone to give you full advice, then you have the choice whether to exchange your promised income for the pot. Yes get you take on the added investment risk and for me there was no GMP :-(

Prism

RoadToRiches said:

arty688 said:

Out of interest if someone was to offer you £120k now or £2.5k per year in five years time going up with rpi what would you take?

£120K every time because

RPI is a unknown but lets Roll back the clock to 1991. if you had started out with £2,500 back then in real terms this would be worth £5,740 today - https://www.hl.co.uk/tools/calculators/inflation-calculator

Let's take the average = £4,120 x 30 years = £123,600 is what the pot is worth but does not take into account investment growth.

Now lets invest £120,000 in the S&P 500 which on average has returned 7% (Taking into account Crashes over this period - past performance does not equal the future) and a drawdown of £400 per month with RPI running at 2.5%

Your pot would still be worth £343,052 after drawing down £400 per month for 30 years - https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

Pablo7474

It never seems the “no brainer” gang like this kind of scenario, they all assume win win win. 

RoadToRiches

Prism said:

RoadToRiches said:

arty688 said:

Out of interest if someone was to offer you £120k now or £2.5k per year in five years time going up with rpi what would you take?

£120K every time because

RPI is a unknown but lets Roll back the clock to 1991. if you had started out with £2,500 back then in real terms this would be worth £5,740 today - https://www.hl.co.uk/tools/calculators/inflation-calculator

Let's take the average = £4,120 x 30 years = £123,600 is what the pot is worth but does not take into account investment growth.

Now lets invest £120,000 in the S&P 500 which on average has returned 7% (Taking into account Crashes over this period - past performance does not equal the future) and a drawdown of £400 per month with RPI running at 2.5%

Your pot would still be worth £343,052 after drawing down £400 per month for 30 years - https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

If you are doing the 4% withdrawal thing, then may I suggest you need a pot of money to weather that storm, you hold back on taking funds out when the markets are falling like that. Yes I get markets can be unpredictable and can go down as well as up.  Overall since 1929 you'd have done well investing in the markets.  They usually do well over the longer term.

Thrugelmir

Pablo7474 said:

It never seems the “no brainer” gang like this kind of scenario, they all assume win win win. 

Scenario's only become the hot topic of conversation after a period of stock market performance. The conversation soon dies when the weather changes. 

Dale72

Thrugelmir said:

Scenario's only become the hot topic of conversation after a period of stock market performance. The conversation soon dies when the weather changes. 

What 'period' are you referring to? Barring the odd blip the market has seen a steady and consistent rise for decades.

RoadToRiches

Meet James, James is the world’s worst market timer – he always buys at market peaks

James began his career in 1970 at age 22. He was a good saver and planner. His plan was to save $2,000/year during the 1970’s and increase it by $2,000 each decade until could retire by end of 2013 aged 65 (So $4,000/year in the 80’s, $6,000/year in the 90’s then $8,000/year until he retired).

He saved $2,000 a year and had $6,000 to invest by end of 1972

James only had the courage to invest in the market after a huge run up

So all of his money went into the S&P 500 Index fund at the end of 1972

The market dropped 50% in 1973/74. James had invested at the peak before the crash

BUT, once he was invested, he never sold his shares. He HELD on for dear life because he was too nervous about being wrong on both his sell decisions too

James didn’t feel comfortable investing again until August 1987 after another huge bull market. After 15 years of saving, he had $46,000 to put in an S&P 500 Index fund.

It was another peak, the market lost 30% right after James bought the index

Again, he stayed invested, terrified of selling at the wrong price

After the 1987 crash James was scared to invest again until the tech stocks lifted off end of 1999.  He invested $68,000 of savings just before a 50%+ downturn.

James decided to make one more big purchase with his savings before he retired

The final investment was made in October 2007.  He invested $64,000 he had been saving since 2000. Right before another 50%+ crash from the credit crunch.

After the financial crisis he continued to save his money (Another $40,000) but kept his stock investments in the market until he retired at the end of 2013

To recap, James was a terrible market timer with his only stock market purchases being made at the market peaks just before extreme losses. But he never sold a single share. He didn’t sell after the Bear market of 1973-74 or the Black Monday in 1987, or the technology bust in 2000 or the financial crisis of 2007-09

So How did James do?

James bought at the very top of the market but ended up with $1.1 million