My pension pot is taking a big hit

SouthCoastBoy

AlanP_2 said:

garyelder said:

What is a reasonable figure my pot should be say in 4 years time 
it’s in medium risk 
I know there will be ups and downs 

Is the value of your pot in 4 years time relevant, or, is it more relevant to think about what income you want to take from it and when?

OK, the income will be influenced by the pot size I know but the pot value isn't the target, the income is.

If you need / want £5k a year say and are working on a 40 year retirement you need a £200k pot (ignoring inflation on your £5k)/

If you need / want £25k a year you are looking at £1m pot value.

Someone who wants / needs £5k shouldn't be worried whether their pot is £540k or £520k. someone who needs /wants £1m should.

Have you worked out what your target is?

I understand the point you are making, however I don't think it as straight forward as that. Personally I don't think inflation can be ignored and secondly I'm not sure expenses are linear throughout retirement. For example in my case I am expecting to need £3500/mth for the first 6 years and by year 10, this goes down to £2500/mth and then year 23 around £1500/mth.

For £3500/mth I would need a pot of over £1.6m, which I am not going to have, having said that it may not be necessary to have £1.6m as my expenses are most probably going to taper. Also if relevant the state pension should be taken into consideration

AlanP_2

SouthCoastBoy said:

AlanP_2 said:

garyelder said:

What is a reasonable figure my pot should be say in 4 years time 
it’s in medium risk 
I know there will be ups and downs 

Is the value of your pot in 4 years time relevant, or, is it more relevant to think about what income you want to take from it and when?

OK, the income will be influenced by the pot size I know but the pot value isn't the target, the income is.

If you need / want £5k a year say and are working on a 40 year retirement you need a £200k pot (ignoring inflation on your £5k)/

If you need / want £25k a year you are looking at £1m pot value.

Someone who wants / needs £5k shouldn't be worried whether their pot is £540k or £520k. someone who needs /wants £1m should.

Have you worked out what your target is?

I understand the point you are making, however I don't think it as straight forward as that. Personally I don't think inflation can be ignored and secondly I'm not sure expenses are linear throughout retirement. For example in my case I am expecting to need £3500/mth for the first 6 years and by year 10, this goes down to £2500/mth and then year 23 around £1500/mth.

For £3500/mth I would need a pot of over £1.6m, which I am not going to have, having said that it may not be necessary to have £1.6m as my expenses are most probably going to taper. Also if relevant the state pension should be taken into consideration

I totally agree but if the OP hasn't worked out whether they need / want £3.5k or £1.5k then they are flying blind. We see many posts on here that focus on the £value of a pot with no regard to what those £s are for, aiming to leave the largest inheritance known to man is not a great goal in my mind. The £s just keep the score, they don't decide who has won.

The OP is currently living off rental income so presumably that is enough for what he wants / needs. If correct then the value of the pension pot is almost immaterial as it will never be touched, particularly with SP to come presumably.

I've used broadly the same approach as you with a reducing "real" expenditure over time and have built am inflation multiplier in to our figures. It's linear and simple but won't match future reality when it arrives but having a plan to adapt is preferable to no plan in my view.

OP - You say you have contributed £120k over the last 3 years (£40k pa, the effective maximum). This implies you had a very good salary when working (£40k+) but are now living off rental income (say £10k pa).

That is unusual I would suggest. People used to an income of £40k+ generally spend more than people living off £10k and have an expectation / ambition to continue at a similar level once retired.

You haven't provided any additional context, just the pension question, so we don't know you full circumstances which could have a major impact on whether you should be worried or not. For example you may have another £1m outside pensions for all we know, or a DB pension in your name or a partner's name to come.

Don't just lok at pension in insolation, look at your overall situation.

Albermarle

garyelder said:

What is a reasonable figure my pot should be say in 4 years time 
it’s in medium risk 
I know there will be ups and downs 

As others have said it is unpredictable but a common guess/estimate seems to be that a medium risk portfolio could gain one or two per cent above inflation over the next decade . This is much less than we have seen over the previous decade .

I expect your right about 300k
 but the last 3 years I put in 120k

How much of that was 'free' tax relief ?

Audaxer

AlanP_2 said:

garyelder said:

What is a reasonable figure my pot should be say in 4 years time 
it’s in medium risk 
I know there will be ups and downs 

If you need / want £5k a year say and are working on a 40 year retirement you need a £200k pot (ignoring inflation on your £5k)/

Assuming the £200k is invested over the 40 year retirement, then that you should be able to drawdown more than £5k per year. To be able to drawdown £5k income, rising with inflation each year, I think a pot of around £140k would be sufficient, as that amounts to a fairly safe withdrawal rate of just over 3.5%. 

Thrugelmir

Audaxer said:

AlanP_2 said:

garyelder said:

What is a reasonable figure my pot should be say in 4 years time 
it’s in medium risk 
I know there will be ups and downs 

If you need / want £5k a year say and are working on a 40 year retirement you need a £200k pot (ignoring inflation on your £5k)/

Assuming the £200k is invested over the 40 year retirement, then that you should be able to drawdown more than £5k per year. To be able to drawdown £5k income, rising with inflation each year, I think a pot of around £140k would be sufficient, as that amounts to a fairly safe withdrawal rate of just over 3.5%. 

What's your short term inflation forecast? 

garyelder

Are everyone's pension pots still stagnant or still slipping, I expected my pot to rise but its still slipping but only slightly

theblueflash

It’s like a daily death by 1.2% cuts :-) for me across the funds I hold. A painful watch,  but watch is all I’ll be doing, it’s when you reach for sell/switch that you’re in trouble, usually. Bond funds and bond elements of broad investments getting panned last few days. Some of them haven’t moved in years! 

kuratowski

garyelder said:

Are everyone's pension pots still stagnant or still slipping, I expected my pot to rise but its still slipping but only slightly

That is not a reasonable expectation over a short timeframe.  Over a decade or more, perhaps.  Over weeks, you cannot expect to see anything apart from noise.

garyelder

Surety you must expect some return on it otherwise I might as well take my tax free lump out and get a small return from something like atom bank 

kuratowski

You may have a reasonable expectation of a positive return over and above inflation, but only over long time frames - at least 5 years, and 10 years is better.  Over short time frames, the price movements of investments are unpredictable, they might as well be random.  The general idea of investment is to hold things for the long term, and not bother too much about short term performance.

https://monevator.com/investing-for-beginners-risk-returns-time-and-diversification/

For long time horizons, sticking your TFLS in the bank is quite likely to result in a below inflation return.  As well as sacrificing the tax advantages of leaving it where it is.