Average pension pot on retirement and whats your aim ?

Kim1965

michaels said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

My number is x times planned annual expenditure so rising inflation pushes the number up by the same proportion; how my pot has performed relative to my number will thus be driven by real terms investment performance rather than nominal performance.  No view on inflation is needed, just a view on long term real returns.

If you use x annual expenditure how do u factor state pension and retirement age into this??
 Often quoted 30 x expenditure. So if a person retires at 66,needs 19.5 k has full nsp... They need 300 k? 

Thrugelmir

Steve182 said:

Sunnylifeover50plan said:

Steve182 said:

lisyloo said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

Do these figures mean you were previously expecting 0% inflation?
it’s bad I agree but surely you were expecting some, so it should be less than the headline figures as you had some factored in anyway?

I had factored in 2% average long term. I'm now factoring in 7% for 2022 then 4% for 2023, hopefully back to 2% in 2024. Just a complete guess.....

Out of interest what have you factored for growth/ returns? I also had the 2% figure for inflation long term - things have changed quite quickly even if it turns out to be short term.. 

For pension pot growth, prior to retirement I had, until recently, factored in 6% above inflation. This is because I'm happy to have a  fairly high risk portfolio and don't need to retire at 56 so I can adjust my plans and delay retirement as required. Post retirement I plan around 5% drawdown from age 56 to 67, reducing to 3.5% once my spouse and I both have full SP. I have assumed inflation at 2% average, obviously far below what we expect in 2022/2023

That’s optimistic by any benchmark. Not least that the figure is after “costs” as well. An extended bull market fuelled by loose fiscal monetary policy has certainly raised expectations to unrealistic levels. 

MK62

Inflation of 2% seems a tad optimistic too tbh......that might be the BoE's target, but it's one they've often failed to meet......CPI inflation over the last 20 years has averaged 2.9%, and 2.6% over the last 10 years. (RPI is 3.1% and 2.9% respectively). It might appear to be a small difference, but, over a long period, it can make quite a big dent.......

That's the official rate too....everyone's rate is going to be different in reality - ours is not far off twice the official rate at the moment (mainly thanks to energy and fuel prices)

MallyGirl

Albermarle said:

Ibrahim5 said:

I spent a lot of time working out how much I needed in retirement. I earned £100K so 2/3 was £66K, 1/2 was £50K. Which magazine seemed more sensible at £26 to £41K. Even though I earned £100K I only spent more than average on property and holidays. In the highest council tax band and with a big gas bill I can't get by on the least without downsizing. House maintenance also but not as bad as some people seem to suggest. Holidays can be very cheap if you can go at anytime. I am always checking out Tuesday flights. You have to work out your own figures. It's interesting reading these fora but there is no substitute for doing your own. I think the percentage of previous pay is particularly useless.

Your gross earned pay is not that relevant , The rule of thumb is you need two thirds of take home pay . As mentioned in a couple of previous posts you often only need 50% of gross income to get 65%/70% of take home pay , although it will vary from person to person of course.

We are working from our NUMBER up and ignoring gross pay. At the moment we both Sal sac £40k into pensions (big later years catch-up) so our take home is more relevant/interesting as we won't be doing this in retirement obviously. Not having that extra now is good training for the spending levels we might sustain later.

SouthCoastBoy

Steve182 said:

lisyloo said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

Do these figures mean you were previously expecting 0% inflation?
it’s bad I agree but surely you were expecting some, so it should be less than the headline figures as you had some factored in anyway?

I had factored in 2% average long term. I'm now factoring in 7% for 2022 then 4% for 2023, hopefully back to 2% in 2024. Just a complete guess.....

I think inflation figures will be a lot higher. I am currently modelling 10, 12, 10 ,9, 8 for the next 5 years and growth of 0,0,3,3,3. Think we are going to be in for a very rocky time

Albermarle

SouthCoastBoy said:

Steve182 said:

lisyloo said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

Do these figures mean you were previously expecting 0% inflation?
it’s bad I agree but surely you were expecting some, so it should be less than the headline figures as you had some factored in anyway?

I had factored in 2% average long term. I'm now factoring in 7% for 2022 then 4% for 2023, hopefully back to 2% in 2024. Just a complete guess.....

I think inflation figures will be a lot higher. I am currently modelling 10, 12, 10 ,9, 8 for the next 5 years and growth of 0,0,3,3,3. Think we are going to be in for a very rocky time

I hope you are wrong !

One thing I have noticed already with the higher inflation etc , is that we are being just that little bit more careful with our spending, almost subconsciously . Even if inflation is 10% , if you only buy 95% of what you did before you have mitigated the impact by half.
Of course it is only a short term solution and it  only works if you are not living hand to mouth, and can easily adjust spending. 

SouthCoastBoy

Albermarle said:

SouthCoastBoy said:

Steve182 said:

lisyloo said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

Do these figures mean you were previously expecting 0% inflation?
it’s bad I agree but surely you were expecting some, so it should be less than the headline figures as you had some factored in anyway?

I had factored in 2% average long term. I'm now factoring in 7% for 2022 then 4% for 2023, hopefully back to 2% in 2024. Just a complete guess.....

I think inflation figures will be a lot higher. I am currently modelling 10, 12, 10 ,9, 8 for the next 5 years and growth of 0,0,3,3,3. Think we are going to be in for a very rocky time

I hope you are wrong !

One thing I have noticed already with the higher inflation etc , is that we are being just that little bit more careful with our spending, almost subconsciously . Even if inflation is 10% , if you only buy 95% of what you did before you have mitigated the impact by half.
Of course it is only a short term solution and it  only works if you are not living hand to mouth, and can easily adjust spending. 

I hope I'm wrong! I think we have shifted into a new paradigm, the days of low inflation I think are over for now. Unfortunately I think the next 10 years are going to be particularly challenging.

michaels

Kim1965 said:

michaels said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

My number is x times planned annual expenditure so rising inflation pushes the number up by the same proportion; how my pot has performed relative to my number will thus be driven by real terms investment performance rather than nominal performance.  No view on inflation is needed, just a view on long term real returns.

If you use x annual expenditure how do u factor state pension and retirement age into this??
 Often quoted 30 x expenditure. So if a person retires at 66,needs 19.5 k has full nsp... They need 300 k? 

I use two tools, the SWR toolbox spreadsheet checked against the cfiresim online calculator.  These allow the modelling of annual withdrawals to keep total spend equal once state pension etc cut in.  They don't know about details like the triple lock so assume the state pension is simply indexed but come up with a 'composite' withdrawal rate showing how much per year I would take from the pot for 12 years from retirement until SPA and then the lower amount needed thereafter - I set an end date of 30 years post SPA but once you get over about 40 years then adding more years makes little difference. It also allows me to model the impact of joining the CS and transferring a lump sum from my DC into DB which adds a little to the safe annual expenditure at the expense of reducing the average size of the pot on death - as I am thinking the pot is for me not an inheritance then this works for me.

MK62

Steve182 said:

For pension pot growth, prior to retirement I had, until recently, factored in 6% above inflation. This is because I'm happy to have a  fairly high risk portfolio and don't need to retire at 56 so I can adjust my plans and delay retirement as required. Post retirement I plan around 5% drawdown from age 56 to 67, reducing to 3.5% once my spouse and I both have full SP. I have assumed inflation at 2% average, obviously far below what we expect in 2022/2023

The other thing I'd caution against is relying on average numbers for long term drawdown projections.......it makes little difference when you are accumulating, but once into drawdown the actual sequence of the real numbers can make a huge difference.....even if the averages over the period work out the same.

DT2001

SouthCoastBoy said:

Steve182 said:

lisyloo said:

NedS said:

I actually think the NUMBER is more relevant than the size of the pot. The pot just needs to be able to deliver said amount of income.

Steve182 said:

My aim is now 7% more than it was this time last year, thanks to spiralling inflation, caused for a number of reasons, not least the heinous actions of an evil Russian dictator.  To make some very small light of such an awful situation, my wife told me I'd just have to put-in more (into our retirement fund). 

Unfortunately it's likely worse than that due to freezes on income tax allowances etc. A 7% increase in gross income where the personal tax allowance is frozen and doesn't rise likewise only results in a 5.6% net increase in income, so in reality you will need to target an 8.75% gross increase to achieve 7% net.

Do these figures mean you were previously expecting 0% inflation?
it’s bad I agree but surely you were expecting some, so it should be less than the headline figures as you had some factored in anyway?

I had factored in 2% average long term. I'm now factoring in 7% for 2022 then 4% for 2023, hopefully back to 2% in 2024. Just a complete guess.....

I think inflation figures will be a lot higher. I am currently modelling 10, 12, 10 ,9, 8 for the next 5 years and growth of 0,0,3,3,3. Think we are going to be in for a very rocky time

What does that do to your retirement date or will you adjust spending?