Retirement planning dilemma

Pat38493

Albermarle said:

Pat38493 said:

zagfles said:

 Most global index trackers are up around 30% over 3 years and 50% over 5 years. 

This makes me wonder then if my current employer pension is poorly invested then.  My 2 DC funds - legacy one is showing 95% growth over 10 years and 17.23% over 5 years which seems ok but not 50% as you say (November factsheet).   The other one which is my current default employer fund has only been going less than 10 years but is showing only 2.4% per year over 5 years (September factsheet). (Aegon MI Savings (H) )

Maybe I am not looking at the right numbers and need to look somewhere else or maybe I am in the wrong funds if trackers could have achieved 50% over 5 years.

If that is a valid comparison I guess I need to look at changing out of the default funds.

The issue is that if a pension default fund was 100% equities and it lost 40% in a month, then some employees would be very unhappy and saying, 'why is my money invested like that??'
So they are normally more middle of the road, with a % of bonds (that have been hit unusually hard recently) and a relatively high UK %. In normal times they just tick along.
Also a tracker being up 50% in 5 years, is not typical, and unlikely to be repeated soon, but nobody knows for sure.

Well yes but this particular fund is rated as H for high risk and shows "Above Average risk" as the score, and as far as I can see it is invested around 70% in equities - it was higher last year.  Now it's also invested 14.3% in money markets.  I guess the numbers can be quite highly swayed by recent possibly short term losses - the factsheet from March shows 5.9% per year over 5 years and the one from last December was 7.4%.  UK equities in this fund was never higher than 15% since I was checking it.

GazzaBloom

I spent too may years languishing in my company pension providers default fund. I would probably be retired now if I knew 20 years ago what I know now...

Linton

Pat38493 said:

zagfles said:

 Most global index trackers are up around 30% over 3 years and 50% over 5 years. 

This makes me wonder then if my current employer pension is poorly invested then.  My 2 DC funds - legacy one is showing 95% growth over 10 years and 17.23% over 5 years which seems ok but not 50% as you say (November factsheet).   The other one which is my current default employer fund has only been going less than 10 years but is showing only 2.4% per year over 5 years (September factsheet). (Aegon MI Savings (H) )

Maybe I am not looking at the right numbers and need to look somewhere else or maybe I am in the wrong funds if trackers could have achieved 50% over 5 years.

If that is a valid comparison I guess I need to look at changing out of the default funds.

Looking at your Aegon MI (H) fund:  it's about 70% equity and 30% bond/cash. It performed in line with its category up to the Covid mini-crash but did not recover as quickly. Possibly because the equity is about 50% US which is slightly lower than average. 100% equity would have provided higher growth but in general you would expect the Aegon fund to be rather less volatile.  However over the past year bonds have fallen significantly due to increasing interest rates.

Conditions in the next 5 years may be very different to those in the past 5 years so they do not give a proven case for a transfer.

The 50% 5 year return quoted for 5 years return from a global rracker seems rather high.  The FTSE World factsheet shows a return of 40%.

So in my view nothing very much to be concerned about for the long term with as regards your Aegon fund unless you really want to go for 100% equity.

Mutton_Geoff

ader42 said:

You must spend a lot though - especially if the house is paid off - my family lives happily on £24k gross - so I’d look at where you are potentially wasting money too.

I have many retired friends from all walks of life. The (net) figures they all feel comfortable with are £24k for a single person, £36k for a couple. £24k sounds fairly frugal for a couple since it cost me around £12k a year just to stand still with utilities, council tax, insurances, fuel & a basic weekly shop (ex alcohol).

I'm planning a George Best retirement 

JohnWinder

The 50% 5 year return quoted for 5 years return from a global rracker seems rather high.  The FTSE World factsheet shows a return of 40%.

Commonly growth is reported as annual arithmetic average because it looks better than compound  annual growth. Down 50% this year and up 100% next year gives an arithmetic average of up 25%/year, but the actual growth (CAGR) is zero. Watch out for this trick. May not apply in the example of FTSE. 

noclaf

GazzaBloom said:

I spent too may years languishing in my company pension providers default fund. I would probably be retired now if I knew 20 years ago what I know now...

I can relate to this too, only started tweaking my workplace pension funds and taking a hands-on approach after my mid 30's.....I don't want to even think about what could of been but..... I only landed in the higher rate income tax bracket at around 35/36 so part of me thinks it actually worked out ok, anyway what's done is done ...onwards we march after pensions enlightenment!

MK62

Linton said:

Pat38493 said:

zagfles said:

 Most global index trackers are up around 30% over 3 years and 50% over 5 years. 

The 50% 5 year return quoted for 5 years return from a global rracker seems rather high.  The FTSE World factsheet shows a return of 40%.

....might just be total return vs price return....

Linton

JohnWinder said:

The 50% 5 year return quoted for 5 years return from a global rracker seems rather high.  The FTSE World factsheet shows a return of 40%.

Commonly growth is reported as annual arithmetic average because it looks better than compound  annual growth. Down 50% this year and up 100% next year gives an arithmetic average of up 25%/year, but the actual growth (CAGR) is zero. Watch out for this trick. May not apply in the example of FTSE. 

It would be interesting to see some examples.  All the reputable sources (eg trustnet, morningstar) give the right average.  Arithmetic average is never correct when accumulating returns, it should be the geometric average.  I would not be surprised if quoting an arithmetic average in the sales literature for a financial product is contrary to regulationsn in the UK.

Though I have seen a similar mistake by a well publicised US investment commentator (cant remember his name) to "prove" that volatility decreases returns.

Linton

MK62 said:

Linton said:

Pat38493 said:

zagfles said:

 Most global index trackers are up around 30% over 3 years and 50% over 5 years. 

The 50% 5 year return quoted for 5 years return from a global rracker seems rather high.  The FTSE World factsheet shows a return of 40%.

....might just be total return vs price return....

Seems to be the case - I misread a graph.  Thanks.

Albermarle

noclaf said:

GazzaBloom said:

I spent too may years languishing in my company pension providers default fund. I would probably be retired now if I knew 20 years ago what I know now...

I can relate to this too, only started tweaking my workplace pension funds and taking a hands-on approach after my mid 30's.....I don't want to even think about what could of been but..... I only landed in the higher rate income tax bracket at around 35/36 so part of me thinks it actually worked out ok, anyway what's done is done ...onwards we march after pensions enlightenment!

Mid 30's is pretty early for a hands on approach. Usually it is around 50 when retirement first pokes its head over the horizon. Plus of course for the majority, they never think about it at all !