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Is my Pension Pot too Small?

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  • ader42
    ader42 Posts: 328 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    I tend to “guess” based upon my own experience of my own investing and historical factual figures.

    FTSE100 7.8% annualised total return for example (1984-2019).

    Anyhow, we don’t have crystal balls so best to have low, mid and high scenarios; guess you’re more pessimistic than I.
  • Albermarle
    Albermarle Posts: 27,896 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    ader42 said:
    I tend to “guess” based upon my own experience of my own investing and historical factual figures.

    FTSE100 7.8% annualised total return for example (1984-2019).

    Anyhow, we don’t have crystal balls so best to have low, mid and high scenarios; guess you’re more pessimistic than I.
    The 7.8% has to be minus inflation over the same period, to give a meaningful result.
  • lisyloo
    lisyloo Posts: 30,077 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    kinger101 said:
    kinger101 said:
    ader42 said:
    Finger in the air maths…

    Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
    You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
    £400k would buy a pension of about £16k a year. 

    That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.
    Planning using a 7% growth rate is a little optimistic, and you have not factored in inflation. 

    All predictions will be wrong, but they do need to be useful (NB they cannot access pensions at 55 anyway).

    I plan growth at 2.5% above inflation, which by my calculations would give OP an inflation adjusted pot of around £420K at 67.  At a drawdown rate of 3.5% pa, would mean £14,700 pa.  On top of state pension of ca. £9650 per year, then I'd say OP's plans are reasonable to give the a strong plan for a comfortable retirement at state pension age.  But it would be useful if they can work out their expenditure too.  Of course, I'll be wrong too, but hopefully wrong in a more useful way.


    In an earlier post I 'guessed' at a pot of £330,000 at age 60 (also in real terms, )so we are approx in the same area.
    Seems we "guess" in very similar ways as if I change it to 60, it also comes out around £330K.
    I want between 2 and 3 times that and I don’t think my lifestyle is extravanganrt so doesnt it all boil down to what you want? As it could be £330 or it could be £990k?
  • Scarum
    Scarum Posts: 111 Forumite
    Part of the Furniture 10 Posts Name Dropper Mortgage-free Glee!
    bd10 said:
    My personal assumptions are: long term inflation rate of 3% and for asset returns 5-6% nominal. For 2023 I am using 6.3% inflation, 4-5% for 2024 and then 3% thereafter. As you will notice, my nominal equity returns are below historical averages and here I make a judgement call to err on the cautious side. The era of QE and cheap money is over, we have an accelerating demographic change to deal with, re-shoring of supply chains keeping the costs higher and thus corporate profits lower and last but not least the huge costs of trying to achieve net zero. So I end up using 2-3% real returns which may sound poor and I may be well below the actual returns which we may see in the future, totally agree. Who knows. But here's the thing: I am more likely to over-save than under-save and if I keep at my own pace of aggressive savings I may be able to retire a few years before 65 instead of being overly optimistic and then realising I am behind target.
    You can have a look at Vanguard's returns outlook, even Jack Bogle had a chapter partially dedicated to that in his Little Book of Common Sense Investing. Credit Suisse's outlooks are similar to both as well.
    These values more or less described my spreadsheet exactly!  I use a return rate of 80% of my SIPP's 3 year historical annualised growth rate.
  • ComicGeek
    ComicGeek Posts: 1,653 Forumite
    Eighth Anniversary 1,000 Posts Name Dropper
    kinger101 said:
    ader42 said:
    Finger in the air maths…

    Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
    You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
    £400k would buy a pension of about £16k a year. 

    That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.
    Planning using a 7% growth rate is a little optimistic, and you have not factored in inflation. 

    All predictions will be wrong, but they do need to be useful (NB they cannot access pensions at 55 anyway).

    I plan growth at 2.5% above inflation, which by my calculations would give OP an inflation adjusted pot of around £420K at 67.  At a drawdown rate of 3.5% pa, would mean £14,700 pa.  On top of state pension of ca. £9650 per year, then I'd say OP's plans are reasonable to give the a strong plan for a comfortable retirement at state pension age.  But it would be useful if they can work out their expenditure too.  Of course, I'll be wrong too, but hopefully wrong in a more useful way.


    With this approach, does that mean that the pension contributions have to increase with inflation each year to get the calculated inflation adjusted pot?
  • SieIso
    SieIso Posts: 149 Forumite
    10 Posts First Anniversary Name Dropper
    I have been spending some time looking into my pension pot and I have discovered the follow:

    1. Weak Return preddiction = £118k, average return = £251k and strong return = £538k. The following caveat is included:

    This forecast takes into account possible future inflation, meaning the results can be viewed as if you were spending the money today.

    2. AVC + Pre97 SCC + Core ER Contributions + Transfer in contributions + ER Matching Contributions + EE Saver Contributions - Growth Fund (Drawdown L/S). I do not know what any of this means.

    3. I wish to transfer some savings across to my pot, I assume this is allowed without any penalties?

    4. I just realised I worked for a company in 2013 but I have not accessed their pension pot. I assume there would be one as it was a government requirement at this stage? 

  • Albermarle
    Albermarle Posts: 27,896 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
     I wish to transfer some savings across to my pot, I assume this is allowed without any penalties?

    It is only worth transferring savings into a pension if you will get tax relief on them. So it depends on your earnings as you can only get tax relief up to 100% of your earnings.

    So as a simple example.

    You earn £30K pa before tax.

    Your total contributions to a pension should not exceed £30K including tax relief. It does not matter whether you make the contributions from earnings, or from savings, or a mixture of the two.

    If you are a higher earner than that, and there are employer contributions as well, there are other limits.

    Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)

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