Is my pension calculation correct?

deefadog

Hi all, I have been looking into my work pension, this week, which is with L&G invested in the S&P 500. I have ASSUMED (I know lol) it will return 10% in the below calculations, It's just for a ballpark figure. But have I worked it out correctly? 

Thanks for any clarification

FIREDreamer

Yes, but it will be in future money not allowing for inflation. Maybe reduce the growth rate from 10% to, say, 6% to allow for inflation and then the value will be in today’s money so you have an idea what it will buy.

Bostonerimus1

Looks to be correct. If you assume double digit average annual returns you can get some impressive numbers. For planning purposes I'd put in a range of return numbers with 10% at the top end and maybe 3% at the bottom and don't make your plans based on 10%!

deefadog

Thank you both, yes, i have played with the growth rate, I am under no illusions of grandeur ha! I just wanted to double-check that I was working it out correctly!

Thanks

Bostonerimus1

FIREDreamer said:

Yes, but it will be in future money not allowing for inflation. Maybe reduce the growth rate from 10% to, say, 6% to allow for inflation and then the value will be in today’s money so you have an idea what it will buy.

Yes, accounting for inflation is vital and the OP should also realize that 1M looks like a big number, but when planning for a 30 or 40 year retirement it should be thought of as perhaps a 40k index linked annual income.

zagfles

Historic stockmarket returns over the last 100 years or so are about 5% in real terms, after typical charges maybe 4% or so. That's a more realistic figure to use. 10% is just head in the clouds pipe dreaming! 

michaels

I use a conservative 2%- assuming 5% asset growth and 3% inflation, that gives me an answer in todays money terms as otherwise if you don't adjust for inflation it can be pretty hard to envisage what the pot is actually worth in terms of purchasing power.

eskbanker

deefadog said:

I have ASSUMED (I know lol) it will return 10% in the below calculations, It's just for a ballpark figure. But have I worked it out correctly?

deefadog said:

yes, i have played with the growth rate, I am under no illusions of grandeur ha! I just wanted to double-check that I was working it out correctly!

But you haven't worked anything out?  You've just plugged in some assumptions into someone else's model and they've produced a notional answer - obviously nobody can tell if the assumptions will turn out to be accurate, so are you simply questioning the reliability of the tool you were using?