Pension dropping suddenly

Mutton_Geoff

happymum37 said:

He's never taken much stock of his pension until this year when we paid off the mortgage and now has started paying in 11% of his earnings ( he's on 40k) and his box puts in 4% .

He wants to leave work at 60 (12 years)  and get a fun job in the garden center. 

General consensus is to put half your age as % into a pension so total contributions should be around 24% rather than the current 15%. One advantage of high contributions is that it helps smooth the transition from work to retirement vis income. Bear in mind the "fun job" will also provide a salary which can be saved into a pension.

dunstonh said:

Given his age now and when he started, that puts him back in the period when insurance agents were still operating.  For all their faults, one thing they excelled at was getting people to start planning early.

I agree, my early experiences were a plan with Allied Dunbar in the 1980s and later with SJP. Although I often think "look what you could have had", I an quietly appreciative of the fact their hard sales helped get me into a pension saving mindset. I've been managing my own SIPP for a number of years now but wonder if I hadn't been sold a plan whether I might have left it a bit late to start my own planning.

Fortunately I was able to transfer my AD scheme to buy years of service in a DB scheme when I joined a new employer in the early 1990s and having now retired, reaping those benefits.

kempiejon

My investment income rolls along every month, I don't inspect the capital that often and I know the pot fluctuates far more than the income it throws off each week.

penners324

My pensions dropped about 8% just before Xmas. Looked this morning they're now almost back up to where they were 4 weeks ago.

The only dip I was worried about was at the start of covid but that long past, reckon we're 90% up since then

dunstonh

The only dip I was worried about was at the start of covid but that long past, reckon we're 90% up since then

That was the third largest fall (peak to trough) in the last 25 years.   So, if you followed that down and out the other side without taking any action, then you are pretty well placed going forward when the next time a large drop occurs.   

The first major drop you notice is worrying.   The second less so. The third one is "here we go again" and you don't worry anywhere near as much.

marathonic

I started my workplace pension in January 2006 at the age of 23.

The value of the FTSE All-World rose nicely for a couple of years before starting a decline of almost 50% between late 2007 and early 2009.

At that time, I remember well the canteen-talk of plummeting pension values and people moving to 100% cash or bond funds or stopping pension contributions altogether.

I had been doing the opposite, remaining invested and upping my percentage contribution multiple times as the market continued to drop.

By my mid-to-late-twenties, I'd been contributing about 25% of my monthly salary. I did drop that to 15% as the market turned back up again. However, those units I bought at the times when things looked worst are now worth about 8 times more.

The drop of this past couple of weeks I hadn't even considered a drop. It's only drops of 5%+ where I start to notice a drop - and only to try to figure out if I can increase investments, never to consider pulling money out of the market.

RogerPensionGuy

LHW99 said:

noclaf said:

eskbanker said:

It's not a promising sign that he feels the urge to overreact to such a minor value drop, but hopefully he can educate himself about how investing works and understand that fluctuation is inevitable when holding equities, so short term pain should be expected periodically but ignored in the context of long term gain....

IMO this aspect is just as important as the choices of investment. It has taken me a couple of years to learn and build the tolerance not to make reactive changes i.e: sell during a drop and also avoid too much chopping and changing of funds (the trading fees add up and it can be a significant hit over time).
FWIW my SIPP and work pension are 100% Equities and am early 40's, not too concerned with volatility as longer timeframe before I can access and when the markets drop and if fortunate with timing will hopefully benefit from being able to buy more units of funds each month.

In fact the ideal thing for him (if not the rest of us) would be a 50% drop in 2025, followed by a slow recovery for 10 years, and a boom in the following two years.

He could buy lots of "nice cheap units" with his ongoing contributions, which will then at the end soar in value.

Won't happen, but one can always dream

Reference a possible 50% drop, I see that as entirely possible, I have much called risky reward units, often risk factor is 6 or 7 outa 7 and little below halfway down any risk index the platforms show, I have Gilts, Money Market Funds covering 5+ years of money that may be required.

But back on the 50% number, the S&P500 has done +20% up the last two years running, I see 50% as a definite possibility maybe and when the next big old gully opens up, I will repack/top-up my emotion brain in the ice bucket that I keep it in and if I can coax out my forwards thinking brain from the coolbox hopefully I'll buy some more lowered price units and try chilling for a few years and see what the till says down the road, I won't be bothered about X £s, but I will focus on the % pathway the investments took.

As others have said 1.6% is just a small ripple from a small leaf that dropped in to the lake.

I was thinking of employing an IFA or FA to tell me twice a year what I know so I could feel more reassured and sleep better, but I decided I have sufficient information and just check investments every 3 months or so and normally normally do nothing as I stopped using soap for my investing strategy.

I'm looking forwards watching to watch the markets 2025 & 2026 and hope I can remember 50% of this post. 

Cobbler_tone

My DC has grown 7.7% since opening in 2021. Not the greatest growth to £90k but when I factor in how much that £90k actually cost me it’s a crazy return.

vacheron

Cobbler_tone said:

My DC has grown 7.7% since opening in 2021. Not the greatest growth to £90k but when I factor in how much that £90k actually cost me it’s a crazy return.

This is the amazing power of pensions (especially workplace pensions).

If instead of making my monthly pension contributions into my employers salary sacrifice scheme, I just took the money as taxed home pay, I would receive 45% of the amount that goes into the pension. This means that the pension would have to experience a >55% drop (and stay there) before opting for the take home cash was the better option. 

And this "free" 55% steadily compounds over time. 

... yet I know many high rate taxpayers who are doing this...but will drive 2 miles out of their way to save 2p per litre on petrol on the way home! 

tichtich

It helps to remember that what's shown as the "value" of your investment pot is really just what you could sell your investments for today. It would be better if they labelled it "Today's market price". The prices of investments can vary with sentiment, short-term factors and cycles. A rise or fall may have little to do with the long-term value of your pot. When the market price of your pot goes down, that doesn't generally mean that you have lost anything.

Cobbler_tone

Cobbler_tone said:

My DC has grown 7.7% since opening in 2021. Not the greatest growth to £90k but when I factor in how much that £90k actually cost me it’s a crazy return.

Just wanted to get a rough figure on this. My £90k has cost me around £31k in net money had I taken it in my pay packet. There was a £20k transition payment in that.
When I read 'pension vs ISA' I don't have to give it much thought in my situation!