37 years old - My current situation and savings/retirement plan

Cus

Is all the above based on you continuing to earn the same amount from employment going forward, adjusted for inflation? And no massive change in personal circumstances, ie partner, children etc?

n15h

@noclaf thank you for your kind words. The tax side boggles me also. Yes, I am monitoring fees but unfortunately I am limited in choice of funds by my employer's pension provider. However, they are not too expensive at 0.2% in total for the funds I am invested in. I agree that it is personal preference/risk appetite to decide how much is allocated to equities/bonds/alternative etc. I was 100% in equities in pension since I started contributing to it, but this year I rebalanced to 90% equities/10% bonds to align with the risk appetite for my pension - this worked in my favour at the time as when Trump's tariffs came out, the impact was cushioned abit by the bond holding. However for my LISA, I am 100% in equities as that is a dividend portfolio that I hope will give me 6-7% return when I can access at age 60 years. Thanks again, and i'll continue to update this thread over time.

@BobR64 that's fair feedback. I will look back at my figures and rates of return, and adjust these so that I am working with growth post inflation.

@Brenster thanks, that's in line with other feedback shared on this thread as well. The pension has grown by ~85% over the last 12 years (excluding the contributions) so I used 7% annual rate of growth. However, I will revisit my figures and rates of return and see what it looks like after deducting 3-4% per year for inflation.

@Cus the post on calculations/thinking is based on continuing to earn the same amount from employment, adjusted for inflation. There are no changes envisaged to my personal circumstances i.e., no partner, children.

n15h

Following the feedback, I've revisited my pension figures using the following thoughts:

• Current value of pension: £180K
• Monthly contribution (employee + employer): £1588
• Rate of return: 7%
• Inflation rate: 4%
• Rate of return adjusted for inflation: 3% (7% minus 4%)
• Timeline: 21-23 years (current age 37 years; targeted retirement age is 58-60 years).

Based on the above, the projection is:

• 21 years: £888K
• 23 years: £982K

I'm not sure if this is right - my thinking is:

• I was targeting my pension to be more closer to £1.4m (as per my first post), which fell within an inflation adjusted range of £1.375m - £1.575m (in my more recent calculations/thinking post).
• The above projections of £888K-£982K are well short of the target and the possible range. To achieve the target, a timeline of 30-33 years could possibly be needed, which could mean a retirement age of 67-70 years. I do hope that is not the case!

af1963

Your figures are about right for 3% growth above inflation . 

But bear in mind that if you are excluding inflation from the annual returns when calculating the value of your pot, you should also exclude inflation when calculating the spending that you'll need. 

Either assume 7% growth and 4% inflation ; or assume 3% growth in real terms and otherwise ignore inflation.

af1963

e.g. working entirely in *today's money*, so that neither the spending nor the value of your pension is increased by inflation ... 

If you maintained your current spend per month, that comes to around £30k per year allowing a bit for tax.   State pension (eventually) delivers £11k of that. You'd need to fund £19k per year from your retirement date onwards.  Plus you need to substitute for the £11k state pension for each year before state pension age, probably about 8-10 years.

19k per year from a roughly £800k pot  ( £900k minus 9 years of £11k) is a 2.5% drawdown rate.
If you took out 25% tax free cash up front, it would be a 3.2% drawdown rate. But you'd have an extra £200k outside the pension.

Both well within the "4% drawdown" rule of thumb that many people follow (it's just a guideline, but shows you're in the right area.)

You could assume *zero* real terms growth, get a total fund of roughly £600k in 23 years, set aside £100k to substitute for state pension for 9 years, have £500k left over, and *still* be under 4% drawdown rate , albeit without taking the full tax free sum in that case.




 

Shimrod

n15h said:

Following the feedback, I've revisited my pension figures using the following thoughts:

• Current value of pension: £180K
• Monthly contribution (employee + employer): £1588
• Rate of return: 7%
• Inflation rate: 4%
• Rate of return adjusted for inflation: 3% (7% minus 4%)
• Timeline: 21-23 years (current age 37 years; targeted retirement age is 58-60 years).

Based on the above, the projection is:

• 21 years: £888K
• 23 years: £982K

I'm not sure if this is right - my thinking is:

• I was targeting my pension to be more closer to £1.4m (as per my first post), which fell within an inflation adjusted range of £1.375m - £1.575m (in my more recent calculations/thinking post).
• The above projections of £888K-£982K are well short of the target and the possible range. To achieve the target, a timeline of 30-33 years could possibly be needed, which could mean a retirement age of 67-70 years. I do hope that is not the case!

Did you apply the inflation rate (or some other earnings inflation rate) to the contribution as well? My fag packet calculation puts your 23 year window at £1.2m if you inflation the contribution by 3% pa as well.

dunstonh

If we take 20 year periods on monthly snapshots since 1915 with 90% equities, 10% bonds...

The worst 20 year period gave 4% nominal annualised returns or 1%  in real terms.
Median was 10% nominal and 6% in real terms

So, you are not planning for the worst case scenario historically when you are using a 3% real terms growth rate.

Mistermeaner

Hi

Great that you are looking at this in detail; just doing so will likely set up you up better than 99% of the population

Lots of good input already but just my 2 pennies:

- ignore inflation in your calcs it makes things easier just do your calcs in 'todays money' and assume inflation will apply equally to investment growth an spending and therefore cancels out.

- details of calcs aside I would say save more; in simple terms if you save 10% of your income per year you need to work 10 years to pay for 1 year of retirement (overly simplistic i know but you get the idea). I would target saving 1/3+ of your pretax income

- money isn't everything, you are only 37 - get married / find a partner, have kids - what's it all about otherwise? Appreciate plenty of people dont have kids but really what we are here to do is pass on our genes.

- Spend an equal amount of time, energy and money on your health and wellbeing. eat well. exercise. stretch. sleep well. make your home comfortable. meditate. Do stuff at the weekends you love. Looks after future you financially of course but also looks after yourself today - future you will thank you

penners324

If you only withdraw 4 to 5% of your pension pot per year then your pension will increase in value. 

I reckon you can retire much earlier.

You'll end up with £25k a year to spend holidays or new cars.

penners324

How on earth do you spend £2k a month?

Our basic outgoings are £1200 for a couple, including food. Maybe £500 if we go out every Saturday.