Whats your magic number?

kev2009 wrote: »

Hi,

Thanks, i'll take a look for the book and see, ye I understand investing in higher risk funds can be more rewarding but also carries a higher risk of loosing some or all of your money. My view has always been, i'm not really in a position to be able to replace any lost funds so want to it to be reasonably safe so that i don't lose 1/2 my fund over night etc and at the moment I have 20 odd years to go so maybe I could run the chance of my fund regaining the losses but i'm not sure the markets will do this. Also i believe my fund @ 55 will change my investments into more safe investments from 55 so as to not runt he risk of getting to say 60 and there being a market crash and suddenly i'm looking at a very low pension like what has happened to people in the last crash.

Kev

And there's the difference between people who get to £750k and those who get to £450k.

Your (understandable) caution is limiting what you can do and what you can get.

BTW you are never going to be at a risk of losing "all your money" Emphasis on "all". If that happens its shotguns and baked bean cans time. And you are always at risk of losing some of your money. Always. Whatever you do with it. Put it in cash and you are probably losing 2% a year, that accumulates over long periods of time.

You need to understand the different risks and in particular that there is a risk to everything rather than the (nothing personal meant) naive view that investing in the stock market is "risky" whereas in a (say) Tesco 1.3% account its "safe".

Even the idea of going "safe" at 55 means when you will be invested for perhaps another 40 years is very self limiting because you are trading one risk, a "crash" (there are always "crashes" up ahead) for a certainty, that of living on a low amount of money for the rest of your retirement.

As you are 40-ish and investing, at the moment crashes are what you want. Each crash means that for the next few years after that you are investing at a low point and will reap the rewards doubly. You also have time, you dont have a specific date in mind, so can adjust your retirement date. The time to get safe is when you have enough for the lifestyle you want and dont want to risk it, (accounting for inflation risk, because stashing your money into cash age 55 pretty much guarantees losses so you are already setting yourself up for mediocre performance)

I suggest you need to dial your "investing risk level" up, not to 11, but certainly 6 or 7 from its current 5. What are your funds currently invested in? And if you dont know, let that be a wakeup call, you should.

OldMusicGuy wrote: »

This one is slightly different, and now the other one is getting a bit confused. The "Number" thread was about annual income needed to live "comfortably" in retirement, whereas this one asked what is the total level of wealth people feel comfortable with before they can retire.

Completely agree.

kev2009 wrote: »

Hi all,

Thanks for replies. I currently pay in to my pension through salary sacrifice. I have chosen to pay into my companies pension and i'm paying in what I can afford to, without leaving me hard up at the moment and leaving me with a few quid to enjoy life as it were at the moment. My salary sacrifice is set as a % not a fixed amount so therefore each year if i get a pay rise then my contribution goes up also. My employer don't match an employees contribution, instead they have a max amount they will pay in if the employee pays a certain % of which I am paying in more than that so I am maxing out my employers contribution. Overall i have a total of 18% being paid into my pension (mine and employers total contributions) so I don't think that is bad % but maybe i'm wrong and should be aiming for a higher %?

@Another Joe - Thansk for your replies. Pension is invested in the below areas:-

21.6% - UK Equities
17.6% - North American Equities
17.3% - Europe ex UK Equities
10.5% - Global Emerging Market Equities
9.6% - Global Fixed Interest
8.3% - Japanese Equities
15.1% -Others

That a good % per area/sector?

Thanks. I was told from work that majority of people are in the "default" fund that i' in so i'm not alone, which is some consolation i guess.

Kevin

In any large Co pension group it's common to have 85 to 90% of members in the default. This is largely due to them having the false view that the Co/pension administrators know what's best for them OR they can't be bothered to investigate the alternatives.
In many instances it isn't what's best for them.
The default has to cover the full range of people from the totally risk adverse to the opposite end of the risk scale. Clearly for these people, being in something that may be in the middle isn't appropriate.

Far better to be in something that suits your personal needs.

Originally Posted by OldMusicGuy View Post
This one is slightly different, and now the other one is getting a bit confused. The "Number" thread was about annual income needed to live "comfortably" in retirement, whereas this one asked what is the total level of wealth people feel comfortable with before they can retire.
Completely agree.

I disagree.

The main helpful thing is not know how much you need in your pension, but how much money you need to live on in retirement. Only then can you decide how much you need in pensions as you also need to decide how sustainable is your income stream.

In my view the most important number is the annual amount you need to live on - everything else follows on with the help of a bit of maths.

The wealth needed at retirement can be calculated from your expenditure requirement given a few assumptions and a spreadsheet. You can put together a year by year plan assuming the age at retirement, initial wealth, age at death, rate of return, and inflation. The spreadsheet should include age-determined income such as pensions.

You can then adjust the assumptions until they are all reasonable and the plan shows you meeting your objectives and dying leaving at least a moderate amount of wealth. The plan can also be used to explore what-if scenarios such as early death of you or spouse, a major crash etc etc

Extended life should not be a major problem, unless you have significant non-inflation linked income, as for a significant amount of your retirement your drawdown pot should be self-sustaining. A bit like a long repayment mortgage where nothing much happens for many years.

I disagree that expenditure should reduce over time. You do not want to risk poverty in old age. At that time life can get more expensive - eg paying for care in ones own home which if practicable is surely preferable to a care home. Care home costs could be assumed to be covered by ones house.

In my pre-retitrement plans I didnt have an additional buffer since all the assumptions were pessimistic. If you are drawing down a significant part of your income you need a sustantial cash buffer anyway to tide you over market slumps when you dont want to withdraw money that will be needed when the recovery happens.

Perhaps the most important protection is the plan itself. If you keep it updated with actuals during retirement you will see pretty quickly when things start going wrong and so be able to take appropriate action well in advance. My plan now shows wealth increasing over time and so I am happy to increase my expenditure without worrying.