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  • FIRST POST
    • tony4147
    • By tony4147 9th Jan 18, 8:49 AM
    • 287Posts
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    tony4147
    Would this be realistic?
    • #1
    • 9th Jan 18, 8:49 AM
    Would this be realistic? 9th Jan 18 at 8:49 AM
    Current DC pension fund is 244k, my existing contributions are 1500/month.
    I would like to be in a position to retire in 5 years at 60, if I change my contributions to 2000/month is it realistic to expect my fund to be worth approx 450K in 5 years?

    Going off past performance over the last 20 years of records and spreadsheets I have it looks quite realistic to me.
Page 1
    • Linton
    • By Linton 9th Jan 18, 9:36 AM
    • 9,395 Posts
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    Linton
    • #2
    • 9th Jan 18, 9:36 AM
    • #2
    • 9th Jan 18, 9:36 AM
    From my calculations that works out at about 5% return/year so on average it should be easy to do were you to invest 100% in equity. But if you invest 100% in equity and there is a crash you could be left with much less than you need. So the skill will be to set up a fairly, but not excessively, cautious portfolio.

    Perhaps a better way of managing your investments would be to work out how much you need for the first 5 years of retirement, put that aside now somewhere pretty safe and then invest the rest in a high % equity portfolio since you would be working with a 10 year time frame rather than 5.
    • PeacefulWaters
    • By PeacefulWaters 9th Jan 18, 9:37 AM
    • 8,318 Posts
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    PeacefulWaters
    • #3
    • 9th Jan 18, 9:37 AM
    • #3
    • 9th Jan 18, 9:37 AM
    It's not unreasonable. But what are your inflation assumptions?
    • Malthusian
    • By Malthusian 9th Jan 18, 10:09 AM
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    Malthusian
    • #4
    • 9th Jan 18, 10:09 AM
    • #4
    • 9th Jan 18, 10:09 AM
    5 years is too short a timeframe to make any assumption about growth. The average return over the next five years could be anything from 10%+ if the bull run continues, to negative if a major crash happens in the next five years.

    In the last 20 years a five-year investment in the FTSE World Index has returned better than 5%pa 60% of the time. That's too close to a coin flip to use words like "expect".

    To expect a return of better than 5% you need to look at a longer timeframe, i.e. 20 years or more.

    Of course, it's unlikely that you're going to be cashing in the entire 450,000 and buying an annuity or a Lambo in 5 years' time, so in reality your investment timeframe is likely to be longer than 5 years. But the question was "can I expect a fund of 450,000 in 5 years" and the answer is no. You have a better than a coin flip chance of having 450,000 or more but you can't expect a coin to do anything. It would be more accurate to say that you can "expect" your fund to be somewhere between 300k and 550k. (While bearing in mind that you might be an outlier.)

    If we were in the middle of a 2009-style crash in 2023, would it be a disaster or would you shrug your shoulders, carry on working for a couple of years and carry on making payments into the pension at rock-bottom prices which would put you in a great position to retire when the market eventually recovered?
    • ex-pat scot
    • By ex-pat scot 9th Jan 18, 12:08 PM
    • 255 Posts
    • 300 Thanks
    ex-pat scot
    • #5
    • 9th Jan 18, 12:08 PM
    • #5
    • 9th Jan 18, 12:08 PM
    Working briefly through your numbers.


    Assumption 1 - net return (gross less inflation) 5% ie equity investment.
    Pot val after 5 years @ 2,000 pm level contribution = 447,040
    Pot val after 5 years @ existing 1,500 level contribution = 413,000


    Assumption 2 - net return 2.5%
    Pot val after 5 years @ 2,000 pm level contribution = 403,655
    Pot val after 5 years @ existing 1,500 level contribution = 371,757


    Assumption 3 - net return 7.5%
    Pot val after 5 years @ 2,000 pm level contribution = 494,424
    Pot val after 5 years @ existing 1,500 level contribution = 458,392


    That's my starting set of calcs.


    Other things to consider:
    How flexible is your end date?
    How specific is your pot? (ie do you need 450,00 or is this just a starting point for your calculations)
    What is your attitude to risk? How would you feel if during or at the end of hte period you took a large market downturn?


    etc etc.


    Pot
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