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    • jamg21
    • By jamg21 31st Jul 18, 1:14 PM
    • 3Posts
    • 0Thanks
    jamg21
    Whats your magic number?
    • #1
    • 31st Jul 18, 1:14 PM
    Whats your magic number? 31st Jul 18 at 1:14 PM
    I was just interested to know of those considering their retirement options/approaching retirement whether they had considered what their magic number is? Meaning do they believe their accumulated wealth will sustain their desired retirement lifestyle?
Page 3
    • AnotherJoe
    • By AnotherJoe 2nd Aug 18, 10:18 AM
    • 11,859 Posts
    • 13,831 Thanks
    AnotherJoe
    hi, wow interesting read, makes my pension look insignificant/not enough... I'm 41, single, paing into a works pension and there online portal predicts I would have approx 450k pension pot at 68 and then goes on to prodict what I would get as 25% tax free and as a income.

    I'm wondering how people get to 750k etc... is it simply you have very well paid jobs, high tax bracket and can afford to put more in to prevent you paying higher rate tax? but then surely not everyone is higher rate tax payers? or perhaps these figures are combination of husband and wife's total pension pot?

    Kev
    Originally posted by kev2009
    Read some financial independence early retirement (FIRE) blogs. The Escape Artist is a good one, Mr Money Mustache another, though a bit extreme and also very North American-centric.


    Its a combination of multiple things.

    -Reduced spending.
    -Increased saving.
    -Increased income and more to the point, not increasing spending when income increases.
    -Take advantage of employer contribution to your pension, and put in, as aminimum, whatever the maximum you can to have your employer match it.

    -Take advantage of tax breaks - high rate tax relief is a huge one, not your issue i guess but that can make a massive difference (squandered by many of the folks in the Mortgage Free Wannabee forum, a pet peeve of mine )
    -Taking control of your investments including your pension - you may not have much ability to manage where your investments are, but most people dont even have a concept of how and in what their pension is invested, if you go with the default option it will be in a "safe" fund that will have pretty poor returns compared to what you could have got.
    -Understand investments. If you will have 450k pension fund, thats a lot of money invested, its your money, find out how to manage it yourself, you have plenty of time, and that can save you many tens of thousands of pounds, maybe hundreds of thousands.
    • AnotherJoe
    • By AnotherJoe 2nd Aug 18, 10:29 AM
    • 11,859 Posts
    • 13,831 Thanks
    AnotherJoe
    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
    Originally posted by kev2009
    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.
    Last edited by AnotherJoe; 02-08-2018 at 10:35 AM.
    • Anonymous101
    • By Anonymous101 2nd Aug 18, 2:05 PM
    • 1,162 Posts
    • 591 Thanks
    Anonymous101
    I couldn't agree more with Another Joe's posts. I was going to write a full response until I read those and he's taken the words right out of my mouth.

    The only thing I'd add to it is to make the point that if you're able to contribute to your works pension via salary sacrifice, then the difference in pension contributions between being a higher 40% income tax rate payer and being a regular 20% income tax payer is 10% after you take into account National insurance contributions.

    So don't just look at the tax rates and let it hold you back from making additional AVC's thinking that you've got X amount to earn before you start paying 40% tax. The 12% NI will get you almost there anyway!
    Just calculate how much you can afford to live off net and then work up the gross contributions form there.
    • TBC15
    • By TBC15 2nd Aug 18, 3:09 PM
    • 671 Posts
    • 334 Thanks
    TBC15
    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.
    Originally posted by OldMusicGuy
    Completely agree.
    • kev2009
    • By kev2009 11th Aug 18, 8:27 PM
    • 287 Posts
    • 405 Thanks
    kev2009
    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
    • 232607
    • By 232607 11th Aug 18, 9:07 PM
    • 124 Posts
    • 62 Thanks
    232607
    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
    Originally posted by kev2009
    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.
    • AndyAdams
    • By AndyAdams 11th Aug 18, 9:46 PM
    • 57 Posts
    • 50 Thanks
    AndyAdams
    A million at 55 is my target, initially I planned to retire at 52 with an 850k pot but then thought with a market correction it may not be enough, so have set my new target.


    the pot is currently 50:50 split between S&S ISAs and SIPP
    • atush
    • By atush 11th Aug 18, 11:25 PM
    • 17,318 Posts
    • 10,868 Thanks
    atush
    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.
    • OldMusicGuy
    • By OldMusicGuy 12th Aug 18, 9:40 AM
    • 675 Posts
    • 1,425 Thanks
    OldMusicGuy
    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.
    Originally posted by atush
    Sorry to disagree with your disagreement, but they are two different questions for me, maybe your situation is different. This thread specifically asks about "accumulated wealth" whereas the other asks about "income to live comfortably in retirement". They are two different but both important things.

    The "Number" thread talks about income. On that thread, I said our "number" was probably between 32 to 36K. However, I had to make a decision about when I could retire based on my total net worth, assuming that for a number of years I would need to provide an income of 32 to 36K. The "number" was one of the inputs into that, but in order to calculate net wealth to support retirement I had to also consider:

    - How long will we both live.
    - How will our "number" reduce over time, which it definitely will.
    - How much, if any, should we keep in reserve for later life care.
    - Do we want any safety "buffer".

    That's why my total net wealth calculation is not based on a simple DC pot x SWR calculation or anything like that. Also, because income and expenditure streams vary over our retirement, again a simple calculation based on our annual "number" doesn't work for us.
    • Linton
    • By Linton 12th Aug 18, 10:28 AM
    • 10,082 Posts
    • 10,416 Thanks
    Linton
    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.
    • OldMusicGuy
    • By OldMusicGuy 12th Aug 18, 10:41 AM
    • 675 Posts
    • 1,425 Thanks
    OldMusicGuy
    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.

    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.
    Originally posted by Linton
    A couple of thoughts. Day to day expenditure definitely does decrease over time. I can say for sure that when I am in my 90s we won't be running two cars, nor will we be spending as much on eating out and general entertainment. At some point there will only be one of us instead of two, which will reduce some of the costs, but it will also reduce our income.

    The unknowns are that of course spending on health could go up over time but I'm not budgeting for that. We'll cross that bridge when we come to it. But I am planning to have enough capital left when we reach our 90s to fund at least 5 years in a good care home. We will not have a "house" at that time, whoever is left will be living in a flat and that won't generate enough capital to cover enough years in a care home. Based on my own experience, staying too long in a big house as you get older is a big mistake, and leads to many issues.

    I agree that the plan is key here and I am doing exactly the same as you. I have a detailed plan that currently goes out until we are 92 and that will be constantly updated. I expect that my investment strategy (which is very defensive) may change somewhat when we both reach SP age and also we see where we are in the next economic cycle.

    BTW I don't disagree that the "number" is the most important part of planning. But there are other questions that need to be answered, which is why this thread is not a direct duplicate of the "number" thread. But both have got a bit confused now.
    Last edited by OldMusicGuy; 12-08-2018 at 12:15 PM.
    • Linton
    • By Linton 12th Aug 18, 10:48 AM
    • 10,082 Posts
    • 10,416 Thanks
    Linton
    A couple of thoughts. Day to day expenditure definitely does decrease over time. I can say for sure that when I am in my 90s we won't be running two cars, nor will we be spending as much on eating out and general entertainment. At some point there will only be one of us instead of two, which will reduce some of the costs, but it will also reduce our income.

    ......
    Originally posted by OldMusicGuy

    Expenditure may well decrease in old age though old age could be 75, 80 or even 90+. However I feel it is dangerous that you should plan for it to decrease as you could find your choices have been limited when its too late to do anything about it.
    • OldMusicGuy
    • By OldMusicGuy 12th Aug 18, 12:32 PM
    • 675 Posts
    • 1,425 Thanks
    OldMusicGuy
    Expenditure may well decrease in old age though old age could be 75, 80 or even 90+. However I feel it is dangerous that you should plan for it to decrease as you could find your choices have been limited when its too late to do anything about it.
    Originally posted by Linton
    I have done sensitivity analysis and we can maintain a consistent level of real spending throughout our retirement. But I don't believe that to be realistic so my model allows for downward adjustments to expenditure in later life (I can vary the year at which it kicks in and the level of decrease).
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