30yr old no pension. What should i do?

[sidicks]

xeny said:

I don't keep a close eye on annuity rates - but would you get 4% + inflation on an annuity for a healthy 45 year old?

edit: a decent no of the projections from the study leave you dead with a decent (and often growing) portfolio, unlike an annuity.

A decent number would leave you running out of money before you retire too and past performance is no guide to the future, given how fundamentally different things are now.

The Trinity Study was 1998 - annuity rates (and longevity) were very different back then.

Regardless, one approach involves taken a massive punt on markets, the other gives you a 100% guarantee. I don’t advocate one over the other, but if you are comparing the two, you need to ensure you properly understand the differences! You pays your money...

Edited by sidicks on Thursday 1st February 14:02

Edited by sidicks on Thursday 1st February 14:03

[xeny]

sidicks said:

You aren’t getting 4% plus inflation here either!

You don't know what you're getting here, but you've got some % likelihood (based on historic backtesting, I can't remember the %, but it's not terrible) of getting 4%, and you can't get that from the kind of ages FI/RE people are interested in at a (to them) reasonable cost with an annuity.

It's very much not a traditional annuity pension philosophy.

[sidicks]

xeny said:

You don't know what you're getting here, but you've got some % likelihood (based on historic backtesting, I can't remember the %, but it's not terrible) of getting 4%, and you can't get that from the kind of ages FI/RE people are interested in at a (to them) reasonable cost with an annuity.

What were annuity rates back in 1998?

xeny said:

It's very much not a traditional annuity pension philosophy.

I realise that

[red_slr]

NickCQ said:

sidicks said:

4% plus inflation is a pretty bold investment assumption! Maybe there is some adjustment for inflation in the drawdown phase, but there doesn’t appear to be any adjustment for inflation between now and retirement!

4% is not the assumed investment return. These calculations assume you draw down the principal over time to be left with zero.

Its more like the calculations assume you draw down from the pot over time and be left with at least more than or zero after 30 years. Its not a straight line and most people who use 4% SWR, certainly in recent times have actually seen their pots grow in size. These are of course people starting out with quite large pots and they only want small levels of income so someone with a $3M pot who only spends $40k a year will find that pot grows pretty quickly.

A new figure of 3.6% works back the same but should work out over 100 years. As such, given very few people FIRE before 40 the 4% is considered "safe".

As I said in my post above you do need to keep your pot invested though, which is the tough bit!!

There are plenty of people doing it though, especially in the US.

We are drifting off topic though as the OP is talking about working to 60.

[NickCQ]

sidicks said:

NickCQ said:

4% is not the assumed investment return. These calculations assume you draw down the principal over time to be left with zero.

So exactly like an annuity then. But with much more risk and exposure to asset volatility and longevity!

Not especially. You have massively more flexibility over the timing of your drawdowns and at least in the early part of retirement you want the exposure to asset volatility anyway.

[xeny]

sidicks said:

A decent number would leave you running out of money before you retire too and past performance is no guide to the future, given how fundamentally different things are now.

The Trinity Study was 1998 - annuity rates (and longevity) were very different back then.

Regardless, one approach involves taken a massive punt on markets, the other gives you a 100% guarantee. I don’t advocate one over the other, but if you are comparing the two, you need to ensure you properly understand the differences! You pays your money...

Edited by sidicks on Thursday 1st February 14:02

Edited by sidicks on Thursday 1st February 14:03

Agreed.

Agreed.

Agreed. In particular blindly quoting 4% without at least mentioning the caveats does people a disservice that they may not realise for some time, but unfortunately it is a very good headline.

[sidicks]

xeny said:

Agreed.

Agreed.

Agreed. In particular blindly quoting 4% without at least mentioning the caveats does people a disservice that they may not realise for some time, but unfortunately it is a very good headline.

[trackep]

Thank you very much for all the input guys, really helping me. I think basically i need to start putting money somewhere. I'll admit now i am not a big earner so putting money here there and everywhere isn't really affordable. I would be thinking at the most £275 a month. I will increase year on year though.

My employer will match me the minimum he has to, not actually sure what that is though. I have a very good job security and a flexible working enviroment, which makes it tough for me to look elswhere, being a homeowner and a father now.

Thanks again for all the information

[sidicks]

trackep said:

Thank you very much for all the input guys, really helping me. I think basically i need to start putting money somewhere. I'll admit now i am not a big earner so putting money here there and everywhere isn't really affordable. I would be thinking at the most £275 a month. I will increase year on year though.

My employer will match me the minimum he has to, not actually sure what that is though. I have a very good job security and a flexible working enviroment, which makes it tough for me to look elswhere, being a homeowner and a father now.

Thanks again for all the information

£275 per month is quite a lot compared to most people. As discussed, providing you have existing savings / contingency, you could split the investment (say) £200 into the pension (benefiting from immediate tax relief) and the rest into an ISA of some type, providing tax free growth, but accessible in an emergency.

[Craikeybaby]

I was in a similar position to the OP and decided to up my contribution to my workplace pension and start a S&S ISA. The minimum contribution to my S&S ISA is £100 per month, so even with <£300 to save you could include an ISA.

However since then LISAs have become available, so maybe I should look at them too? What are the benefits vs a pension?