How much money do you need for retirement/pension?

[Barga]

Welshbeef said:

garyhun said:

I’ve got news for you Welsh, you ain’t retiring early

I fear that’s the case but will do everything to maximise my time before 67 to stop early.
My suggestion of working Sept to end of Jan is a sensible thing to do.

Picking and choosing when you work sounds great but unless you have a very understanding boss or a contractor it sounds quite a difficult proposition.

[Cheib]

garyhun said:

Welshbeef said:

garyhun said:

If your retirement pot cannot support those expenses, are you really at a point where you’re able to, or should, retire?

Well what I mean is even if you had a brand new kitchen carpets bathrooms windows etc before you retire at 45yo clearly they are not going to last forevermore. It’s like you’d need to change them possibly once maybe twice before your too old for it too matter.

For our house now
Kitchen - would be £25K++ (current one was more than this only put in last year)
Windows £50k (incl bi folds)
Carpets £10k
Bathrooms £15k
So not an inconsiderable amount — I’m sure you could nurse things on much longer but clearly you’d have to change that lot once in the next 50years surely...

My comment still stands. In addition, don’t forget that you’ll possibly/probably downsize at some point and release further funds from property.

You need to include house maintenance/upkeep in your retirement calculation. We're hopefully building a new house next year so at that point we'll have nothing that needs replacing but I am still budgeting an a fair sum for house maintenance....now we're clearly not going to be spending that every year but there's effectively going to be a sinking fund.

If you want to maintain the value of your house so that when you sell/downsize it needs to be well maintained. I think the common assumption is 1% of the purchase price/value. I reckon that's probably the minimum.

[Welshbeef]

1% of the house resale value spend per year - wow

[anonymous-user]

Jon39 said:

It shows the growth during each year, for the FTSE All-Share Index.

IMO what really counts is returns over the long term.

"The highest quality, safest, most stable dividend-paying stocks have tended to return 7% in real, inflation-adjusted returns to owners for centuries. That seems to be the figure that makes people willing to part with their money for the hope of more money tomorrow. Thus, if you live in a world of 3% inflation, you would expect a 10% rate of return (7% real return + 3% inflation = 10% nominal return)."
https://www.thebalance.com/good-rate-roi-357326

I think there are a number of people on here who have achieved results along those lines. 10% compound in a tax-free wrapper (SIPP/ISA) can deliver some impressive figures.

[Derek Chevalier]

Simpo Two said:

Derek Chevalier said:

I'm not convinced that even when compared to a 90s era IFA that picks funds....

Hang on - I had a 2014 IFA, well RFA, who was very happy to pick funds and sat down with a laptop and showed me lots of graphs and something about alpha IIRC. Mind you when things went wobbly he said he wasn't a fund picker. Go figure...

When someone talks about alpha, "wrong benchmark" springs to mind.

I'd want to look at the proposed portfolio and determine the following (accepting that my analysis was just a snapshot in time (and will struggle to look at historical volatility vs returns if portfolio has had funds switches at some point in the past) but should give an idea of thought process)

1. Asset allocation (equity/bond split etc) including geographic breakdown
2. Factor tilts (see below for equity, same exists for fixed income). How would the portfolio perform in a downturn (e.g. non IG bond exposure)?
3. Are costs taken into account (ALL costs - including rebalancing, trading spreads, dilution levies etc)?

Then I'd make very sure an appropriate benchmark was in place (definitely not the FTSE 100!)

• Factors

A number of years ago, it became apparent that a lot of what managers purported to be alpha was actually beta (in particular taking more risk than market returns), but still some alpha appeared to exist in some cases.

Fast forward a few years and French and Fama published their 3 factor work

https://en.wikipedia.org/wiki/Fama%E2%80%93French_...

showing that in addition to beta, small cap stocks tend to outperform large cap, and value stocks tend to outperform growth stocks (although not in the past decade). The model has since been refined and Dimensional (think French and Fama are still on the board) do a good job in educating advisers

https://en.wikipedia.org/wiki/Dimensional_Fund_Adv...

Question then is, if you can buy market returns and factor exposure very cheaply, are you prepared to pay a decent chunk for a potential small amount of alpha?

[Derek Chevalier]

sidicks said:

Derek Chevalier said:

I'll bet you a virtual beer you can't find it.

https://www.sjp.co.uk/funds

"This section of the website provides access to our fund prices and performance tool, providing investors with access to fund fact sheets, key fund information and performance data over a range of cumulative and discrete periods, as well as the daily fund prices."

Portfolio factsheets
"These documents provide an overview of the asset class breakdown and performance of the St. James’s Place model portfolios, along with commentary and constituent fund details."

Oh and here's this!
https://en.wikipedia.org/wiki/Wiles%27s_proof_of_F...

Edited by sidicks on Saturday 15th September 23:08

Unfortunately it doesn't (unless I'm missing something) give me enough info to determine how their funds have outperformed their benchmark (but I'll still give a virtual beer! )

1. I can't see the weekly/monthly returns to get an idea of the annualised volatility
2. I'd need more of a breakdown than the fundsheet gives me in terms of what it holds and where
3. I don't think SJP publishes their data to Morningstar so can't get an idea of the factor tilts
4. I don't see a benchmark on the factsheets
5. Scale this up to a portfolio of these funds and if you tried to look back at (for example) a 5 year history where some funds no longer exist, I think you'd be hard pushed to get any of this data

To be fair to SJP they publish their data to ARC, but the ARC volatility bands are so large it doesn't really help (and of course doesn't take into account various tilts as mentioned in previous post).

[Derek Chevalier]

garyhun said:

Derek Chevalier said:

You seem to be inferring that previous outperformance is indicative of future outperformance

Implying

Thanks

[anonymous-user]

Derek Chevalier said:

garyhun said:

Derek Chevalier said:

You seem to be inferring that previous outperformance is indicative of future outperformance

Implying

Thanks

You’re welcome. It’s probably the only way I can contribute to the thread tbh

[Derek Chevalier]

x5x3 said:

but finding the UK share index growth figures is a bit more tricky - anyone else tried this?

Out of interest when UK stock markets are such a small part of the globe why are you looking at this in particular?

[Derek Chevalier]

rockin said:

Jon39 said:

It shows the growth during each year, for the FTSE All-Share Index.

IMO what really counts is returns over the long term.

"The highest quality, safest, most stable dividend-paying stocks have tended to return 7% in real, inflation-adjusted returns to owners for centuries. That seems to be the figure that makes people willing to part with their money for the hope of more money tomorrow. Thus, if you live in a world of 3% inflation, you would expect a 10% rate of return (7% real return + 3% inflation = 10% nominal return)."
https://www.thebalance.com/good-rate-roi-357326

I think there are a number of people on here who have achieved results along those lines. 10% compound in a tax-free wrapper (SIPP/ISA) can deliver some impressive figures.

If you look at a UK focused study I recall the returns are nearer 5% over inflation for a global basket of equities, and even then I'd question for how many people a portfolio of 100% equities is suitable.

[JulianPH]

Derek Chevalier said:

When someone talks about alpha, "wrong benchmark" springs to mind.

I'd want to look at the proposed portfolio and determine the following (accepting that my analysis was just a snapshot in time (and will struggle to look at historical volatility vs returns if portfolio has had funds switches at some point in the past) but should give an idea of thought process)

1. Asset allocation (equity/bond split etc) including geographic breakdown
2. Factor tilts (see below for equity, same exists for fixed income). How would the portfolio perform in a downturn (e.g. non IG bond exposure)?
3. Are costs taken into account (ALL costs - including rebalancing, trading spreads, dilution levies etc)?

Then I'd make very sure an appropriate benchmark was in place (definitely not the FTSE 100!)

• Factors

A number of years ago, it became apparent that a lot of what managers purported to be alpha was actually beta (in particular taking more risk than market returns), but still some alpha appeared to exist in some cases.

Fast forward a few years and French and Fama published their 3 factor work

https://en.wikipedia.org/wiki/Fama%E2%80%93French_...

showing that in addition to beta, small cap stocks tend to outperform large cap, and value stocks tend to outperform growth stocks (although not in the past decade). The model has since been refined and Dimensional (think French and Fama are still on the board) do a good job in educating advisers

https://en.wikipedia.org/wiki/Dimensional_Fund_Adv...

Question then is, if you can buy market returns and factor exposure very cheaply, are you prepared to pay a decent chunk for a potential small amount of alpha?

I'm pretty sure Simpo Two was referring to advisers claiming they could add Alpha, not investment/fund managers making such claims.

As a quick translation into plain English, Derek (hi mate!) is saying that the added value investment/fund managers claim to achieve is not correlated to the actual benchmark they are comparing this with.

Put more simply, they are cheating by deliberately comparing their own relative returns (Alpha) to that of a benchmark that carried a far greater level of relative historic volatility (Beta) to make them look better than they actually are.

Or, it is not worth paying for active management.

Please correct me if I have misinterpreted this!

[Jon39]

rockin said:

Jon39 said:

It shows the growth during each year, for the FTSE All-Share Index.

IMO what really counts is returns over the long term.

"The highest quality, safest, most stable dividend-paying stocks have tended to return 7% in real, inflation-adjusted returns to owners for centuries. That seems to be the figure that makes people willing to part with their money for the hope of more money tomorrow. Thus, if you live in a world of 3% inflation, you would expect a 10% rate of return (7% real return + 3% inflation = 10% nominal return)."
https://www.thebalance.com/good-rate-roi-357326

I think there are a number of people on here who have achieved results along those lines. 10% compound in a tax-free wrapper (SIPP/ISA) can deliver some impressive figures.

Agree.

Although the chart displays individual years, the long-term figure comes to 14.16% annual average over 29 years.
With relevance to this topic, the total dividend income has been failrly strong throughout, which of course is welcome during retirement. However during recent years, there are several large companies with 5% to 6% yields, which have not been in a position to increase their dividends.

Most held within ISAs for obvious reasons.

[x5x3]

sidicks said:

Jon39 said:

It is, but I do not have the historical values.

Can you help x5x3 with the figures required ?

https://www.ftse.com/analytics/factsheets/Home/HistoricIndexValues

http://siblisresearch.com/data/ftse-all-total-retu...

Edited by sidicks on Sunday 16th September 11:46

thanks I'll take a look later.

Derek Chevalier said:

x5x3 said:

but finding the UK share index growth figures is a bit more tricky - anyone else tried this?

Out of interest when UK stock markets are such a small part of the globe why are you looking at this in particular?

no real reason - I'm looking to improve my current model by back-testing it with real data. I found the UK inflation data for 1900-2017 easily so thought the UK stock market would be a good set of data to use.

Do you have a link to download the global markets data since 1900?

[Derek Chevalier]

x5x3 said:

Do you have a link to download the global markets data since 1900?

The Barclays equity gilt study may be a decent starting point, but you'd have to remember that these are long run averages, and there's nothing to say the next twenty years will give you that exact return.

https://www.ft.com/content/afa024b8-3e55-11e8-bcc8...

[Derek Chevalier]

JulianPH said:

Derek Chevalier said:

When someone talks about alpha, "wrong benchmark" springs to mind.

I'd want to look at the proposed portfolio and determine the following (accepting that my analysis was just a snapshot in time (and will struggle to look at historical volatility vs returns if portfolio has had funds switches at some point in the past) but should give an idea of thought process)

1. Asset allocation (equity/bond split etc) including geographic breakdown
2. Factor tilts (see below for equity, same exists for fixed income). How would the portfolio perform in a downturn (e.g. non IG bond exposure)?
3. Are costs taken into account (ALL costs - including rebalancing, trading spreads, dilution levies etc)?

Then I'd make very sure an appropriate benchmark was in place (definitely not the FTSE 100!)

• Factors

A number of years ago, it became apparent that a lot of what managers purported to be alpha was actually beta (in particular taking more risk than market returns), but still some alpha appeared to exist in some cases.

Fast forward a few years and French and Fama published their 3 factor work

https://en.wikipedia.org/wiki/Fama%E2%80%93French_...

showing that in addition to beta, small cap stocks tend to outperform large cap, and value stocks tend to outperform growth stocks (although not in the past decade). The model has since been refined and Dimensional (think French and Fama are still on the board) do a good job in educating advisers

https://en.wikipedia.org/wiki/Dimensional_Fund_Adv...

Question then is, if you can buy market returns and factor exposure very cheaply, are you prepared to pay a decent chunk for a potential small amount of alpha?

I'm pretty sure Simpo Two was referring to advisers claiming they could add Alpha, not investment/fund managers making such claims.

As a quick translation into plain English, Derek (hi mate!) is saying that the added value investment/fund managers claim to achieve is not correlated to the actual benchmark they are comparing this with.

Put more simply, they are cheating by deliberately comparing their own relative returns (Alpha) to that of a benchmark that carried a far greater level of relative historic volatility (Beta) to make them look better than they actually are.

Or, it is not worth paying for active management.

Please correct me if I have misinterpreted this!

Perfect, thanks Julian!

[Glosphil]

I was told it was necessary to pay a higher percentage of my fund value to obtain the best fund managers. When I complained when the crash came and my fund value fell I was told that it was up to me to monitor my funds performance!
Many people seem to assume that the fee is a percentage of their yearly payment into their fund rather than the true percentage of the total fund value.

[JulianPH]

zubzob said:

Slight derail, but can anyone put a figure on the likelihood I can draw from my SIPP at aged 57. Is it 100%? (I'm 40)

There are no plans or proposals to change this (though this does not rule out the suicidal prospect of a government trying to do so).

A pension is only a tax allowance and so is controlled by the government of the day. It is however a sacrosanct one and therefore there is some safety here when it comes to major changes.

I would keep an ISA back up just to be certain though...

[JulianPH]

Derek Chevalier said:

Perfect, thanks Julian!

Cheers mate!

[Aletank]

zubzob said:

Slight derail, but can anyone put a figure on the likelihood I can draw from my SIPP at aged 57. Is it 100%? (I'm 40)

I'm 41 and watching the 55 rule closely myself bearing in mind it used to be 50
At the moment it's 55 with no official plan to change but 57 is getting mentioned also 10 years before STA is being mentioned.
Expect anything n be prepared for the worse !

[Cheib]

Welshbeef said:

1% of the house resale value spend per year - wow

Over 25 years all of the following need maintenance/replacement

Kitchen
Bathroom/s
Decorating
Flooring
Roof Repairs/Guttering
Driveway
Windows
Fencing
Central Heating
Curtains

Etc etc

Obviously some of those things you can do yourself...most of them for most people requires paying someone else to do it. Clearly kitchens and bathroom should last that long but at some stage they'll look/be knackered and need replacing....but would look at out of date before then.