Retirement fund

[anonymous-user]

"False precision (also called overprecision, fake precision, misplaced precision and spurious precision) occurs when numerical data are presented in a manner that implies better precision than is justified; since precision is a limit to accuracy, this often leads to overconfidence."

You can model this stuff until you're blue in the face but what really matters is understanding the basics,

• Make sensible annual contributions >15% of earnings (with a target of 20% or more)
• For a very long time - this is essential
• Have the courage to get on board with equity risk (stocks and shares funds)
• Focus closely on reducing fees and charges - especially those darned "advisers".

A safe withdrawal rate (SWR) of 2% isn't going to be any use to anyone. Think about it - that's only £20,000 a year for someone sitting on a £1 million fund. So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return. It's nonsense. 4% is a sensible base-line and the question is how much higher to go, especially in the earlier, healthier years.

Remember this. If you pay contributions from age 30 to age 65 and a financial adviser is charging 1% p.a. for his ongoing advice he's got more than a third of your money by the time you retire. Your target for fully inclusive cost of running an investment portfolio should IMO be "not more than 1%". I just about achieve that with an active strategy but it's much easier for people who take a passive approach.

And people who are worried about putting money into pension that they can't touch until retirement age should IMO look carefully at deploying SIPP (pension) and ISA side by side. Think of it as the Van Halen investment strategy,
https://www.youtube.com/watch?v=yZ7ywrl5oMo

[BarryGibb]

rockin said:

"False precision (also called overprecision, fake precision, misplaced precision and spurious precision) occurs when numerical data are presented in a manner that implies better precision than is justified; since precision is a limit to accuracy, this often leads to overconfidence."

You can model this stuff until you're blue in the face but what really matters is understanding the basics,

• Make sensible annual contributions >15% of earnings (with a target of 20% or more)
• For a very long time - this is essential
• Have the courage to get on board with equity risk (stocks and shares funds)
• Focus closely on reducing fees and charges - especially those darned "advisers".

A safe withdrawal rate (SWR) of 2% isn't going to be any use to anyone. Think about it - that's only £20,000 a year for someone sitting on a £1 million fund. So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return. It's nonsense. 4% is a sensible base-line and the question is how much higher to go, especially in the earlier, healthier years.

Remember this. If you pay contributions from age 30 to age 65 and a financial adviser is charging 1% p.a. for his ongoing advice he's got more than a third of your money by the time you retire. Your target for fully inclusive cost of running an investment portfolio should IMO be "not more than 1%". I just about achieve that with an active strategy but it's much easier for people who take a passive approach.

And people who are worried about putting money into pension that they can't touch until retirement age should IMO look carefully at deploying SIPP (pension) and ISA side by side. Think of it as the Van Halen investment strategy,
https://www.youtube.com/watch?v=yZ7ywrl5oMo

"4% is a sensible base-line"

Given your numbers above, someone finishing at 60 might (prudently) plan to live to age 100 (typically 10 years more than the studies, and ~0.3% off the SWR). Your example of 1% costs (approximately) knocks approx another 0.5% off. Given "typical" investor behaviour probably takes a reasonable amount off as well, I think 4% might not be as sensible as you think for some.


"So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return."

Have a look at the 70s to understand how falling markets and inflation can decimate a retirement strategy.

[cavey76]

bhstewie said:

NorthDave said:

As someone who is managing his own investments, with a view to retirement, I am embarassed to say I dont understand a decent chunk of what has been written above!

Where is the best place to go for advice? I'm always wary of IFA, wealth managers and the likes. Surely they will eat a huge chunk of capital in fees?

Which bits?

I know when I started investing a few years ago it literally seemed like a different language but you soon get familiar with enough to get by

Which is half the battle? I fear some of the above talked by some is perpetuating the complex bks of the finance industry. @NorthDave. If you’re doing well enough carry on as you are. I am doing the same. My attitude is i take responsibility for my income while working. I’ll do the same in retirement. No need for any c-units to teach u to suck eggs

[cavey76]

And just to be i am not talking about the last few posts. Rockins post with some basic rules of thumb effectively ends the thread

[xeny]

RaymondVanDerDon said:

I don't know the specific % of charges of my employer scheme but I know it's very competitive. Flat fees for admin charges make complete sense to me and seem very fair. It's just the principle of charging a % of my holdings for 'expert advice' that grates - as my reasoning is if these people are actual experts in stock markets then why do they need to work for a living?

Are you completely ignoring any employer contributions? Do they not offer a cheap world tracker for say .25% if their fees are competitive? It's not as if you're doing anything with dividends other than reinvesting them, at which point why be interested at all in yield?

Ultimate question is are you getting better or worse results than the company scheme? If worse, it looks as if you're cutting off your nose to spite your face.

[Phooey]

BarryGibb said:

rockin said:

"False precision (also called overprecision, fake precision, misplaced precision and spurious precision) occurs when numerical data are presented in a manner that implies better precision than is justified; since precision is a limit to accuracy, this often leads to overconfidence."

You can model this stuff until you're blue in the face but what really matters is understanding the basics,

• Make sensible annual contributions >15% of earnings (with a target of 20% or more)
• For a very long time - this is essential
• Have the courage to get on board with equity risk (stocks and shares funds)
• Focus closely on reducing fees and charges - especially those darned "advisers".

A safe withdrawal rate (SWR) of 2% isn't going to be any use to anyone. Think about it - that's only £20,000 a year for someone sitting on a £1 million fund. So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return. It's nonsense. 4% is a sensible base-line and the question is how much higher to go, especially in the earlier, healthier years.

Remember this. If you pay contributions from age 30 to age 65 and a financial adviser is charging 1% p.a. for his ongoing advice he's got more than a third of your money by the time you retire. Your target for fully inclusive cost of running an investment portfolio should IMO be "not more than 1%". I just about achieve that with an active strategy but it's much easier for people who take a passive approach.

And people who are worried about putting money into pension that they can't touch until retirement age should IMO look carefully at deploying SIPP (pension) and ISA side by side. Think of it as the Van Halen investment strategy,
https://www.youtube.com/watch?v=yZ7ywrl5oMo

"4% is a sensible base-line"

Given your numbers above, someone finishing at 60 might (prudently) plan to live to age 100 (typically 10 years more than the studies, and ~0.3% off the SWR). Your example of 1% costs (approximately) knocks approx another 0.5% off. Given "typical" investor behaviour probably takes a reasonable amount off as well, I think 4% might not be as sensible as you think for some.


"So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return."

Have a look at the 70s to understand how falling markets and inflation can decimate a retirement strategy.

No offence Barry but your reply sounds like a scare tactic a typical IFA would use to anchor in a client.

I think rockin made a sensible reply. I mean, what are the chances of living to 100, and are you really going to need the same amount to spend at 100 as you are at 70? Cars. Holidays. Leisure.

I think the 4% rule is quite realistic and sensible. Given a choice of 4% and living to average age or 2-3% and living to 100... I know which one I am taking.

[Carbon Sasquatch]

2 core mistakes made by many - forgetting the state pension & assuming flat demand through the retirement years.

In reality your spend is usually front loaded as you have health & ability to do stuff and potentially back ended if you need medical care.

My personal model tapers down in 5 year chunks - planning to retire at 55. but by 80 expect to not be doing all that much that much that's terribly expensive. I could be wrong, but I don't think I'll regret spending most of my money in my 60's

[BarryGibb]

Phooey said:

BarryGibb said:

rockin said:

"False precision (also called overprecision, fake precision, misplaced precision and spurious precision) occurs when numerical data are presented in a manner that implies better precision than is justified; since precision is a limit to accuracy, this often leads to overconfidence."

You can model this stuff until you're blue in the face but what really matters is understanding the basics,

• Make sensible annual contributions >15% of earnings (with a target of 20% or more)
• For a very long time - this is essential
• Have the courage to get on board with equity risk (stocks and shares funds)
• Focus closely on reducing fees and charges - especially those darned "advisers".

A safe withdrawal rate (SWR) of 2% isn't going to be any use to anyone. Think about it - that's only £20,000 a year for someone sitting on a £1 million fund. So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return. It's nonsense. 4% is a sensible base-line and the question is how much higher to go, especially in the earlier, healthier years.

Remember this. If you pay contributions from age 30 to age 65 and a financial adviser is charging 1% p.a. for his ongoing advice he's got more than a third of your money by the time you retire. Your target for fully inclusive cost of running an investment portfolio should IMO be "not more than 1%". I just about achieve that with an active strategy but it's much easier for people who take a passive approach.

And people who are worried about putting money into pension that they can't touch until retirement age should IMO look carefully at deploying SIPP (pension) and ISA side by side. Think of it as the Van Halen investment strategy,
https://www.youtube.com/watch?v=yZ7ywrl5oMo

"4% is a sensible base-line"

Given your numbers above, someone finishing at 60 might (prudently) plan to live to age 100 (typically 10 years more than the studies, and ~0.3% off the SWR). Your example of 1% costs (approximately) knocks approx another 0.5% off. Given "typical" investor behaviour probably takes a reasonable amount off as well, I think 4% might not be as sensible as you think for some.


"So if they retire at 60 they won't run out of money until they're 110 years old, even assuming 0% real investment return."

Have a look at the 70s to understand how falling markets and inflation can decimate a retirement strategy.

No offence Barry but your reply sounds like a scare tactic a typical IFA would use to anchor in a client.

I think rockin made a sensible reply. I mean, what are the chances of living to 100, and are you really going to need the same amount to spend at 100 as you are at 70? Cars. Holidays. Leisure.

I think the 4% rule is quite realistic and sensible. Given a choice of 4% and living to average age or 2-3% and living to 100... I know which one I am taking.

It's not scare tactics (and I wouldn't trust a typical IFA with this btw) - it's rudimentary retirement planning (and that's not meant in an arrogant way). Best bet is to read one or two books - there are some decent ones out there.

Edited by BarryGibb on Saturday 5th June 16:54

Edited by BarryGibb on Saturday 5th June 16:55

[Phooey]

Carbon Sasquatch said:

2 core mistakes made by many - forgetting the state pension & assuming flat demand through the retirement years.

In reality your spend is usually front loaded as you have health & ability to do stuff and potentially back ended if you need medical care.

My personal model tapers down in 5 year chunks - planning to retire at 55. but by 80 expect to not be doing all that much that much that's terribly expensive. I could be wrong, but I don't think I'll regret spending most of my money in my 60's

I haven't forgot about the State pension but I also haven't included it at this time as I still have 20+yrs before I can take it - the gov might move the goalposts or means test it for example so at this point I just treat it as a bonus and haven't planned for it. I'm just simply thinking along the lines of the 4% rule as a base. Anything over and above is the bonus.

[Phooey]

BarryGibb said:

It's not scare tactics (and I wouldn't trust a typical IFA with this btw) - it's rudimentary retirement planning (and that's not meant in an arrogant way). Best bet is to read one or two books - there are some decent ones out there.

But with regards to reading one or two books - I really don't think it's necessary - It's not difficult for anyone with half an ounce of common sense to manage or forward-manage money. A sit down with a calculator and a cup of coffee is all most will ever need. Rinse and repeat every year or three.

Edited by Phooey on Saturday 5th June 19:13

[NickCQ]

Carbon Sasquatch said:

core mistakes ... forgetting the state pension

I wouldn't describe that as a mistake. I would almost say the opposite - you have to consider downside scenarios in which the state pension and/or NHS care is means tested, so you have a whole load of additional costs to fund.

[dingg]

NickCQ said:

Carbon Sasquatch said:

core mistakes ... forgetting the state pension

I wouldn't describe that as a mistake. I would almost say the opposite - you have to consider downside scenarios in which the state pension and/or NHS care is means tested, so you have a whole load of additional costs to fund.

It would be a very brave government that means tests the state pension (ie it'll never happen) but I do see successive government of any persuasion adding years continually to the starting age of receipt.

[Carbon Sasquatch]

dingg said:

It would be a very brave government that means tests the state pension (ie it'll never happen) but I do see successive government of any persuasion adding years continually to the starting age of receipt.

It's definitely a risk factor, just another variable to add to the list of other variables when pension planning.

I could see it happening, but would be a difficult one to administer and would likely start at a high threshold.

Same with things like the 25% tax free element - that could easily reduce or disappear.

[anonymous-user]

xeny said:

Are you completely ignoring any employer contributions? Do they not offer a cheap world tracker for say .25% if their fees are competitive? It's not as if you're doing anything with dividends other than reinvesting them, at which point why be interested at all in yield?

Ultimate question is are you getting better or worse results than the company scheme? If worse, it looks as if you're cutting off your nose to spite your face.

I transferred my previous employer plans to my SIPP and I participate in my current plan (I don't think they allow you to do partial transfers to a SIPP whilst employed). They don't offer trackers, just a series of managed funds based on attitude to risk.

My dilemma is my individual stock SIPP was massively outperforming my employer schemes (again why I resent the charges associated with managed funds) until Covid hit.

I think a core principle of HYP is to accept there will be times when dividend income diminishes and to ride it out. But it feels different this time with Covid. It's a crystal ball thing - but I'm thinking there is going to be a big long term impact on business and no doubt future dividend payouts.

[Mr Pointy]

Carbon Sasquatch said:

2 core mistakes made by many - forgetting the state pension & assuming flat demand through the retirement years.

In reality your spend is usually front loaded as you have health & ability to do stuff and potentially back ended if you need medical care.

My personal model tapers down in 5 year chunks - planning to retire at 55. but by 80 expect to not be doing all that much that much that's terribly expensive. I could be wrong, but I don't think I'll regret spending most of my money in my 60's

The problem is that you have no idea what your health will be like when you are 80 - it could well be the most expensive period of your life. It's not at difficult to be spending £1500 a week (at today's prices) if you need to go into a care home because you can no longer look after yourself, or you're suffering from Alzheimers or dementia. There are some really unpleasant cheap care homes around.

[Carbon Sasquatch]

I still think I'd rather retire at 55 and have 25 years enjoyment than keep working until 67 and be able to afford a nicer care home.

Of course hindsight is a wonderful thing & I could be wrong.

[xeny]

RaymondVanDerDon said:

I transferred my previous employer plans to my SIPP and I participate in my current plan (I don't think they allow you to do partial transfers to a SIPP whilst employed). They don't offer trackers, just a series of managed funds based on attitude to risk.

My dilemma is my individual stock SIPP was massively outperforming my employer schemes (again why I resent the charges associated with managed funds) until Covid hit.

I think a core principle of HYP is to accept there will be times when dividend income diminishes and to ride it out. But it feels different this time with Covid. It's a crystal ball thing - but I'm thinking there is going to be a big long term impact on business and no doubt future dividend payouts.

That's frustrating. The DC part of mine offers cheap trackers, with the option of a tilt to ESG, Sharia compliance etc, and they subsidise the management costs.

One interpretation of what you're saying is that you're taking much more risk than the managed scheme(s), and typically people who manage pension funds are very risk averse by nature (similarly I don't have access to a technology tracker -presumably seen as too risky).

Every bit of HYP (or higher than average yield) analysis I've seen at all recently suggest that long term it delivers less total return than a less yield focussed approach. If you're seeing higher than average total return with that approach that suggests you're accepting a lot of risk, which is great when it works, but potentially painful when it doesn't.

[LeoSayer]

The state pension is already effectively means tested by income tax taking 20%, 40% or 45% of it via income tax.

The 25% tax free element is also effectively means tested via the 55% Lifetime Allowance charge and the threshold for this is not being increased by inflation for the next 5 years.

In any case, how would means testing work? Would every single recipient of the state pension need to complete a self assessment every year?

Maybe they'll start charging NI on pension payments.

[Armitage.Shanks]

Mr Pointy said:

The problem is that you have no idea what your health will be like when you are 80 - it could well be the most expensive period of your life. It's not at difficult to be spending £1500 a week (at today's prices) if you need to go into a care home because you can no longer look after yourself, or you're suffering from Alzheimers or dementia. There are some really unpleasant cheap care homes around.

If you end up with Dementia I don't think it matters what home you're in. I'd agree that 80 for me is the absolute limit I'd be looking at in terms of spending. Most of us will all die with excess money (certainly those on index linked FS schemes) that we should have spent in earlier years, it's just difficult to plan it.

[xeny]

Armitage.Shanks said:

If you end up with Dementia I don't think it matters what home you're in. I'd agree that 80 for me is the absolute limit I'd be looking at in terms of spending. Most of us will all die with excess money (certainly those on index linked FS schemes) that we should have spent in earlier years, it's just difficult to plan it.

My mum who I acknowledge is an outlier , is significantly over 80 and is currently hassling me for possible holiday destinations for either late this year or next - she still regrets the two long haul trips that ended up cancelled over the past 15 months.

Something to remember with at least some of those FS schemes is that while they're index linked, the linking only applies up to a certain relatively low level of inflation. A few years of moderately high inflation could see their real values fall significantly.