If you're interested in accessing the spreadsheet and learning more about investing then why not become a PensionCraft.com member? www.pensioncraft.com/investor-education/membership/
Step 1: Live to a budget. Step 2: Put as much aside as you are comfortably able to. Step 3: Spend on your hobbies and things that are important to you. Try not to spend money on stuff, like gadgets, or things that you know will eventually sit in a cupboard. Instead spend your money having lunch with friends and family etc. Embrace free/cheap and healthy activities like walking around parks and the countryside, cycling etc. Step 4: At the point of retirement you have already been living within your means for many years and have already developed the good habits that will see you live a long and happy retirement. Step 5: Enjoy!
Or have lots of fun, spend all your money, borrow some, have more fun and then take a shortcut when you run out ;) live life to the full while you can enjoy it. Money does not matter when you are old and sick. I
The best way to find growth stocks, key features to keep in mind is as follows: 1. Ensure gross margins are greater than 50% 2. Ensure P/E ratio is less than 100 3. Buy companies that are PROFITABLE, very important irrespective of sector. 4. Debt to equity ratio is less than 30% 5. Current ratio is above 1 6. and a Float under 100 million One stock that fits the bill is FLGT (Fulgent)
Hi Sam R thanks, inflation is a big problem and I made fairly benign assumptions about the rate of inflation i.e. that it's at the Bank of England's 2% target. Thanks, Ramin.
Hmmm dunking Rich Tea biscuits is a favourite pastime of mine. Although you run the risk of your biscuit breaking if you're a newbie ua-cam.com/video/KuqLqS5Xmz8/v-deo.html Thanks, Ramin.
Take the gross income you want and divide by 0.03.... that is how much you need. (So if you want 40 grand gross income you need a pot of about 1.3mil).
Great video again! Remember that the UK state pension of about 8.5k would significantly reduce the size of the personal pension pot required to generate a total (modest) pension of 20k! This makes the figures less scary! Long live the state pension!!
Income does not just come from investments. You get a state pension. My wife and I could live off my state pension alone (it covers all our living costs). With both state pensions we could live comfortably. Add private pensions and our capital is increasing by more than investment return. Despite retiring at 52. Shock? no- it is all in fixed interest. I have enough- why risk my capital to get more than I will ever spend?
There will unlikely be a state pension for the rest of us now, the government will be in crisis for some time. I expect the age to be delayed yet again.
Suggest retirement portfolio be designed to generate more dividends than current cost of living amounts. EG, if median annual cost of living is 23000 pounds sterling, then design portfolio to do 50000* pounds sterling. Go ahead and use the 23000 pounds sterling annually, and recycle the difference to buy more portfolio stock(s). This should more than offset inflation, which the Fed targets ~ 2-3% under normal circumstances, and allow for greater inflation adjusted future distributions. *50000 is just a guess for illustration purposes, end users will have to iterate their own specific value to match their comfort zone(s).
In your scenario with a 20,30,40etc year old starting out, it looks as though it assumes the 20 year old won't be earning the figures you've used for an average 30 year old (inflation adjusted) when they reach 30, it appears to assume that they will stay on the equivalent income. This implies that they would be better off loafing about until they are 30 where they earn more, save less and end up with a better income at retirement (at a lower age!) than if they start work at 20 - which (unless you take into account that they might have stayed studying to get that higher income) isn't normally the case.
repeated this 10x already to get it in my head because for me this is the beginning of a great start I'm just 47 years old and I watch as many retirement and financial education videos and learn how to manage my personal finance love the video man
my piece to beginners out there and the obsessed, watch out for promoters in the comments while learning more on how to invest. do your due diligence and research. In my opinion do not go out there without proper guidance
@@diegoyuiop 🤣🤣 what kind of doomsday theory are you touting? Of course there will be pensions for years to come. The pension age may stretch out due to longer lifespan and the triple lock may need tinkering. The Scots even believe we'll be paying for theirs if they go indy 😂😂
@@diegoyuiop So which political party are you aware of that might consider having a policy of ending pensions? Of course that would get voted in now wouldn't it 🤔
Saving the wrong word in case you haven't noticed money is useless especially lly over time, currencies can be devalued over night, what you need is asset building that will give a return in later life classic one being property,
Great video! I would be grateful if you could advise what's best for me..37 year old.. started pension contributions age 27, currently 45k pension pot. I earn 38k and i sacrifice 18% monthly from my salary into my employers pension scheme ( the biggest i am allowed) they pay 5% only. Am i doing the right thing? Or shall i decrease my contributions to 5% or 10% and invest the remaining in a SiPP or stocks ans share isa or lisa? So confused here😮
All financial decisions are unique to each individual but my 2 cents is you are probably doing the right thing, as long as your pension scheme has reasonable fees and a decent set of funds options. If not, you might want to consider moving your historic pension pot to a pensions provider that offers you better rates/products. Stick to the big brands and make sure they are fully regulated etc.... to avoid scams
Aren't the estimations of 4-5% returns over inflation? If so, that would mean you should put inflation to 0 in your Excel simulation, or add the inflation you choose to your returns. Also, since historical yearly returns, as well as forecasted ones, take the event of a big crash into consideration, in order to have comparable results in your final simulation you should increase returns on the other years (except for the one where the "crash" happens) in order to keep the average the same as without the crash. This would change results a bit but not the conclusion that one is most sensitive to crashes close to the date of retirement.
Hi Gil the returns are nominal i.e. not over inflation. I wanted to keep the analysis as simple as possible but still show the effect of a "shock" versus age. As you say, additional bells and whistles would have complicated the analysis without changing the conclusion. Thanks, Ramin.
Would it not work if you built the pot big enough that the pot was growing my more each year than you were taking out, meaning the money never runs out? Also, why is the inflation rate aim 2% by the bank of England? Would 0 or 1% not make more sense? Enjoyed the video as always!
If people think prices will go down instead of up they won't spend and consumption will drop. Why is it exactly 2%? I don't know. There is also the relationship between unemployment and inflation, if the latter goes up there will, theoretically, be more jobs as companies will expect future growth.
Hi Zoltán-Csaba "US inflation" is the forecast 10 year return distribution for US TIPS and "UK inflation" is the forecast return distribution for UK inflation-linked gilts. Thanks, Ramin.
Hi @@zoltan-csabamarton6870 re-reading that section (you'll find the text that accompanies the fixed income return distributions on page 39 of this document pressroom.vanguard.com/nonindexed/Vanguard_Global_Economic_Market_Outlook_2020.pdf ) I suspect they might just be referring to the actual rate of US CPI inflation and the return on TIPS separately. Thanks, Ramin.
Another nicely worked video. I imagine it was meant to limit its scope to the mechanism by which a pension is accumulated and drawn down for simplicity of explanation, hence no mention of any state benefit entitlements. With ref. to the Shock factor during the drawdown phase which some have commented on. The common plan for this scenario is to have 2-4 years emergency income in cash/near cash so that drawdown ceases until a stock market recovery appears. Assuming the pot is big enough, this is a sensible use for the 25% tax free element, rather than spending it on a new car/holiday/caravan etc., which unfortunately so many seem to be doing.
Hi Martin as I say in the video you have to be a Patreon supporter (for the very small fee of $5 per month) to access the spreadsheet. You also get all the other benefits of membership (access to Sunday evening Q&A calls, Slack access etc.). I like making helpful videos but I also have to eat. Thanks, Ramin.
I don't think there will be any state pension at all, in 35/40 years. Maybe I'm wrong, but surely retirement age will keep rising and you'll get much less than what pensioners gets today. It would be very naive to think you can rely on a state pension if you're in your 20s or 30s, imho
This gives food for thought and for people of my age group 60-65 real fears in investment choice. I,m lucky to have aquired a sizeable pot through savings pensions and inheritance but it does not give me piece of mind I want to protect my 'mass of money' to generate a sensible return whilst entering drawdown at say 67. A 50% shock and prolonged market recovery would blow a big hole. I have created my own spreadsheet and however you massage figures it doesn't look great. However better have to something than nothing!
An historical inflation of 5.3% combined with a 4% return on investments is a pretty grim picture for people trying to save for retirement... Even when investing money in the stock market it looks like we are still losing money in real terms.
Interesting video and food for thought. You don't factor in things like the workplace pension or the state pension. The idea that one's money running out is therefore a bit misleading.
Everyone's inflation is different! CPI is nonsense- check out how they calculate it. I calculate my inflation accurately, and over the last 17 years my accumulated inflation is - zero. Yes, none. Fact. This means that I am over invested for my retirement, and could have retired much earlier.
Spending in retirement should not be even as a young pensioner - 65-71should still be active and be able to travel etc , then in the period 71- 79 is a period where spending is Lower as there are fewer activities one can but the health is still intact. The last stage is where healthcare cost skyrocket . So these assumptions can be added also to improve your model)
I don’t know, I’m no financial planner but if you assume inflation to be on average 2.5% to 3.0%, your return on equity investment would probably be more than 4.0%. If you are assuming a return on your equity investment of 4.0% then a inflation of 0.9% is more reasonable? A 4% return on equity investment minus management fee and minus inflation of 2.5% would yield a real negative growth, who would put money into something like that, might as well spend all your money now
The funny thing is that growth stock markets, house prices and other asset classes IS inflation. At some point it was decided this was "good" inflation and did not need to be controlled, even though it results in a financial train wreck.
The key issue with this: You have focused on Life Expectancy not healthy life expectancy . In the UK it is 63-66. At 75 you will not be spending half of what you will at the peak at 70. Therefore you don't need so much.
Pay off your credit cards in full and pay off your mortgage as quick as you possibly can through overpayments; I wish I'd learned / been told this 20 years ago but I am fortunate in as much as I have a job I won't have to retire from (which is clerical - provided I don't go mad / lose my marbles / have a stroke {in which case I'd be out of it anyway} I can and will work until the day I drop)
This does not factor in State Pension which would lower your decumulation once In payment. Would be ideal to include this on the s/s with increases linked to NAE between now and SPA
I think we have to assume given the current situation and how much money is being handed out, there will be no state pension. Many people need to wake up now whilst they will have some time.
An interesting video. They say that people spend less as they get older in retirement but one thing that might push up the costs later on is if you need permanent residential care and nursing in the later years. Current costs seem to be going in excess of £1000 per week. It seems quite hard to allow for this risk in retirement planning, let alone managing to shuffle out through the exit doors with £0.00 in the pot!
Hi Ramin Love your videos. WOW Doom and gloom. Vanguard 2020 outlook 3.8% RETURNS ! irrespective of inflation in next 10 years !!!! (40/60eq) Should we be looking elsewhere say rental prop?
Great video as always, not sure if I’m missing something, but re a 50 year old you originally state it requires 36%, but in the fees & inflation comparison this is reduced to 20% so increasing the gap?
My socially responsible retirement plan is a good length of strong rope and the nearest tree or lamp post. But to think that even such a modest retirement plan would be out of reach for future generations...
Thank you for making this video. This presents a number of ideas in an easy to understand format. If only live was that easy! Generally as people get older they encounter life events such as illness and/or divorce which spoils the uniformity of the graphs. Not taking anything away from your video it is still intersting.
I'm disappointed that all videos on this topic always assume that the goal is to spend all savings during retirement and they never analyse the implications of spending less during retirement than the savings' annual ROI. This way you have a capital that can be transmitted to the next generations and continues to generate a (possibly small) return every year forever. It's a way to stop the cycle where each generation in a family must start saving from zero. In my opinion each generation should try to leave to the next more savings than they got from the previous, instead of assuming a reset every time. It doesn't need to be millions but even 50k or 100k when invested for decades across generations can make a big difference.
@Mr Brightside I've seen the same statistics but armed with this information families can take preventive measures to reduce the chances that children or grandchildren will destroy the family's capital. E.g. raise children with a middle-class lifestyle, expect them to work in their 20's and 30's, give them some financial education before disclosing the existence of the family's capital... It's not bulletproof but it improves the odds. I'd love to see some discussion of these multi-generation plans but all advise on YT, blogs and articles always stops at death. It's not a subtle difference: experts often suggest private pension plans that cannot be transferred indefinitely between generations, so the suggestions that they give often help parents but are suboptimal for their children and the tradeoffs are never even mentioned.
The shock 50% falls appear to be followed by the average returns thereafter in your modelling. But big shocks like that would hopefully be followed by a period of higher returns to make the overall annual returns match the long term assumption. Like the period we're in now. A decade + of out performance after 50% + falls.
Hi UK Amateur Investor Diary in 2008, for example, most equity markets fell by more than 50% (e.g. the S&P 500 fell 56% and took until 2013 to reach its previous peak in 2007). So you could think of the 50% fall factoring in the bounce afterwards. But that kind of detail is irrelevant as I was trying to show the sensitivity of a wealth shock at different points in the accumulation & drawdown periods. Thanks, Ramin.
govermment pension should be taken into accounts. In canada you get a old age federal pension on top of a retired provincial pension. you cant live on that but for a middle class average income worker as of today it gives you about half of the income to live off okay in canada (15k-20k/year). Pretty sure there is similar gov. pension in most countries.
Could you explain how " money runs out " at different ages , if you're in a pension. The whole point of a pension is that it doesn't run out until the day you die. A little confused.
@@Pensioncraft i really enjoy your videos but genuinely confused . I don't get it. Are you advocating a pension so that your money " doesn't run out " or suggesting simply investing and " hoping " your money doesn't run out , assuming decent financial /spending habits in later life ? As I say , a pension never runs out , whereas investing with a view to living off the income and capital could run out very quickly ( theoretically ). Thanks for response btw.
Hi @@johnristheanswer I am trying to help people gauge how much of their salary they need to set aside (as a minimum) so that their pension savings don't run out before they die. What I'm assuming is that someone builds up savings while working then retires, has zero income, and draws down those savings for their living expenses. So under those assumptions, their savings _can_ run out if the amount they withdraw per year exceeds the growth of the savings. Thanks, Ramin.
@@Pensioncraft got you now. It's the " pension savings " comment meaning savings , rather than talking about a pension plan policy that had be confused. Thanks
I’d prefer passive income and high savings rate to hoping I die at age 86. Saving 50% at age 27. I’ll probably work and save to some extent until I die. I view it as healthy. Like exercise.
As i have just turned 65 and half i now draw my state pension . As a lad i grew up working on fairgrounds in the summer and working as a coalman in the winters and loads of different jobs inbetween , Ive always worked in jobs where there wasnt an option to join a pension fund and if there was i couldnt afford to contribute because i was supporting my family . Not all of us had the luxury of having a disposable income . I still work full time and probably will until i peg it but let us not forget that to pay into a pension fund you must be able to afford to . There are many that have trouble making ends meet and working on zero hours contracts and cant see beyond tomorrow never mind years away . People need security to make a commitment like a pension.
Don't forget that if you do save but "have a crash" at say 40 years old, the fact tha you ave saved rather than had foreign holidays, etc, means that the government will exclude you from the benefits system THAT *YOUR* TAXES WILL HAVE PAID FOR and they will tell you to use your money first before they will help you!!! My advice is to just make sure you don't have a mortgage or any other debt and then enjoy your money as you get it
Of course, if you are also going to receive the state pension and you also have a modest pension from your employer you might only need to invest half that figure to get to £20,000 a year. Also, if like me you paid your mortgage off when you were 40 and you can live quite happily on as little as £5, 000 a year then 4% on your investments looks fantastic given the current economic situation.
@@dallassukerkin6878 Ah, but that's because I'm a writer and prefer to spend my time in the house at my computer. If you like to dine out and go on holidays abroad and still have a mortgage to pay then my rate of saving will make you miserable. As they say, each to their own. What I would say to anyone younger than me is at least make a start by saving £100 a month into some kind of investment whether that be index funds or collectables like premium single malt whisky which is the kind of stuff I invest in. The point is to invest in something you understand and can accept in terms of risk then just keep investing month after month and year after year until you reach your financial goals. In the end, there is always going to be a risk when you invest just as there's a risk with not investing, too.
@@diegoyuiop you may be right but given that millennials will likely benefit from inherited wealth from the largest and wealthiest generation in history, baby boomers, it means if they are savvy with their money and invest it wisely they may not need the state pension. In any case it's probably wise to aim to have £200,000 in assets by retirement because that would probably give you a around £8000 a year to drawdown which is not far off what the state pension is and perfectly livable on as I've been living on £4000 a year for the last five years.
Hi Ramin, I was at a retirement seminar and the speaker spoke on how he quit his job after he made well over $450,000 PROFIT within 3months he invested $120,000. I just began investing and i will really appreciate any tips or helpful guide.
HELPFUL TIP It is very easy to make huge profit over a short period of time by investing with the guidance of an expert, i began investing Nov 2019 with RITA MARIE SWANN a licensed broker and within 2months i've made $258,000 from my $75,000 investment.
@@kingzhao3587 I searched her already, and I can say I’m super impressed with her investment skills, I already wrote her an email through her website and I can’t wait to begin with her.
When the average pensioner reaches 70 his/her financial needs diminish (according to data I was shown by a pension advisor) and the obvious reason is people become inactive, stay indoors more and don't holiday as much and the State pension of £9000 p.a. would probably cover their needs beyond 70.
I wouldn't count on that. I live a bare bones existence already at nearly 60. I have had precisely one holiday that didn't involve just staying at home in my entire life. The only 'extravagance' I indulge in is decent broadband, which really is more of a necessity in the modern world. Even if I slashed everything to the absolute bare minimum (no eating out, no booze, no subscription media etc) then outgoings would be higher than my state pension (having been hoodwinked into opting out for a few years). Indeed, in my case outgoings now are higher than what the state pension plus my employer pension (which has been appallingly handled) will be! So I have less than ten years (assuming I am not made to retire at 'retirement' age) to ensure a private income of around £500/month to fill in the gap and cope with at least a few years of inflation. It might be possible, it might not. It all depends on factors outside of my control and that is deeply troubling.
Simply have no idea why you think a £20k for a single income is necessary and you haven't mentioned state pension to boot. Seems to be scaremongering to me!
£20k after tax seems reasonable, if not a little on the low side to me. £1,000 per month on living expenses if you live relatively frugally, then some additional money for home maintenance and perhaps a cheap holiday or two. Obviously depends on the area you live in as well.
Hi SuperDiagnostic as I say at the beginning goals are based on individual choices and each person's goals will be different but I had to choose some numbers for the video. Thanks, Ramin.
I will never save for anything . I spend and enjoy life as much as I can . When I want I will retire when I want . The cemetery is full of folk in their 50s and 60s .... Who cares about all this crap , this type of rubbish breeds depression .
If you're interested in accessing the spreadsheet and learning more about investing then why not become a PensionCraft.com member? www.pensioncraft.com/investor-education/membership/
Step 1: Live to a budget.
Step 2: Put as much aside as you are comfortably able to.
Step 3: Spend on your hobbies and things that are important to you. Try not to spend money on stuff, like gadgets, or things that you know will eventually sit in a cupboard. Instead spend your money having lunch with friends and family etc. Embrace free/cheap and healthy activities like walking around parks and the countryside, cycling etc.
Step 4: At the point of retirement you have already been living within your means for many years and have already developed the good habits that will see you live a long and happy retirement.
Step 5: Enjoy!
Or have lots of fun, spend all your money, borrow some, have more fun and then take a shortcut when you run out ;) live life to the full while you can enjoy it. Money does not matter when you are old and sick. I
Single best advice on the internet 🎉❤
The best way to find growth stocks, key features to keep in mind is as follows:
1. Ensure gross margins are greater than 50%
2. Ensure P/E ratio is less than 100
3. Buy companies that are PROFITABLE, very important irrespective of sector.
4. Debt to equity ratio is less than 30%
5. Current ratio is above 1 6. and a Float under 100 million One stock that fits the bill is FLGT (Fulgent)
Thankyou for watching and taking the time to comment.
Great video and shows the insidious affects of inflation. So start early in a low fee investment fund and hope compounding of interest works.
Hi Sam R thanks, inflation is a big problem and I made fairly benign assumptions about the rate of inflation i.e. that it's at the Bank of England's 2% target. Thanks, Ramin.
Start saving early and regularly- reinvest your dividends and let compounding interest do its wonder
In light of recent events I have modified my retirement goal to simply being alive with my thinker intact.
Ramen is the best man on UA-cam!
Thanks @John Smith
Feast on tea biscuits with a nice cup of tea. That is so British. :0)
Hmmm dunking Rich Tea biscuits is a favourite pastime of mine. Although you run the risk of your biscuit breaking if you're a newbie ua-cam.com/video/KuqLqS5Xmz8/v-deo.html Thanks, Ramin.
Take the gross income you want and divide by 0.03.... that is how much you need. (So if you want 40 grand gross income you need a pot of about 1.3mil).
Great video again! Remember that the UK state pension of about 8.5k would significantly reduce the size of the personal pension pot required to generate a total (modest) pension of 20k! This makes the figures less scary! Long live the state pension!!
Hi Mark, true this would be in addition to your state pension. Thanks, Ramin.
Can you rely on it still being there though. One thinktank linked to Ian Duncan Smith floated the idea of raising state pension age well into mid 70s.
I’m pretty sure the state pension will disappear come 30 years time. Don’t rely on it. Plan for the worse hope for the best.
2:32 Graham Stephan would be screaming at the screen.
I think I'll switch to water when a cup of coffee goes for $20.. lol.
Just switch to water now. I did it about 10 years ago. I feel great.
it would feel like your paying the same as your wage would increase relatively
Assuming that water prices doesnt inflate at the same rate... So yeah even water will cost much more
Why would u need coffee if you are retired anyway haha
@@TheGreatslyfer
I don't know where you live but in the UK I drink tap water. Water bill is £22 per month.
Income does not just come from investments. You get a state pension. My wife and I could live off my state pension alone (it covers all our living costs). With both state pensions we could live comfortably. Add private pensions and our capital is increasing by more than investment return. Despite retiring at 52. Shock? no- it is all in fixed interest. I have enough- why risk my capital to get more than I will ever spend?
There will unlikely be a state pension for the rest of us now, the government will be in crisis for some time. I expect the age to be delayed yet again.
Suggest retirement portfolio be designed to generate more dividends than current cost of living amounts.
EG, if median annual cost of living is 23000 pounds sterling, then design portfolio to do 50000* pounds sterling.
Go ahead and use the 23000 pounds sterling annually, and recycle the difference to buy more portfolio stock(s).
This should more than offset inflation, which the Fed targets ~ 2-3% under normal circumstances, and allow for greater inflation adjusted future distributions.
*50000 is just a guess for illustration purposes, end users will have to iterate their own specific value to match their comfort zone(s).
In your scenario with a 20,30,40etc year old starting out, it looks as though it assumes the 20 year old won't be earning the figures you've used for an average 30 year old (inflation adjusted) when they reach 30, it appears to assume that they will stay on the equivalent income. This implies that they would be better off loafing about until they are 30 where they earn more, save less and end up with a better income at retirement (at a lower age!) than if they start work at 20 - which (unless you take into account that they might have stayed studying to get that higher income) isn't normally the case.
repeated this 10x already to get it in my head because for me this is the beginning of a great start I'm just 47 years old and I watch as many retirement and financial education videos and learn how to manage my personal finance love the video man
my piece to beginners out there and the obsessed, watch out for promoters in the comments while learning more on how to invest. do your due diligence and research. In my opinion do not go out there without proper guidance
It's possible to live primary off dividends instead of selling positions. Fwiw
Great Video, but could not find link for spreadsheet Ado
In the video description, click "Show More".
What are your thoughts on ETFs and Stocks with dividends?
He has loads of videos on this. Check them out
I'm so glad Google recommended this useful video to me, and not thirty years ago when I still had time to follow the recommendations it contains.
What about the state pension? Surely that reduces the amount you will need in retirement?
Hi Mark yes it does. This will be in addition to any state pension you have. Thanks, Ramin.
@@diegoyuiop 🤣🤣 what kind of doomsday theory are you touting? Of course there will be pensions for years to come. The pension age may stretch out due to longer lifespan and the triple lock may need tinkering. The Scots even believe we'll be paying for theirs if they go indy 😂😂
@@diegoyuiop So which political party are you aware of that might consider having a policy of ending pensions? Of course that would get voted in now wouldn't it 🤔
Saving the wrong word in case you haven't noticed money is useless especially lly over time, currencies can be devalued over night, what you need is asset building that will give a return in later life classic one being property,
The only place I buy take- out coffee is the local Kwik Trip for $1. BTW I'm already retired.
Tea biscuits from Aldi.
Return at 4%? Yikes, most retiremetn calculators assume at least 7%...
Great video! I would be grateful if you could advise what's best for me..37 year old.. started pension contributions age 27, currently 45k pension pot. I earn 38k and i sacrifice 18% monthly from my salary into my employers pension scheme ( the biggest i am allowed) they pay 5% only. Am i doing the right thing? Or shall i decrease my contributions to 5% or 10% and invest the remaining in a SiPP or stocks ans share isa or lisa? So confused here😮
All financial decisions are unique to each individual but my 2 cents is you are probably doing the right thing, as long as your pension scheme has reasonable fees and a decent set of funds options. If not, you might want to consider moving your historic pension pot to a pensions provider that offers you better rates/products. Stick to the big brands and make sure they are fully regulated etc.... to avoid scams
Aren't the estimations of 4-5% returns over inflation? If so, that would mean you should put inflation to 0 in your Excel simulation, or add the inflation you choose to your returns. Also, since historical yearly returns, as well as forecasted ones, take the event of a big crash into consideration, in order to have comparable results in your final simulation you should increase returns on the other years (except for the one where the "crash" happens) in order to keep the average the same as without the crash. This would change results a bit but not the conclusion that one is most sensitive to crashes close to the date of retirement.
Hi Gil the returns are nominal i.e. not over inflation. I wanted to keep the analysis as simple as possible but still show the effect of a "shock" versus age. As you say, additional bells and whistles would have complicated the analysis without changing the conclusion. Thanks, Ramin.
Those prices exist now in California.
Would it not work if you built the pot big enough that the pot was growing my more each year than you were taking out, meaning the money never runs out?
Also, why is the inflation rate aim 2% by the bank of England? Would 0 or 1% not make more sense?
Enjoyed the video as always!
If people think prices will go down instead of up they won't spend and consumption will drop. Why is it exactly 2%? I don't know.
There is also the relationship between unemployment and inflation, if the latter goes up there will, theoretically, be more jobs as companies will expect future growth.
What's this "UK inflation" and "US inflation" in the fixed income charts, e.g. 5:42? It's not TIPS apparently...
Hi Zoltán-Csaba "US inflation" is the forecast 10 year return distribution for US TIPS and "UK inflation" is the forecast return distribution for UK inflation-linked gilts. Thanks, Ramin.
@@Pensioncraft thank you, but there is a separate entry for "US TIPS" and "US inflation" at 5:42 so it has to be something different?
Hi @@zoltan-csabamarton6870 re-reading that section (you'll find the text that accompanies the fixed income return distributions on page 39 of this document pressroom.vanguard.com/nonindexed/Vanguard_Global_Economic_Market_Outlook_2020.pdf ) I suspect they might just be referring to the actual rate of US CPI inflation and the return on TIPS separately. Thanks, Ramin.
@@Pensioncraft thanks for the clarification and the source!
Another nicely worked video. I imagine it was meant to limit its scope to the mechanism by which a pension is accumulated and drawn down for simplicity of explanation, hence no mention of any state benefit entitlements. With ref. to the Shock factor during the drawdown phase which some have commented on. The common plan for this scenario is to have 2-4 years emergency income in cash/near cash so that drawdown ceases until a stock market recovery appears. Assuming the pot is big enough, this is a sensible use for the 25% tax free element, rather than spending it on a new car/holiday/caravan etc., which unfortunately so many seem to be doing.
Hi Alan that's an interesting point about the cash buffer in case of drawdown and using the 25% tax free lump sum to build that buffer. Thanks, Ramin.
That graph could be useful if you want to schedule a booking at Dignitas.
Hi there, google sheet link doesn’t seem to be clicking through?
Hi Martin as I say in the video you have to be a Patreon supporter (for the very small fee of $5 per month) to access the spreadsheet. You also get all the other benefits of membership (access to Sunday evening Q&A calls, Slack access etc.). I like making helpful videos but I also have to eat. Thanks, Ramin.
I notice there was no mentinon of the state pension as an income source. Prescient, or what?
I don't think there will be any state pension at all, in 35/40 years. Maybe I'm wrong, but surely retirement age will keep rising and you'll get much less than what pensioners gets today. It would be very naive to think you can rely on a state pension if you're in your 20s or 30s, imho
can you review nhs pensions ? and employer pensions ?
Outlook of 4% pa from 2020 is pretty low over 10 years, and a drag on long term investing, UK 50 year gilts paying 0.72% interesting times ahead
Shouldn't that be "uninteresting" times ahead? :)
This gives food for thought and for people of my age group 60-65 real fears in investment choice. I,m lucky to have aquired a sizeable pot through savings pensions and inheritance but it does not give me piece of mind I want to protect my 'mass of money' to generate a sensible return whilst entering drawdown at say 67. A 50% shock and prolonged market recovery would blow a big hole. I have created my own spreadsheet and however you massage figures it doesn't look great. However better have to something than nothing!
An historical inflation of 5.3% combined with a 4% return on investments is a pretty grim picture for people trying to save for retirement... Even when investing money in the stock market it looks like we are still losing money in real terms.
Interesting video and food for thought. You don't factor in things like the workplace pension or the state pension. The idea that one's money running out is therefore a bit misleading.
Hi tamsinwood2 true this would be in addition to your state pension and many people do manage to live off their state pension. Thanks, Ramin.
Exactly. This is why i is important to keep making sure that your NI record is complete. Check the.gov pension website regularly in October.
I assume that there will not be a state pension by the time I retire.
Such good advice. Shame I will probably ignore it.
Everyone's inflation is different! CPI is nonsense- check out how they calculate it. I calculate my inflation accurately, and over the last 17 years my accumulated inflation is - zero. Yes, none. Fact. This means that I am over invested for my retirement, and could have retired much earlier.
Spending in retirement should not be even as a young pensioner - 65-71should still be active and be able to travel etc , then in the period 71- 79 is a period where spending is Lower as there are fewer activities one can but the health is still intact. The last stage is where healthcare cost skyrocket . So these assumptions can be added also to improve your model)
Great video. Let’s hope Vanguard’s projections are heavily understated..
Thank you and glad you are enjoying the videos
The only link available asked me to join Patreon!
Hi Adrian as I say at the beginning of the video the spreadsheet is for Patreon supporters only. Membership costs $5 per month. Thanks, Ramin.
I don’t know, I’m no financial planner but if you assume inflation to be on average 2.5% to 3.0%, your return on equity investment would probably be more than 4.0%. If you are assuming a return on your equity investment of 4.0% then a inflation of 0.9% is more reasonable? A 4% return on equity investment minus management fee and minus inflation of 2.5% would yield a real negative growth, who would put money into something like that, might as well spend all your money now
The funny thing is that growth stock markets, house prices and other asset classes IS inflation. At some point it was decided this was "good" inflation and did not need to be controlled, even though it results in a financial train wreck.
The key issue with this: You have focused on Life Expectancy not healthy life expectancy . In the UK it is 63-66. At 75 you will not be spending half of what you will at the peak at 70. Therefore you don't need so much.
Pay off your credit cards in full and pay off your mortgage as quick as you possibly can through overpayments; I wish I'd learned / been told this 20 years ago but I am fortunate in as much as I have a job I won't have to retire from (which is clerical - provided I don't go mad / lose my marbles / have a stroke {in which case I'd be out of it anyway} I can and will work until the day I drop)
This does not factor in State Pension which would lower your decumulation once In payment. Would be ideal to include this on the s/s with increases linked to NAE between now and SPA
I think we have to assume given the current situation and how much money is being handed out, there will be no state pension. Many people need to wake up now whilst they will have some time.
Great video as always! Thank you so much !
Hi adi235v2 thank you! Ramin.
Hi Ramin at 11:11 should that not be 36% >>>> 42% as that was the figure in the previous slide?
An interesting video. They say that people spend less as they get older in retirement but one thing that might push up the costs later on is if you need permanent residential care and nursing in the later years. Current costs seem to be going in excess of £1000 per week. It seems quite hard to allow for this risk in retirement planning, let alone managing to shuffle out through the exit doors with £0.00 in the pot!
Hi Ramin Love your videos. WOW Doom and gloom. Vanguard 2020 outlook 3.8% RETURNS ! irrespective of inflation in next 10 years !!!! (40/60eq) Should we be looking elsewhere say rental prop?
I’m 60 and I’m planning on retiring but I haven’t saved up much for this yet
I’m scared of retiring now, I feel I might regret it later
It wont run out if you dont waste it
Great video as always, not sure if I’m missing something, but re a 50 year old you originally state it requires 36%, but in the fees & inflation comparison this is reduced to 20% so increasing the gap?
My socially responsible retirement plan is a good length of strong rope and the nearest tree or lamp post. But to think that even such a modest retirement plan would be out of reach for future generations...
great video im in my 50s .I hope to have enough money to retire 6 months spain 6 months thats my dream
Thank you for making this video. This presents a number of ideas in an easy to understand format. If only live was that easy! Generally as people get older they encounter life events such as illness and/or divorce which spoils the uniformity of the graphs. Not taking anything away from your video it is still intersting.
A pension pot so small you can’t piss in it
My tactic has been to have zero debt. That way what I draw from SS covers all my expenses.
Any SS there is will be greatly reduced form what it is now.
It can be quite expensive to own some properties, even without debt. Sometimes 2% per annum property value.
I'm disappointed that all videos on this topic always assume that the goal is to spend all savings during retirement and they never analyse the implications of spending less during retirement than the savings' annual ROI. This way you have a capital that can be transmitted to the next generations and continues to generate a (possibly small) return every year forever.
It's a way to stop the cycle where each generation in a family must start saving from zero. In my opinion each generation should try to leave to the next more savings than they got from the previous, instead of assuming a reset every time. It doesn't need to be millions but even 50k or 100k when invested for decades across generations can make a big difference.
@Mr Brightside I've seen the same statistics but armed with this information families can take preventive measures to reduce the chances that children or grandchildren will destroy the family's capital.
E.g. raise children with a middle-class lifestyle, expect them to work in their 20's and 30's, give them some financial education before disclosing the existence of the family's capital... It's not bulletproof but it improves the odds.
I'd love to see some discussion of these multi-generation plans but all advise on YT, blogs and articles always stops at death.
It's not a subtle difference: experts often suggest private pension plans that cannot be transferred indefinitely between generations, so the suggestions that they give often help parents but are suboptimal for their children and the tradeoffs are never even mentioned.
Basically, just get a pension at birth and force parents / gov to pay a few k to start it.
The shock 50% falls appear to be followed by the average returns thereafter in your modelling. But big shocks like that would hopefully be followed by a period of higher returns to make the overall annual returns match the long term assumption. Like the period we're in now. A decade + of out performance after 50% + falls.
Hi UK Amateur Investor Diary in 2008, for example, most equity markets fell by more than 50% (e.g. the S&P 500 fell 56% and took until 2013 to reach its previous peak in 2007). So you could think of the 50% fall factoring in the bounce afterwards. But that kind of detail is irrelevant as I was trying to show the sensitivity of a wealth shock at different points in the accumulation & drawdown periods. Thanks, Ramin.
I like this vid.Good insight but you just made my life a little more challenging..
bro, do i really have to pay for that spreadsheet.
Hi tom111 do I have to stop eating to be able to afford to make these videos? Thanks, Ramin.
govermment pension should be taken into accounts. In canada you get a old age federal pension on top of a retired provincial pension. you cant live on that but for a middle class average income worker as of today it gives you about half of the income to live off okay in canada (15k-20k/year). Pretty sure there is similar gov. pension in most countries.
Today, but not in 40 years
the difference between men and women is up for debate. women have children and do not seek out high paying professions!
Feels good to save more than 50% of my after tax salary
Yeah, if you make good money I highly recommend 50%+
Could you explain how " money runs out " at different ages , if you're in a pension. The whole point of a pension is that it doesn't run out until the day you die. A little confused.
Hi John, that's the point of the video - how much to invest to try and avoid outliving your savings. Thanks, Ramin.
@@Pensioncraft i really enjoy your videos but genuinely confused . I don't get it. Are you advocating a pension so that your money " doesn't run out " or suggesting simply investing and " hoping " your money doesn't run out , assuming decent financial /spending habits in later life ? As I say , a pension never runs out , whereas investing with a view to living off the income and capital could run out very quickly ( theoretically ). Thanks for response btw.
Hi @@johnristheanswer I am trying to help people gauge how much of their salary they need to set aside (as a minimum) so that their pension savings don't run out before they die. What I'm assuming is that someone builds up savings while working then retires, has zero income, and draws down those savings for their living expenses. So under those assumptions, their savings _can_ run out if the amount they withdraw per year exceeds the growth of the savings. Thanks, Ramin.
@@Pensioncraft got you now. It's the " pension savings " comment meaning savings , rather than talking about a pension plan policy that had be confused. Thanks
Any chance you could make a video about annuities ?
I’d prefer passive income and high savings rate to hoping I die at age 86. Saving 50% at age 27.
I’ll probably work and save to some extent until I die. I view it as healthy. Like exercise.
As i have just turned 65 and half i now draw my state pension . As a lad i grew up working on fairgrounds in the summer and working as a coalman in the winters and loads of different jobs inbetween , Ive always worked in jobs where there wasnt an option to join a pension fund and if there was i couldnt afford to contribute because i was supporting my family . Not all of us had the luxury of having a disposable income . I still work full time and probably will until i peg it but let us not forget that to pay into a pension fund you must be able to afford to . There are many that have trouble making ends meet and working on zero hours contracts and cant see beyond tomorrow never mind years away . People need security to make a commitment like a pension.
Don't forget that if you do save but "have a crash" at say 40 years old, the fact tha you ave saved rather than had foreign holidays, etc, means that the government will exclude you from the benefits system THAT *YOUR* TAXES WILL HAVE PAID FOR and they will tell you to use your money first before they will help you!!!
My advice is to just make sure you don't have a mortgage or any other debt and then enjoy your money as you get it
Of course, if you are also going to receive the state pension and you also have a modest pension from your employer you might only need to invest half that figure to get to £20,000 a year. Also, if like me you paid your mortgage off when you were 40 and you can live quite happily on as little as £5, 000 a year then 4% on your investments looks fantastic given the current economic situation.
My word that is an excellent frugality rate! I thought I was doing well with getting my minimum expenditure down to about £12000 per annum!
@@dallassukerkin6878 Ah, but that's because I'm a writer and prefer to spend my time in the house at my computer. If you like to dine out and go on holidays abroad and still have a mortgage to pay then my rate of saving will make you miserable. As they say, each to their own. What I would say to anyone younger than me is at least make a start by saving £100 a month into some kind of investment whether that be index funds or collectables like premium single malt whisky which is the kind of stuff I invest in. The point is to invest in something you understand and can accept in terms of risk then just keep investing month after month and year after year until you reach your financial goals. In the end, there is always going to be a risk when you invest just as there's a risk with not investing, too.
@@diegoyuiop you may be right but given that millennials will likely benefit from inherited wealth from the largest and wealthiest generation in history, baby boomers, it means if they are savvy with their money and invest it wisely they may not need the state pension. In any case it's probably wise to aim to have £200,000 in assets by retirement because that would probably give you a around £8000 a year to drawdown which is not far off what the state pension is and perfectly livable on as I've been living on £4000 a year for the last five years.
It's simple, I see a PensionCraft video and I click.
Hi SimonOnMyChannel, thanks! Ramin.
Hi Ramin,
I was at a retirement seminar and the speaker spoke on how he quit his job after he made well over $450,000 PROFIT within 3months he invested $120,000. I just began investing and i will really appreciate any tips or helpful guide.
Just seek professional help from a mentor or a financial adviser.
HELPFUL TIP It is very easy to make huge profit over a short period of time by investing with the guidance of an expert, i began investing Nov 2019 with RITA MARIE SWANN a licensed broker and within 2months i've made $258,000 from my $75,000 investment.
@@kingzhao3587 That's wonderful, i've always been told that investing with an expert has it advantage but i have no idea how to find one
@Gary holland Google search her name ‘Rita Marie Swann’ she is quite known for her works.
@@kingzhao3587 I searched her already, and I can say I’m super impressed with her investment skills, I already wrote her an email through her website and I can’t wait to begin with her.
When the average pensioner reaches 70 his/her financial needs diminish (according to data I was shown by a pension advisor) and the obvious reason is people become inactive, stay indoors more and don't holiday as much and the State pension of £9000 p.a. would probably cover their needs beyond 70.
I wouldn't count on that.
I live a bare bones existence already at nearly 60. I have had precisely one holiday that didn't involve just staying at home in my entire life. The only 'extravagance' I indulge in is decent broadband, which really is more of a necessity in the modern world.
Even if I slashed everything to the absolute bare minimum (no eating out, no booze, no subscription media etc) then outgoings would be higher than my state pension (having been hoodwinked into opting out for a few years). Indeed, in my case outgoings now are higher than what the state pension plus my employer pension (which has been appallingly handled) will be!
So I have less than ten years (assuming I am not made to retire at 'retirement' age) to ensure a private income of around £500/month to fill in the gap and cope with at least a few years of inflation. It might be possible, it might not. It all depends on factors outside of my control and that is deeply troubling.
Bold of you to assume there will still be enough money to pay for state pensions in 2065
@@dallassukerkin6878 plus, what if you have some serious problems and need constant care? Plenty of elders do
It all depends on how much you spend Or waste
Simply have no idea why you think a £20k for a single income is necessary and you haven't mentioned state pension to boot. Seems to be scaremongering to me!
£20k after tax seems reasonable, if not a little on the low side to me. £1,000 per month on living expenses if you live relatively frugally, then some additional money for home maintenance and perhaps a cheap holiday or two. Obviously depends on the area you live in as well.
Hi SuperDiagnostic as I say at the beginning goals are based on individual choices and each person's goals will be different but I had to choose some numbers for the video. Thanks, Ramin.
I will never save for anything . I spend and enjoy life as much as I can .
When I want I will retire when I want .
The cemetery is full of folk in their 50s and 60s ....
Who cares about all this crap , this type of rubbish breeds depression .
Have fun with that approach, my dad did.