How much do I need to retire with £20k/£40k/£60k per year?
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- เผยแพร่เมื่อ 13 พ.ค. 2024
- A 100 year backtest using global stock market data to find out how much you ACTUALLY need to retire.
The 4% rule is used across the world as a guide to understand how much you need to retire. But it fails. A lot.
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0:00 The Problem
2:10 The 4% Rule
2:59 My Study - £20k per year
4:46 Why the 4% rules fails
7:53 How much do we actually need?
11:33 GIA VS Pension
12:04 Testing other variables
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The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.
Watch the other video's in this series:
If you ever plan on retiring you need to watch this: th-cam.com/video/By7czOU5Aig/w-d-xo.html
How much income will I need in retirement: th-cam.com/video/9NGajZhp-C0/w-d-xo.html
The 4 keys to sustainable retirement income: th-cam.com/video/LCYINIELH2w/w-d-xo.html
Great content as usual James, one thing I have trouble with is doing this modeling as a couple rather than single people. Would we need double the amount of assets necessary for two people in retirement? (silly question)
@@nikul5663 No. If you want £40k per year as a couple, you would need less than a single person creating £40k. You can see that in the video, for one person to create £20k it’s £410k so if you double that it’s £820k where as the single person would need £1.1m.
This is because you get two state pensions and two sets of tax allowances.
Nice video, and what I've taken away from it is that retirement is closer to most people than they think. A part 2 would be nice to say to reach those £20k figures, how much you'd need to add to your pension per month from say ages 20, 25, 30, 35.
Good idea.
Did this ever get done??
Would love to see it too
@@KingTidarat see my comment above. He's already created the video.
@@JamesShack did you end up doing this math?
Hi James, this is fantastic. Straight to the point and it's incredibly clearly presented. I love the snappy editing too!
Glad you enjoyed it!
This is quite possibly the best analysis on "How much do I need to retire" I've ever seen. Great job!
Great video and actually underlines that the 4% rule probably does work for my plan - 40 year retirement, 100% equities in global stocks all in pension wrapper plus a couple years in cash. State pension kicking in at 68. Only downside is that 40 years is longer than most but back up plan is equity release on main residence or downsize as mortgage is now paid off.
The quality of content, delivery, and usefulness of these videos is exceptional. Thank you, James. I'm very glad I've found you 🙏
Another great video James and broken down in simple to understand terms 🙏
Great video, thanks James. Really appreciate your content!
Am 58 retiring next year but the thought of retirement gives me weakness. My apologies to everyone who have retired and filing social security during this time after putting in all those years of work just to lose everything to a problem you never imagined to happen. It’s so difficult for people who are retired and have no savings or loved ones to fall back on.
True, It has never been easier to understand how to build your money after retirement than it is right now with the inflation, when you may study and experience a completely variegated market passively by employing a successful portfolio-advisor. The impacts of the U.S. dollar's gain or fall on investments, in my opinion, are complex.
Even if you’re not skilled, it is still possible to hire one. I was a project manager and my personal portfolio of approximately $850k of my retirement pension took a big hit in April due to the crash. I quickly got in touch with a financial-planner that devised a defensive strategy to protect my funds and make profit from my portfolio this red season. I’ve made over $250k since then.
That's fascinating. How can I contact your Asset-coach as my portfolio is dwindling?
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
@@CraigChap_6898and @maga_zineng7810 are both scammers having a pretend conversation to get you to search for the start of their scam.
We have paid our mortgage off and have no debt , we were surprised at how little we need to live on .We have decided to cut out expenses cars and holidays .We have a good lifestyle and spend less than £400 a week and we are out of the Rat Race at 55 . Our biggest regret is not finishing work earlier.Great video but sadly not many couples are both alive at 72 think it's only 1 in 3 .Get out while you can 👍
Yeah I was thinking about what if your mortgage is paid for... Without the cost of rent/repayments, I need about £10k a year to live (that includes a £1000 buffer p/a), if including rent/repayments then it'd be more like £18k-19k needed.
Very interesting..and another variable possibly is if you live in South East Asia e.g. Thailand, Indonesia, Vietnam as I do...
@@LuckeGabrieland more than half of that rolls in from your state pension
100% agree on retiring as early as possible.. but £400 pwk is about £22k before tax per year .. and there are a lot of people who won’t get to that by age 55.
@@Anderzander The original commenter said £400 per week was for 2 people.
Thank you - really informative and clearly lots of work from you to bring this together. 👍🏻🙋🏻♂️
You’re welcome Gavin. Yes I was doing those illustrations right up until the last minute!
Another great video James thank you!👍🏽
These are the best explained set of video’s I have seen on this subject 👍
I've been looking for this video for the last 3 years! I'm so happy I finally found it, and you! Subscribed - you are now one of my top 2 financial channels to follow
I'm glad you found it useful!
Superb video this. I have watched dozens of these and in my opinion it's one of the best.
That is one way impressive video. Super clear, fantastically well presented. Very sensible breakdown of options / parameters.
Glad you liked it!
Excellent video James. Great examples aswell to give viewers a rough idea of being on track and the variables that can affect that.👏
Glad it was helpful!
Great video as always James, thank you.
James - good summary but would be useful to factor in property downsize and also how to establish a trust for dependants.
Brilliant video! Thoroughly explained and not too long. Unfortunately people don't look at this early enough or just give up. If you have a target and stick to a plan you will make it. I consider myself very lucky but still wish we had been taught all this at school
Me too!
Excellent video James. It's great to have so many of the variables all pulled together in one place
Glad it was useful Mike!
A good food for thought video, not to educate but to keep realistic and open minded
Just discovered your channel and am loving it!
Superb video, thanks for putting it together! 👍
Glad you enjoyed it!
One of the best videos I’ve seen great content and also great TH-cam skills! This channel will get to 100k in no time
Thank you!
You're simply very very good indeed! Thanks for the info.
Great video and glad you mentioned the difference between the 4% rule working for the S&P but not global equities. The S&P has had a great return in recent years, but whether America will continue to be the dominant economy over the next 30+ years.. Who knows
Yes indeed, who knows. My view is that it's better to have international exposure. Some time the US will outperform sometime it'll underperform as it has done this year. Having more diversification smooths out those returns.
I think US stocks have a good chance of being strong for the medium to long term, I wouldnt put my money in China (might not get it back!) and India, Brazil and other developing countries are a big unknown, might be good or bad. US companies are also everywhere, more and more US companies are expanding internationally and usually with big money behind them so they have an incredible advantage over local/regional companies. They already bring in billions from foreign countries every year and hold trillions of dollars in off shore accounts, I might not agree with this behavour but its why if you invest in the SP500 for example you are probably at least somewhat invested in the wider global economy, just not as directly. Will be interesting to see how the next 40 years pans out nonetheless!
@@Chills124 what you've not mentioned is the currency risk with the S&P500. My portfolio is international, but with a greater weighting for home.
@@clarkeysam Currency risk has shown to be largely irrelevant over the long term, its shown to balance out as if GBP drops significantly your investment returns in USD increase and if USD drops your GBP buys you more US investments, this is where the dollar cost average helps. The problem with international stocks in my opinion is that its too diversified, most of the growth comes from the US portion of the portfolio but its dragged down by lesser performing stocks internationally. My preference is US for my stocks and I buy to let properties here in the UK, its a hedge against inflation (something stocks struggle with). £10k in the Vanguard US equity Index Fund that tracks the Total Market Index in 2010 would net you roughly £70k today if you did nothing, FTSE 100 you would have about £25k and FTSE All world ETF around £27k. Ok there might be slightly more risk and we are at the end of a massive bull market but my investments could drop 50% and FTSE 100 could stay the same and I would still have more money🤷🏼♂️each to their own I guess and invest in what you are comfortable with, any stocks are better than nothing or cash savings.
he made the assumptions so the 4% rule failed, this is the problem when people want to try debunk a very well researched piece of information. 4% rule holds up each time based on facts
I’m not sure how I found you James, I think you might have been recommended by Pete Matthew’s? However it was, I’m pleased I did, this video couldn’t be more timely and appreciated by me. For such young shoulders you have a very wise head. Well done!
Thanks James this is a very interesting video!
This is a fantastic video and really helpful, thank you.
Glad you enjoyed it Sean.
Excellent video James, superb presentation of the variables and risks to decide on a strategy, currently looking at transferring my St James pensions & ISA,s into 100% equity life strategy to significantly reduce cost & hopefully give myself a better chance of reaching my goals for retirement. Your videos have helped considerably and I have recommended these to many friends who are now looking to retire in the next few years.👍
Thanks Michael!
Great video James, also good to mention regular reviews with your FA. It can save or earn thousands.
We retired at 55 as no kids and worked all our lifes with decent jobs. Life is great in retirement our only issue is keeping our drawdown under the LTA 75yr old test. But at the moment we do have spare capacity and thinking of investing in a holiday home, purchase by mortgage. But is the best use of monthly cash or is there another low risk high return. Assuming property growth of course.
This is utterly brilliant! Fantastic analysis/insight - cheers James 👊🏻
Glad you enjoyed it!
Brilliant advice that makes perfect sense - thank you.
Glad you enjoyed it Richard!
This is an excellent video. Everything is explained clearly and succinctly. Our plan is to work part time during the early “Go Go Years” to help offset the higher spending during that time.
No one in my family has lived to 95 years old, so I’m not figuring that in my modeling. Once I hit 80 I can’t see myself spending $5K per year on vacations or spending as much on things like food, liquor and clothing.
As a Plan B, if we see failure looming on the horizon we will downsize our house and get something smaller and less costly.
Yeah, that's a thing wrongly assumed. Especially at the beginning of your retirement I would assume spending more then later on. If I am lucky I am fit until maybe 75 or so. Everyhtings that comes afterwards I consider as a "bonus". I also don't see me doing big vacations for multiple thousands :D
My plan is to draw always 4% of my portfolio at a given year. If the Stock Market crashes I still take 4% but then at the new, lower value. Maybe I reconsider this once it's time to decide and take 5% of the current portfolio. This way I make sure, that even when withdrawing less and less (absolutely), that I will always have a little reserve left...
@@carroux4050 Good points. I’m planning on taking some good vacations. After working for 40 years while taking short vacations that had me still checking the phone and email I feel I deserve it.
Great video and spreadsheet calculator. I've found it useful to make 3 copies (ISA/Pension/LISA) so to understand the savings requirements based on when things can be accessed; (Immediate, 55/58, 60) respectively. I'm going to see if I can bring these together to work out a cash-flow scenario. Thank you for excellent content.
I’m glad to hear they were useful. Thanks, I’ll keep it up.
Currently working overseas but will return to my home country in the near future. I'm a landlord. I invested in property at the age of 22. Value has soared and renting out. Will live on the rental income I receive and live with my aging parents for the time being. At 60 I can withdrawal from my superannuation (401(k)). Have savings and eligible for the Australian pension at 63. In the future I may downsize, sell the property and buy cheaper property and add the left over money from the sale to savings. Lots of options for me. The way I see it if you have $1m at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income...
It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into investment advisors for a strategy that suits your timing in this time of wealth transfer.
@@sherryie2 I totally agree, I'm 60 and just retired with about 1.2 million in outside retirement funds, no debt and very small dollars in retirement funds compared to my balance of portfolio over the past 3 years to date. tbh, the role of the invt-advisor can only be overlooked, not denied. just do your research to find a reputable one.
@@kurttSchuster This is exactly what I want to do now too. Can I get access to your coach?
@@tonicruger credits to NICOLE DESIREE SIMON, one of the best portfolio manager;s out there. she;s well known, you should look her up
@@kurttSchuster I just checked her out and I have sent her an email. I hope she gets back to me soon.
Great video as always James. Really helpful.
Glad you enjoyed it Rick.
Great video. clear and well presented. Very professional. Thanks
Glad you found it useful!
James, came across your channel recently. You have such a refreshing and sensible topic analysis compared to 99% of finance crap on YT. I also like your style. Your videos are a real pleasure to watch. Thank you. The psychology issue is a huge issue, particularly with an ever increasing level of sensationalized information bombardment and barely ever mentioned by others. Do you find that you sometimes take more risk (and reap a bit less return) with your own money compared to clients' money/advice, with the justification that you have to try things out? :)
You give some great advice out about long term investing and often mention tax, and you have covered LTA. One thing I have not come across (apologies if I have missed it) is the rapidly increasing rate at which older people's families are going to be stung by IHT with regards to their property (real estate) as the freezing of 'allowances'/thresholds, in real terms, becomes more significant with time. You talk about a minimum of 5yrs for long term investing but here we have a minimum of 7yrs on a number of aspects. Just thought you might want to do a video with regard to house price increases, and also mention equity release and trusts. I suspect there are a vast number of pensioners (particularly divorcees with children who may have struggled greatly with finances mid/earlier life) with property who erroneously assume their children will get the vast majority of their estate when they die without having actually looked at the current situation or, perhaps, do not have the mental flexibility to understand how this has changed over recent times and appreciate what they need to do (gifting savings within limits and spending on themselves as the simplest options). You could even talk about wasting asset examples for a bit of fun!
You could do a video on the psychological topic of death/IHT and the communication within families that should take place but rarely does, in order to encourage all ages to discuss and plan for the inevitable unpleasantries. I know that some people are utterly irrational about matters and it can be about convincing them that they are not just being irrational, they are being negligent with their children or grandchildren.
Topics such as equity release and trusts are going to be applicable to more and more people the longer these government freezes continue and with such a lack of investment by government into our society's long term resilience in recent decades, and the burden on future society, I cannot see these frozen thresholds moving very quickly.
I don’t test out investment strategies. You can do that with data. But lots of different investment platforms and newer products.
I’m very high risk compared with most. And do things I would not advise others to do! I fall victim to the behavioural pitfalls just as much as anyone! I have most of my assets tied in my business.
Those are very important topics but perhaps more niche, unless I can think of a way to make it engaging for everyone.
Later on in the year my plan is to start making some targeted courses. With the aim of giving DIY investors all the info they’d get from a financial adviser, but packaged up in a way they can implement themselves. I think this will be a better format for the really complex stuff!
@@JamesShack Thank you for your reply. With the average house price in the UK now almost nudging the basic IHT threshold and a historic divorce rate of 35% (ref older single divorcee house holders), in 7yrs time, I wonder how niche it will be. I would expect family arrangement (in any case, IHT mitigation) of finances in advance by the older generation to be of benefit by many planning FIRE and quite a few not. Taxes on dividends were recently hiked. Most of us get old; that is certainly not niche. Right now, with LTA frozen (and near historic low), CGT allowance frozen and IHT effectively frozen, it would be interesting to know when it has been less rewarding to work and save TOO hard, and more important to know when in later life to start 'over' spending or giving away excesses (and then there are potential care home costs). The trend is all towards tighter socialist action in such areas in the coming years, as well as on BADR (historically low).
I fully understand your course outlook. I look forward to watching more of your content.
This video is deffinatley very good for providing all the info needed for retirement.
So enlightening James - a big thank you! Peter
Glad it was helpful!
James, excellent video thank you.
Glad you enjoyed it
Very good overview. Many thanks. I like the 20k, 40k, and 60k concept and personally call these, respectively: "Lean Fi", "Fat Fi", and (having read JL Collins' book The Simple Path to Wealth) "FU. Fi".
You nailed it, early drawdown phases are the problem. A fixed bond ratio is not the answer, but a variable cash position of e.g. 20%, possibly as short term treasury bonds, is: Invest after a heavy dip of the market and sell it again after the market came back up. That lowers the overall gain due to mostly not being fully invested, but reduces drawdown in bad years.
Easier said than done: best left to an advisor or software.
I know almost zero about ‘financial stuff’ but i find James’ (and Chris Bourne’s) videos fascinating.
This was excellent, it's made me feel far happier about my current situation and investments - thanks!
People over think this. Get debt free. Scale back whatever you can. Live to your means. You'll be out sooner than you think if some sacrifices can be made.
Great video, thank you!
Excellent video - thank you
Great analysis. Cheers.
Great video, but perhaps use 60 as the main example retirement age (55 is probably not the norm.) The single biggest unknown variable is (obviously) how long you will live!
We've recently had friends die quite young (late 50s/early 60s!), so it makes you think about doing it earlier and you really need the bulk of the money in the first 10 years of retirement (assuming 60), whilst you can still travel and be active in sport (although some people still keep fit and agile into their 80s).
Plus, you may not get a choice when to retire, my friend was made Redundant at 62, so he retired then!
Thank you! I always suspected that if one looked at a global fund the 4% rule would not apply.
It’s true!
Well thought out 👍
Thank you! So helpful. Would be great to know how much a financial advisor like you would cost for the average person
Another excellent video. Many thanks James.
No problem!
Excellent video - very comprehensive.
Thanks Al!
Thanks James. I've followed your advice and maximised my pension contributions!
Best of luck with it all!
Great video! Would the prob of success be higher if you use dynamic spending approach/guardrail method? Or is that already included?
Great video. Also gave me a sense of relief that my own plan seems to stand up to scrutiny. Now I just need to find some decent planning tools to keep track of portfolio that are actually available to mere mortals and not just chartered financial planners (I am not planning to have clients)
Haha, you can use Timeline for a free trial.
@@JamesShack Seems you can't unless you have an FCA number ?
This is v high quality content, keep it up
Thanks, will do!
This is soooo helpful.😊
Fantastic video James, this is the first time I have seen the pension factored into the modelling. None of the content from the Aussie Fire movement seems to factor in our very generous Australian pension. Calculating my own personal circumstances, the pension will completely cover my basic living expenses, and anything above that is just a safety net for unexpected costs or discretionary spending.
Another belter of a video thanks Mr Shack
My pleasure!!
What a great channel. Thank you. 👍
You’re welcome!
Nice information James...Keep it up
ⁿ
After a decade of searching, I found the best video on TH-cam
Absolutely incredible video :)
Thank you very much!
I keep watching this one and it's so true. I'm coming up 58 and think I'm nearly there. Will I spend more when I finish work, nope probably a lot less, thanks for the great info
Brilliant thanks 😊
Moral of the story is to use that tool to factor in all the other variables.
In any case, I put in the 4% rule for the variable you added at the end and it actually comes out with more conservative numbers. This is also considering the fact that it's highly unlikely wewill live to 95. The 4% rule seems to still be a good ballpark but It's an interesting video and it's probably worth taking the time to input the other variables considering its such an important topic.
Just came across this video that you have produced and thank you for doing so! I do not suppose that the tool that you are using to make the calculations based on various senarios is available for me?
Great video as usual James, I really like the tool you put out too to play with these numbers, such as getting a part time job in later life... now that's the goal 👍
Also, just a minor error at 13.32... number on screen doesn't match what you said (630k vs 930k) only noticed it because I scrolled back.
Yes, most people don't realise that they can just do something they love, get paid less but still achieve everything they need.
Such a good video. Thankyou for sharing this information, very motivating! I’m aged 40 self-employed and my only pension is a SIPP (plus the state pension if its still around by the time I retire!)
If you have an LTD business SIPPS contributions from it are v tax efficient.
@@JamesShack Thanks for replying. I am currently a sol-trader although I am possibly switching in the near future for the reasons you mention. I will look further into this and appreciate the comment.
Hi James, amazing timing as I've been looking at exactly this in my plans. One area I am struggling to fully grasp is why there is a suggestion to diversify with bonds. When I run historical simulations via timeline between a 100% global cap vs 50/50 global cap / bond portfolio, pretty much every outcome is worse. What I guess I would have expected is that the 50/50 split would have survived the worst case scenario better. It didn't by a long shot. So if diversity is key to balancing risk, it doesn't seem to have worked in the last 107 years !
When you're young, you're better off with just stocks, but when you're cliser to the retirement age, you want to keep some bonds to reduce the risk of running out of money because the market is down exactly when you need to withdraw money from it. When you're old and need that money you might not be able to wait years until the market recovers.
Genuinely excellent presentation of complex information and principles. As others have commented this should be taught in schools. Thanks.
Financial education in state schools has never been encouraged because the more the public know, the less they can be controlled. For example, interest rate is a government control mechanism of the masses. With the sensationalism of the news media out of control these days, though, education should be more important for government than ever, even if only so the government can control society more than the news media. The education of children is only of long term benefit to society and successive governments must have integrity and accept responsibility to implement such things over long time scales, rather than use them as political scoring over the short term. Integrity, unfortunately, has been on the decline.
Good job Jamesy
Great video James. Would Guyton's rules you covered in a recent previous video be the 'dynamic spending' you referenced here? That was the real game changer for me, bring able to flexibly increase or reduce your spending according to portfolio performance whilst greatly reducing the chances of running out of money.
Yes that's it. It's a question of risk, some clients will only retire once they see historical success rates of 99%. Whilst others are willing to take more risk, if the market does well then they're all good but if the market does badly they'll have to reduce their income.
The rules enable me to demonstrate what that would look like from a cash flow perspective, so they can quantify the reality of a worst case scenario with the probability.
The guard rails are only meant to be used as a guide rather than strictly followed. But for some people, that follow them completely, it removes the decision making which adds a lot of value.
Thank you for your analysis and explanation. Do your scenarios include management fees?
Yes 0.5%
James, this is fantastic! Really enjoyed learning all the data driven principals. One question, what’s the model for cash buffer’s usage? I imagine its role is to reduce the sequencing risk?
It's not very scientific, it just draws it down proportionally alongside stocks. But a cash buffer is required to help manage those 5% of failure scenarios.
@@JamesShack interesting approach! Many thanks to your kind response, and all the amazingly high-quality videos! Appreciated!!
Hi James,
This is truly outstanding information as always. Never really trusted the 4% rule anyway. I have a combination of a defined benefit pension from the NHS as well as a SIPP. Would love to know how you can help to figure out those calculations for me. Best wishes!
Will do one on this in due course!
Fantastic video ❤
Thank you!
Fantastic video James Just shows what the state pension is worth to pension planning we are lucky as most of our(my wife and myself ) pension income is final salary indexed for life
Yes very convenient!
You may be lucky but any of your younger relatives not so much as they’ll be paying for it.
pretty standard stuff that any good retirement calculator software would provide - if you haven’t put any thought into retirement planning, this is informative
Hi thanks for the video. Do you have a video on how to actually best drawdown your income once I’ve saved enough?
Thanks for the video. Really excellent. This sort of thing would be great on linkedIn I think.
I need to get better at posting there. Although perhaps the videos are too long!
@@JamesShack Found and followed. Cheers
My growth of 401k is 2.74% in the past year. In this environment does investing under a brokerage with a custodian outperform a 401k? should I seek a pro to grow my funds on brokerage acct or still hold? I have 5 years to retirement. Happy to discuss.
Mine was 8.16%, I used to dca into etfs but I reconsidered the strategy since I am still way behind after the massive downturn since Jan last year
Be careful not to be lured into the market too soon, this current situation has really opened my eyes to the importance of a good mentor on TH-cam or elsewhere knowing what he/she is doing .
the size of your retirement portfolio will overwhelmingly be a function of the performance of the stock and bond markets between now and when you start withdrawing from it.
Private investing is the best way to go about the market right now, especially for near retirees, I've been in touch with a wealth manager for awhile now netted 370thousand this downturn, made it clear there's more to the markets than we average joes know
@@benalfredo who is this manager you use? I lost over 50000 already this year on Vanguard. Im in need of guidance from a financial-planner going forward.
Thank you, Great video, its clear, informative and very helpful. Its Good to build confidence especially being able to set clear goals including time scales. My key message is Building a real Budget with control monitor and reviews £vales gain more Financial awareness set limits. You have worked hard all your life so Enjoy your retirement Make a “Real Effective Plan! #REPpension”
My contingency is a big house paid off at retirement.
Even if a downsize is needed say 10 years into retirement.
Not only that, you get the enjoyment of living in the house instead of just looking at numbers on a screen.
You are amazing!
great video, but i'd like to ask you: if you increase the equity to 100%, the sequence of risk returns should be worst than 60/40 or not (and why not)? thanks
Adding a couple of rentals and utilising your tax free allowance could easily mitigate a struggling stock market, it also hedges inflation as rent and house prices generally increase with inflation. If you are retiring young this isnt an issue, 2 houses arent a lot of work and you wont even have to touch a large part of your stocks. By the time you are too old you can sell the houses for a lump sum and put it into stocks, which by then will easily see you through the last years of your life.
Dynamic spending strategies are so important. If you are ready to go down e.g. 20% in the first years in bad market you can greatly reduce cost.
Another great video. Do you have any tips on how to divide investments between a pension and ISA if you want to target an early retirement? It seems you should generally put as much as possible in the pension to maximise tax benefits, but at least some is going to need to go into the ISA to tide you over until you hit pension age. Things get more complicated once you factor in state pension and DB pension income flows that might not kick-in until well into your 60s, and debts that might not be paid-off before retirement if you retire early.
This is no set rule, but you need to do some analysis based on how many years your ISA would have to provide you with income to work out how large it needs to be at what point.
A good posting on a difficult subject filled with fear and apprehension. I think most would agree the last thing after retiring is being forced to take up some type of work to survive. The one thing that has been highlighted to me over the past two years is the need for a capital buffer. For times when your investment doesn't pay out an expected income.
Question, The past two years have any of your customers needed to use part of their capital buffer?, if they have do you advise replacement to take them back up to 2 years of money as a buffer, how do you achieve it without taking less cash out each year? or do you leave it a rely on the portfolio producing an excess return in the future.
The coronavirus shock did not last long enough. There were a few cases where we pushed out taking income and other where we took income but didn't increase it inline with inflation, which is typically the best strategy as clients don't even notice the impact on their lifestyles but it results in a big reduction in income over the next 20-30 years.
Great video! From a 50 year old looking to retire at 55...
Hi James, would you mind to share with us, which program you used for your probability calculations with the graphs starting at 5:12?
Before i retired i set up a spread sheet. I wasnt into investing but knew that pension fund returns generated above inflation growth so i assumed a very meagre 1 % growth on savings. Remembering Net Present Value from college i worked in current values. My salary i looked at the takehome after tax and then deducted all other savings payments etc so i could see the amount of cash i was living on. It was a wee bit more involved and i even allowed for tax on pennsions. It wasn't an easy spread sheet to devise but that take home number was the targetand the spread sheet was laid out to give me that target until i was 90. When it was all back calculated and i reached that target i retired. And 15 years later i am still comfortable. When i retired folks said to me how can you do it. By careful calculation , not being a spendthrift. Saving in ISA,s and not being optimistic in returns. My current pay is what i was earning net plus inflation it has worked for me.
Retiring at 55 and living to 95. That is a hard ask, especially for the delayed start to working for university graduates; about 75% of people die before 95.
If you have your house paid off before retirement then you could live very well for ~£20k per year, and might top up income with all the time you have.
Of 100 people who read your comment.. 25 will live to 95.. That's alot of people
Great video! But i would not really on the state pension, governments change and the values could be modified. Maybe i will count only half of the state pension, so that i do not depend fully on it.