Retirement – Evaluation of Your Plans

My retirement plantook me to a cycle ride here. I have less than 14000pa and libe a far more than comfortable lifestyle

Can you clarify a couple of things. Presumably you are under 65, so this £14k the total of your pension income and the rent from property?

So it will nearly double when you do take your OAP? ( or whatever it is called)

I’m only 38 and started seriously planning a couple of years ago. I’ve always had a pension to pay into, and overpaid into it as much as possible.  

Similar.

Curent life is sized to have to mortgage paid off by 50. Plan to retire at 55 latest.

At the moment I’m able to put in £60k annually into the pension. Not quite managing to fill the ISA so I actually might start to reduce some pension to fill ISA. I thought best to ‘make hay whilst the sun shines’ with the pension tax relief.

I would like to move house somewhere nicer, but that would mean doubling my mortgage so would be a hit to both current standard of living, and also savings and retirement dates.  Having a real struggle with myself on this one!

All funds have been rubbish for the last few years , until about last September, when all mine grew 15-20% in the last year, so comparing previous years growth to the last is rather pointless.

FWIW, my workplace pension provider charges platform fees of 0.09%, with total charges last year of 0.23% for my portfolio. My ISA charges zero platform fees. (T212)

To be clear, I’ve not paid a penny yet. I’ve been quoted a fee for doing the work suggested, on the basis of a consultation and run through of what i already have. They came recommended to me from a trusted friend and although the fees are eye watering if delivered in a bag as pound notes, small as part of the overall potential value they will bring particularly if they can help me be tax efficient in removal, ensure that I have flexibility in removal, etc. Noted on the market average is the average – that also means some are better and some worse and part of the cost is in outperforming the average. Also noted about taking on less risk as you get closer – all things they spoke about and he compared all their risk profile returns vs market average and their record seems good across all.

For those that have the time and knowledge to do it themselves it might look daft but the way your helpful advice is phrased comes across quite condescending if you don’t have the confidence to do it and are worried about bollocksing it up. Might i suggest in the same way as “Your mind is telling you they are giving you great information because you are paying for it”, your mind is telling you that your way is the right way because it’s what you chose to do and it’s working for you, giving you returns you’re happy and low / no fees which is great. But thanks for taking the time to give your opinion.

FWIW as well, i don’t have to pay an ongoing fee. I can pay for a one off review, recommendation and action and then just leave it. Or go back in 3 years time and ask for a further review.

https://www.moneysavingexpert.com/savings/best-financial-advisers/#:~:text=Picking%20%26%20paying%20for%20an%20IFA&text=Taking%20financial%20advice%20does%20come,and%20how%20to%20find%20one.

At the moment I’m able to put in £60k annually into the pension.

Worst arrogabrag Evah !

I’ve just used a IFA to consolidate and move mine into one place, I just dont have the time to sit and research and do it all myself.   According to the numbers it looks like the move should pay for itself in the first 6-9months. If turns out not to be the case I’ll bin them off.

52 now so I’m thinking I have 10years to throw as much as possible into pensions/ISAs/etc…

Worst arrogabrag Evah !

Nah, there are worse…

How about ” I stopped contributing to my pension fund as I’ll still be taxed at the same rate when it come out”. Not me BTW 😉

Glad I’m not the only one who rolled their eyes at the 60k a year brag…
It’s a minefield either way – I’ve had 3 different Financial Advisors over the years and looking back don’t think any have been value for money. The problem is until you look into it in some depth it’s really difficult to judge whether their advice is good or whether your investments are performing well. For example my old financial advisor used to justify performance based on it out-performing the FTSE 100 and FTSA all share indexes. Which sounds reasonable until you look into it and realise that he was comparing to limited and relatively poor performing indexes.
I’m happy with the returns so far on a self invested pension. It took a while to sift through options but just sticking to funds and ETFs that performed well over short and long term seems to have worked. I am over-reliant on US stocks and shares though so it may crash hard at some point – looking towards some other regions to diversify a bit – although in truth most world indexes drop if US ones do anyway.

I’m happy with the returns so far on a self invested pension. It took a while to sift through options but just sticking to funds and ETFs that performed well over short and long term seems to have worked. I am over-reliant on US stocks and shares though so it may crash hard at some point – looking towards some other regions to diversify a bit – although in truth most world indexes drop if US ones do anyway.

All stuff that relatively speaking I have no time or expertise to deal with, and “it may crash hard at some point” scares me rigid.

I’ve had 3 different Financial Advisors over the years and looking back don’t think any have been value for money.

Can you expand. Cost you money compared to no advice, break even, or didn’t deliver sufficient extra to justify calling it worthwhile

@theotherjonv

That £5k is about 1.25% of my portfolio as a one off, then obv 0.5% going on but their returns are typically about 3% above ‘market’ on their balanced portfolio so nett should still be more cost effective even with what I’m paying for the advice.

So, in total over ten years they’re going to take ~11.3% of your portfolio even before fund fees are added. That’s a lot for looking at a spreadsheet once or twice a year and recommending either changing what you’re purchasing or some transfers between funds, especially when you buy funds that do it automatically for you for ~5% of your portfolio over 10 years.

What absolute returns are they suggesting you’ll get? ie what are they saying is “market”.

Theotherjonv:
3 advisors all took percentages so in total I was paying well over 2% probably closer to 3% per year. First one sold me a pension from Lincoln National which was terrible and ended up being worthless.
Second one I ended up in a Nucleus Wrap with an active fund manager so agein high fees, performance seemed ok but looking back was no better than following indexes over the same time. Loads of small investments which they tinkered with likely without it benefitting me.
Final one recommended by my father who is still with them and happy, so who knows? But again high charges and I did a direct comparison over 2 years with my workplace pension and Vanguard Isa, it came in last place with highest charges.
Since then self invested pension up 34% in a year and 8 months – so even if it crashed would be doing better than any I have had previously through IFAs – who of course in reality are not independent.
If I was looking at one company then from my experience investing and fund performance, I would seriously consider Royal London – their all-in ‘default’ p Jen funds seem to have very good performance, not sure about charges. The Royal London funds I have within my SIPP have consistently performed very well.
I’d agree that you need to be actively interested to make a SIPP work ideally. With apps very easy to access and manage it doesn’t take much time. But if you’re like my wife and instantly fall asleep when the subject is raised, maybe best avoided!

All stuff that relatively speaking I have no time or expertise to deal with

Its certainly daunting to start with but getting a handle on the basics will really help. A bit of reading a some youtube videos. It can all be done on a phone sat on the bog if you really are that time poor. Its well worth making the time, seems crazy to spend most waking hours working, travelling to work or thinking about work when some good financial planning might mean retiring 5 or 10 years earlier.

This isn’t a diss at you btw, loads of people ignore it. I took zero interest in it my younger days. Annoyingly it was when I was employed and had someone else who could’ve ben chipping in. It only since I went self employed that I’ve taken proper control and done some decent financial planning. Hopefully enough for early retirement.

All stuff that relatively speaking I have no time or expertise to deal with, and “it may crash hard at some point” scares me rigid.

You’ve just written the perfect elevator pitch for an IFA.  @nickjb above nails it.

So, in total over ten years they’re going to take ~11.3% of your portfolio even before fund fees are added.

You’ll have to work that out for me.

1.25% up front (of a portfolio that assuming 6-7% growth will double in ten years without including additional payments in, which will be an estimated £150k plus growth on that) – OK I then miss out on the growth of that 1.25%, so you can say saving that 5k will actually cost me 10k in the end.

And then 0.5% of portfolio for 10 years – assume 400k now and becomes £1m (400 x 7% compounded + £150k extra invested) so midway through = 700k x 0.5 = 3.5k / year = 35k total plus the 10k nett value of the 5k upfront.

45k taken from me and a portfolio worth £1m minus costs – say 950 then…… will cost me 4.7% of my portfolio in the end?

What absolute returns are they suggesting you’ll get? ie what are they saying is “market”.

I haven’t got their 7 year and 3 year results sheets with me, but they had a comparison chart. I’ll look harder at that. Of course they have a variety of high risk through to low risk mixed funds with different rates, which had a risk profile index on them which they said enables them to match to other products. They can in theory invest in all kinds of pots but in reality he said they track about 150-200 closely and build up some portfolios from them with their own in house managers.

This isn’t a diss at you btw, loads of people ignore it. I took zero interest in it my younger days.

Understood and i do value opinions even if the way they’re presented isn’t to my taste…. I’m not ignoring it, very keen to do something but I just lack the confidence (rather, having put that much in and have that much potential benefit, don’t want to **** it up for the sake of saving a bit that I might be getting back in better returns anyway)

Same position here, prompted by some inheritance and wanting to get a grip on things. I did all the YouTube videos, forums, and spiralled into a mire of confusion and anxiety as it was my future at stake.

I went for a few initial visits with local IFA and went with one that we were comfortable with in the end. Yes, they take a cut or whatever, but the clarity of advice and modelling, taking into account absolutely everything about your finances, your aspirations (and a dose of reality) was worth it for me.

Everyone is different, but I don’t think I’d sleep easy if I’d plumped to try and sort it all out myself, based on YT and forums. Too much at stake IMO. Others may have a different view.

A good IFA could be very helpful for financial planning. The problem, of course is identifying a good IFA. There are still a lot of cowboys out there, and how do you evaluate the quality of the advice you are getting if you’re not reasonably clued up on the subject in the first place?

I’ve had some dealings with my parents’ IFAs, and some of their behaviour was definitely shady. However, my folks believed that they had good returns, and wouldn’t hear a word said against them.

There are still a lot of cowboys out there, and how do you evaluate the quality of the advice you are getting if you’re not reasonably clued up on the subject in the first place?

Good question. In my case I’m not a total ignoramus, just not overall confident enough / risk vs benefit equation. Even if it chose a bad one, unlikely to be as bad as what i could do if i **** it up.

And second – by taking advice from a friend who is savvy, trustworthy, and who still opted to use (this) IFA for his £1M+ pot (bit older, a lot better paid including a payout when a firm was taken over that he was able to put some hefty sums in)

Good question. In my case I’m not a total ignoramus, just not overall confident enough / risk vs benefit equation. Even if it chose a bad one, unlikely to be as bad as what i could do if i **** it up.

In fairness, there is some research that say that people who use financial planners are, on average, 3% a year better off than those who do not (because of panicking and selling off when the market falls, buying in when it rises, etc). It’s perhaps possible that this is where the 3% improvement quoted by your adviser is coming from.

In fairness, there is some research that say that people who use financial planners are, on average, 3% a year better off than those who do not (because of panicking and selling off when the market falls, buying in when it rises, etc). It’s perhaps possible that this is where the 3% improvement quoted by your adviser is coming from.

Interesting stat, do you have a source for that?

@theotherjonv

You’ll have to work that out for me.

<Ahem> I did get my back of fag packet calculation wrong. However I’ve now done it on a spread sheet.

Assuming 7% growth in your portfolio of £400,000 and adding £15,000 p.a., calculating yearly.

At the end of ten years your portfolio would be worth £1,001,360.90 without IFA fees.

Using the fee structure that your IFA suggested to you, your portfolio would be worth *£945,275.76

Thats a difference of *£56,085.14 or *5.9% over ten years. In today’s money, assuming inflation of 4%, that’s still ~ *£38k

That number does vary depending on how well the funds do, and also on how the fees and interest payments and charges etc are structured.

There’s nothing wrong with getting financial advice, in fact more people should do so. However you can get very decent financial advice, at varying levels of complexity, for free from the internet, because it is not as complicated as “Independent Financial Advisors” make out.

BTW Financial Advisors who work for a fee rather than a percentage are known as Wealth Managers, and IME you need  a portfolio of £1,000,000 + for them to work with you.

*updated figures, spreadsheet error spotted

@dhague also a lot of people either don’t rebalance enough, or do it too often.

I wonder if the quoted 3% “over performance” is the difference between a high risk fund (100% equity, maybe tilted towards selected sectors) and a ‘typical pension fund’ which will be 30%-40% bonds and generally be expected to deliver lower returns. Essentially they’d be charging you £2k per year to put you in something like lifestrategy 100% instead of lifestrategy 60%.

If the idea of your pot losing a lot of value scares you then I’d say you want to be going in the other direction – lowering your risk and consequently also your expected returns. Did they ask you any questions about risk tolerance at all? Recommending high return/risk funds to somebody who has openly told them they don’t want to risk big drops in value doesn’t sound right to me.

No, as i said further up they have a portfolio of mixed funds from low risk to high risk that they matched against ‘market numbers’ for the same / similar risk ratings (everyone seems to have a numerical scale, not necessarily the same one, so go 1-7, others 1-5, etc., but from that it’d be relatively easy to index) They then reckon across the board they do better, and on the med risk that they called balanced they were about 2-3% better across the period they analysed. I’ll dig the charts out later.

Of course their lowest risk portfolio wasn’t 3% better than others lower risk, they probably weren’t getting much more than 3% pa on their lowest risk full stop but IIRC they were still better. And the difference between lowest and highest risk over the period was way more than 3%, the highest risk was mid teens IIRC but we’ve had a pretty good last period and even then it had been up and down like a bride’s nightie.

Yes, they did ask about risk tolerance but this was a prelim meeting to see what i had, not a recommendation / setting one. Until they know my retirement aspirations they won’t really know what level of risk I might need to take on rather than want to, so that’s for another time

@theotherjonv

Personally, I’d be very wary of any IFA which claimed to be able to outperform the market by 3% unless they are rating your risk tolerance as high (and based on your other comments, you aren’t projecting yourself as a high risk taker)

I take stats with a pinch of salt as they tend to only tell you the story they want you to hear and can be read many different ways. For example which fund would you stick your money in

Fund A) suffers huge drops eg lost 35% (covid), lost 20% during 2022 (Ukraine war), produced 0% growth between 2021-23, has 0.75% fee.

Fund B) has grown 15% ytd , delivers 90%+ growth over last 5 years and 230%+ over last 10 years.

Answer………they are the same fund.

There is plenty of info out there that suggests that actively managed portfolios usually perform worse than the market. Based on that, if you’re not into tinkering and risk the best option would be to choose a simple pension plan like Vanguard Target retirement or just research the various packaged pension options, rather then paying an IFA to either just choose one for you or persuade you to go with an actively managed portfolio which will likely perform worse than a passive one.
I have been taken in by this in the past and pretty sure I have lost out as a result.

The advice here is likely to be a don’t do it/do do it back and forth and it’s only really your own mind that can make the call, I’m happy with the IFA, I don’t now sit here thinking, I could have done all that for nowt (and I’m from Yorkshire so tight).

My money did go into Royal London, which you can’t access without an IFA, maybe that’s a sales scam to create a wealth exclusivity feeling, but it seems a good portfolio that reflects my risk attitude and plans.

If you are in doubt whatsoever, I’d find an IFA and take their advice. It’s your money, it’s up to you how you manage it in a way that makes you comfortable.

Royal London funds are available through SIPP platforms, a good percentage of my SIPP is RL funds. I’m not quite sure why you can’t invest in their default pension packages without an IFA.
Weirdly you can get them via a workplace pension scheme if your employer happens to choose them.
Also just a minor point – if there is a major tank in the stock market it, your funds will suffer wherever they are. The only difference I can see is that if you have an IFA they will be ready to persuade you it would have been worse without them…

Also just a minor point – if there is a major tank in the stock market it, your funds will suffer wherever they are.

Indeed.

I also suspect that actively managed funds are more likely to go under than tracker funds as the managers double down on their losses to try and make good.

Indeed.

I also suspect that actively managed funds are more likely to go under than tracker funds as the managers double down on their losses to try and make good.

Do you have any evidence of that happening, or is it just guessing?

Those recommending Vanguard, who I see mentioned a lot. What are your withdrawal options on there rather than the fees and returns?

There is plenty of info out there that suggests that actively managed portfolios usually perform worse than the market.

Any links on that? Would like to discuss with the IFA when deciding whether to pay an ongoing fee or do a single consolidation and plan.

50% of actively managed funds perform below average 😉

As ever it depends where you look. Fund management websites who want you to buy into their service will clearly quote benefits and better returns.
It’s pretty difficult to find genuine articles about it that aren’t themselves from sites that have a conflict interest in you buying their services like Morningstar or others. Here’s an article from the Independent which provides an overview:
https://www.independent.co.uk/money/spend-save/an-active-or-passive-fund-it-all-depends-on-the-type-of-investor-2082590.html
Similar one from Trustnet which suggests a blend of active and passive:
https://www.trustnet.com/news/351804/active-versus-passive-finding-the-right-approach-for-you
This is effectively what I ended up with with a self-invested SIPP – a combination of passive and active funds.

Over a 20-year period, 95% of large-cap actively managed funds have underperformed their benchmark.

https://advisor.visualcapitalist.com/success-rate-of-actively-managed-funds/

Re Vanguard, withdrawal all the usual options ie 25% up front, gradual drawdown etc. Flexible drawdown I think is the preferred option – this automatically keeps the maximum amount invested and allows you to take 25% of each withdrawal tax free whilst leaving the rest invested.

Do you have any evidence of that happening, or is it just guessing?

Just guessing. Whenever you hear of a fund that collapses it seems to be actively managed.

You definitely need alot less if not ‘going to work, although mine are minimal as I cycle and try and make sure lunch etc is taken with me – coffee is from the Dolce Gusto, not Starbucks.

Main costs for us are having two adult children at home and things like paying for an extra car, and food – they aren’t financially independent yet. Hopefully they will bugger off before I retire.

So you too have little in work costs.

These “adult kids”, are they not contributing – because if they aren’t and they’re still there when you retire your costs won’t change on retirement.

And why an “extra car” if you cycle to work – surely this means that when you retire you’ll be keeping this “extra car” and the associated costs?

The above is the gist of my realisation, my OH retired early in the Spring and I’m looking at going once they’ve wound up the company I work for (sometime next year), I can’t see our costs changing one iota – well not without stopping doing something we enjoy and/or skimping.  It’s not such an issue for us (both worked in well-paid jobs most our lives, both have DB & DC pensions and own property etc) but it’s more that we’ll need to work out how to ‘front-load’ drawdown to ensure we can properly finance retirement (based on seeing how costs do tumble as our parents aged once in their late 70’s etc and our State Pensions will kick in at 67).

Those who have retired, what did YOU save on vs working in your last few years, so once the associated costs due to kids etc had disappeared?

@theotherjonv

Any links on that? Would like to discuss with the IFA when deciding whether to pay an ongoing fee or do a single consolidation and plan.

It was a few years ago, when I had a similar conversation with an IFA that made me realise that their advice generally isn’t worth much.

The finance industry is notoriously opaque when it comes to releasing the data on active funds. Much like big pharma, they only release the data that paints them in a flattering light, ie out perform the market. The ones that don’t never see the light of day.

Warren Buffet, famously, is an advocate for passive investing, and (I think) bet $1,000,000 each with three very successful active fund managers that they couldn’t outperform an index. He won.

My problem with IFAs is that they have a vested interest in promoting active funds, because often they get commission, but apart from that, if they don’t promote active funds there’s not really much else for them to justify the outrageous fees they charge.

That’s because once you decide on passive funds, investing actually gets really boring. You either decide on a managed fund (lifestyle funds etc) and pay a little more in fees for them to rebalance for you, or you decide for yourself on your allocation strategy, buy a mix of trackers and then rebalance according to your strategy.

Anyway when I started questioning the IFA on active vs passive funds and about where his commission would come from, he got quite tetchy and basically said that if I knew so much about passive funds, why was I wasting my (his!) time talking to him. I now agree.

Main costs for us are having two adult children at home and things like paying for an extra car, and food – they aren’t financially independent yet. Hopefully they will bugger off before I retire.

This is difficult and I relate.

I’ve one starting uni on Monday, I’m having to support him for the next four years. But he still has to work himself and he doesn’t get a car or anything daft like that.

One of the others at home now contributes a reasonable rent and board to us. We then save half that into a good savings account, which he triples into a LISA and another savings. So there’s a modest cost to him being here, but there pay off is he has enough deposit saved since pandemic to buy his own place….

Last one has properly left, and our only financial ties was a modest loan last month to help buy a van and insurance to start work/commute.

I’ve always been a bit of a ‘get a job, pay your way, be responsible, by the way we’re here as backup’. It’s hard when they are adults, but they have to step up.