Time to get real. How much will this Zombie get in retirement?

So in an earlier post I had a look at my current Net Wealth and decided to remove my residential property from this.  Now I want to have at look at where my NW is headed, if I change nothing.

To keep things simple this will include;

– £1,000 per month into cash savings only
– 20% of my salary into my company pension

I’ll need a retirement goal…just how much does a Zombie need in retirement?  Let’s say £1million for now.  Because it sounds awesome, it is a huge psychological barrier and it would give £25k a year on a drawdown of 2.5% for 40 years which isn’t too shabby.

Plodding on

First I will need some assumptions and a couple of scenarios.

Scenario 1 (the bleaker one)
– Wage growth inline with inflation, so no real growth 🙁
– The same for interest on cash holdings
– A paltry 2% return on equities
– I carry on with the same contributions to cash and equities, again no real increase as we will assume wage increases are just inline with inflation.

Scenario 2 (hopefully a bit more realistic)
– Wage growth of 1% above inflation
– A 1% real return on cash
– A 5% return on equities
– And so contributions to my pension and cash savings increase by 1% in real terms.

A straight line
On the first scenario it’s going to take until I’m 68 or 69 to hit the goal of £1million, what the government is aiming for perhaps.

My, my, that’s some sweet compounding
With the second scenario that reduces to around 58 or 59.  A reduction of 10 years just by playing with the assumptions!  Holy sh*t that’s awesome!  Small tweaks make a huge difference, I guess the lesson here isn’t that I’m going to be a millionaire just by changing the assumptions but to ensure that my portfolio is making a real return each year and actually giving me some real growth.

Some further tweaks
I could add;

– Ms Zombies pension contributions
– The company share options signed up to for three years

But that’s for another day and only makes to picture look rosier and easier to put all this off.  Besides, I can always add it later and claim the increase in our NW is down to my superb planning.

A changing portfolio
Just having a look at my current portfolio and projection this on a simplistic model has highlighted;

– The need to diversify from just my company pension
– Building an excessive pile of cash isn’t helping anyone (and would be far too tempting to spend)

So by Christmas, my avid readers, I will want to have a plan in place for some of the cash.  Maybe Peer2Peer lending, individual bonds and some tracker funds.  What ever happens my first goal is going to be aiming for £100 a month in income.

Another thing this academic exercise has highlighted is the need to focus on real growth and not just the absolute numbers.  As nice as it would be to reach a NW of £1million, that’s going to mean nothing if inflation has accelerated away from us and my once cool million can now only buy a 10 year old Ford Focus.

Any thoughts?

Mr Z

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