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  • FIRST POST
    • NewLlrd
    • By NewLlrd 14th Jul 17, 12:25 AM
    • 15Posts
    • 8Thanks
    NewLlrd
    Retire at 60, how?
    • #1
    • 14th Jul 17, 12:25 AM
    Retire at 60, how? 14th Jul 17 at 12:25 AM
    Hi, I'm 30 and I would like to put enough into my pension so that I can comfortably retire at 60.

    I has been working for 12 years and for 10 of those have putting into a pension (with generous contributions from my employer) there is now almost £25k in my pension pot.

    I put in £195 pcm and my employer £113 (which is the maximum I can afford however things should be improving soon and I may be able to increase this further).

    My question is how much do I need to put away each month to end up with a roughly £14k a year pension (or is that an unrealistic dream?)

    I have a mortgage that should be paid off in 27 years (I can't overpay on my BTL but when I move in in 5 years I will be doing to reduce the term).

    Thanks in advance
Page 1
    • bigadaj
    • By bigadaj 14th Jul 17, 6:06 AM
    • 10,692 Posts
    • 6,983 Thanks
    bigadaj
    • #2
    • 14th Jul 17, 6:06 AM
    • #2
    • 14th Jul 17, 6:06 AM
    There are plenty of Internet calculators which will allow,you to vary contributions and growth to see how much you might have, always need to consider inflation so increase contributions in line with that and also and ensure assumed growth is reduced by projected inflation.

    Lots of simple indicators, you currently out in £300 a month which is a decent amount, and don't say what your salary is but a rule of thumb is the contributions are half your age when you start, sounds like you were 20 so 10% of salary on that basis.

    Another is £30k at 30 which shows you a little behind the curve.

    £14k a year pension might require a pension pot of say around £300k which is eminently achievable.

    You also need to think about paying off your mortgage, at least overpaying, mortgage is often cheap debt and can be exceeded by growth in investments, so it can be better to pay more into pension or other investments than overpaying a mortgage, always depends on the relative rates though.
    • tacpot12
    • By tacpot12 14th Jul 17, 7:50 AM
    • 737 Posts
    • 636 Thanks
    tacpot12
    • #3
    • 14th Jul 17, 7:50 AM
    • #3
    • 14th Jul 17, 7:50 AM
    Problem is that £14,000 pension in 30 years time is only going to buy what £8500 buys now due to inflation. For a "£14,000" pension, you need to have saved closer to £700,000. And that would require putting in £500 per month. (Assumes average 7% pa growth on investments, Inflation at 2.5% pa, contributions increased in line with Inflation.) However, when you add the state pension in, you may not need a pension of "£14,000" assuming the state pension still exists then. Is there a reason you omitted the state pension from your calculations?
    • Suffolk lass
    • By Suffolk lass 14th Jul 17, 7:54 AM
    • 1,556 Posts
    • 17,918 Thanks
    Suffolk lass
    • #4
    • 14th Jul 17, 7:54 AM
    • #4
    • 14th Jul 17, 7:54 AM
    Problem is that £14,000 pension in 30 years time is only going to buy what £8500 buys now due to inflation. For a "£14,000" pension, you need to have saved closer to £700,000. And that would require putting in £500 per month. (Assumes average 7% pa growth on investments, Inflation at 2.5% pa, contributions increased in line with Inflation.) However, when you add the state pension in, you may not need a pension of "£14,000" assuming the state pension still exists then. Is there a reason you omitted the state pension from your calculations?
    Originally posted by tacpot12
    Maybe he excluded state pension from his calculations because it (based on current plans) won't be payable until 8 years after the age 60 retirement he aspires to retire at?
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    • penwise
    • By penwise 14th Jul 17, 8:05 AM
    • 361 Posts
    • 196 Thanks
    penwise
    • #5
    • 14th Jul 17, 8:05 AM
    • #5
    • 14th Jul 17, 8:05 AM
    tacpot12- could you identify the online calculator or the actual calculation used to get the £70000 figure
    Thanks
    Last edited by penwise; 15-07-2017 at 7:02 AM.
    • NewLlrd
    • By NewLlrd 14th Jul 17, 8:22 AM
    • 15 Posts
    • 8 Thanks
    NewLlrd
    • #6
    • 14th Jul 17, 8:22 AM
    • #6
    • 14th Jul 17, 8:22 AM
    'She' omitted it from my figures because I'm working under the assumption that it won't exist.

    I was 20 when I started contributing (but isn't start at £200 per month - this has increased slowly over the last few years.

    My salary is £19.5k and what I put in each month is the maximum I can currently afford.

    From what you are saying unless my salary changes substantially I won't be able to retire at 60.

    I did use a calculator online but it wasn't very clear in how much I need to put it (it only showed what the shortfall would be).

    Thank you again l
    • k6chris
    • By k6chris 14th Jul 17, 8:56 AM
    • 137 Posts
    • 222 Thanks
    k6chris
    • #7
    • 14th Jul 17, 8:56 AM
    • #7
    • 14th Jul 17, 8:56 AM
    The best way to expose yourself to the risk of being able to retire early is to save a significant portion of your income, to use to fund that early retirement. Pensions currently provide a useful tax incentive, especially on the way in, for higher rate tax payers and on the way out (25% tax free) for everyone. Best advice that I ever had was to contribute 15% of my gross salary (in addition to whatever my employer gave me) and to work out what I could afford after that. I started doing this at 23. The good news is that if it is taken from source in your payslip, you never get to see it anyway.

    In terms of where you are today, to save a pot of money to retire early on, you may have to actively look for a job in an industry that pays more money, and save extra money from a job that pays more in the first place. In general, people who want to retire early should focus on saving for a nice retirement rather than for a bigger car / better holiday etc (this is not aimed at OP, just a general observation).

    The good news is that at 30 you have plenty of time to save to a pension, sensibly invested in a low cost equity fund and let compounding work its magic. Good luck, it simple to achieve, just not easy...
    EatingSoup
    • Triumph13
    • By Triumph13 14th Jul 17, 9:13 AM
    • 1,104 Posts
    • 1,355 Thanks
    Triumph13
    • #8
    • 14th Jul 17, 9:13 AM
    • #8
    • 14th Jul 17, 9:13 AM
    My question is how much do I need to put away each month to end up with a roughly £14k a year pension (or is that an unrealistic dream?)
    Originally posted by NewLlrd
    To give you a ball-park figure, if your investments had an average return of 4% in real terms after charges and you work on a 4% withdrawal rate in retirement, then that would come out at £14k pa if you were to up your pension contributions by £85 a month gross and then just increase them in line with inflation. Would that be affordable?
    You can achieve the same thing by a bigger increase later on, but the earlier you increase it the less you have to increase it by.
    • Archi Bald
    • By Archi Bald 14th Jul 17, 9:35 AM
    • 9,353 Posts
    • 7,417 Thanks
    Archi Bald
    • #9
    • 14th Jul 17, 9:35 AM
    • #9
    • 14th Jul 17, 9:35 AM
    'She' omitted it from my figures because I'm working under the assumption that it won't exist.
    Originally posted by NewLlrd
    That is a very sound planning assumption, particularly since it is extremely unlikely you'd ever get it at age 60. If state pension is still around when you get older, you are not likely to get it before you are at least 68. Your focus should definitely be where it is now - on your own and your employer's contribution. Perhaps try to spend most of any future salary increases on your pension? Don't forget to live well though.
    • OldMusicGuy
    • By OldMusicGuy 14th Jul 17, 9:46 AM
    • 164 Posts
    • 278 Thanks
    OldMusicGuy
    In terms of where you are today, to save a pot of money to retire early on, you may have to actively look for a job in an industry that pays more money, and save extra money from a job that pays more in the first place. In general, people who want to retire early should focus on saving for a nice retirement rather than for a bigger car / better holiday etc (this is not aimed at OP, just a general observation).
    Originally posted by k6chris
    This is good advice. Maximising your earnings potential, especially when young, is a good way to build up your pension and savings provided you don't blow the money on fripperies. And that leads on to the second bit of excellent advice in this post, you will have to focus on saving for retirement at the expense of having expensive holidays, nice cars etc (unless you are able to earn huge amounts of money!). If you read the blogs of people that have retired early, they do not spend their money on cars, expensive holidays and other facets of the consumer lifestyle.

    I've worked in the IT industry most of my life and have always been around people that are paid well above average salaries. It's interesting to see how that environment creates lifestyle expectations that eat up these salaries so that instead of retiring early, too many people carry on working just to fund the lifestyle. It's a lifestyle choice - make early retirement a goal rather than having new cars or the latest electronic gadgets.
    • AnotherJoe
    • By AnotherJoe 14th Jul 17, 12:15 PM
    • 7,591 Posts
    • 8,189 Thanks
    AnotherJoe
    Without getting into the detailed calculations, you are looking to retire on 70% of your salary at 60 which would require much higher savings than you are making now simply because the "default" if you like is something like 2/3 at 65 (if you go for the rule of thumb of saving half your starting age as a percentage for example).

    Add to that, there's a basic level of spending you need whatever your income, which means that 70% of £20k gives you much less room for freedom than 70% of (say) £40k, because in both scenarios you probably have a minimal underlying spend of say £12k anyway without extreme frugality.

    So the bottom line from that is not just save more, you need to earn more as well because then you have much more chance of hitting the £14k. The good news is, that you have plenty of time to work out how to make that happen.
    • NewLlrd
    • By NewLlrd 14th Jul 17, 1:50 PM
    • 15 Posts
    • 8 Thanks
    NewLlrd
    Short of changing my job (which I'm reluctant to do because the pension and other benefits outweigh any minimal increase in salary) I have been there for a long time and I LOVE my job - it has taken many years to get to this point and would take a lot to leave.

    I'm currently putting in 12% of my salary according to the figure on aegons user area my employer 7%.

    I will have a look to see if I can increase my contribution any further - currently the house I have on BTL is taking all of my spare cash as the previous tenant left with 4 months arrears and the house in a poor state. Once the house has been rented out again my finances should improve.
    • chiefie
    • By chiefie 14th Jul 17, 1:56 PM
    • 308 Posts
    • 318 Thanks
    chiefie
    Does your BTL form part of your pension planning ? I've considered this before but prefer to invest in pensions due to the risk exposure to your investment BTL gives you. Having a job you love be is fabulous by the way. Can you create other sources of income or just spend less ?
    • NewLlrd
    • By NewLlrd 14th Jul 17, 5:40 PM
    • 15 Posts
    • 8 Thanks
    NewLlrd
    Does your BTL form part of your pension planning ? I've considered this before but prefer to invest in pensions due to the risk exposure to your investment BTL gives you. Having a job you love be is fabulous by the way. Can you create other sources of income or just spend less ?
    Originally posted by chiefie
    It doesn't - it's a short term thing and I'm planning on moving in there in 5 years (it was rented out before I spoke to a mortgage advisor who said actually yes we would have given you a residential mortgage on your salary for the amount I needed to buy siblings/parents out). I've just finished my initial 2 year deal and have fixed for the next five years as we don't know what the future holds economy/job wise.

    No other source of income currently (apart from slight profit on BTL rental income - I'm not in it to make a profit I want someone to look after a family home). Although will look at additional income/job again in a couple of months when house is sorted will have more free time to commit to additional hours however overtime is pretty much always available at time and a third so try to get as many hours as possible in a month.

    Thank you again for your help
    • NewLlrd
    • By NewLlrd 14th Jul 17, 5:51 PM
    • 15 Posts
    • 8 Thanks
    NewLlrd
    That is a very sound planning assumption, particularly since it is extremely unlikely you'd ever get it at age 60. If state pension is still around when you get older, you are not likely to get it before you are at least 68. Your focus should definitely be where it is now - on your own and your employer's contribution. Perhaps try to spend most of any future salary increases on your pension? Don't forget to live well though.
    Originally posted by Archi Bald
    I'm a pessimist, but it's a good thing sometimes! Increasing my contribution on salary increase is what I've done (on the advice of my dad) and will continue to do so however before last it was 6 years between my last pay rise so I'm not expecting regular pay rises in the future and will just up it as and when I can afford to

    It's trying to get that balance between 'living well' and planning for the future. I have in the past spent 18 months not spending anything except the essentials (rent,train,bills,food) in order to save for a holiday for myself and my siblings - it was worth it, but I couldn't do it all the time and that was when I was on a salary of £14k!

    thank you for your help!
    • BLB53
    • By BLB53 14th Jul 17, 7:47 PM
    • 1,153 Posts
    • 931 Thanks
    BLB53
    My question is how much do I need to put away each month to end up with a roughly £14k a year pension (or is that an unrealistic dream?)
    As a rule of thumb, multiply by 25 to give you the amount required - in your case £14K x 25 = £350K. So you need to accumulate a further £325K over the next 30 yrs.

    You probably need to be saving roughly double your current rate. You may want to work through the calculations in more detail - there's a useful article on diy invesor to help calculate your retirement figure
    http://diyinvestoruk.blogspot.co.uk/2017/02/work-out-your-retirement-figure.html

    If you can put some of your BTL income to work then it may well be achievable depending on your investment returns. Good luck!
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • chiefie
    • By chiefie 14th Jul 17, 9:29 PM
    • 308 Posts
    • 318 Thanks
    chiefie
    This thread had cemented in my mind how hard things at becoming. We as a country, as an electorate need to tell our MPs our masters our elected thatbthis is just not good enough. They need to get the big corporations to be socially responsible and start to contribute far more. It's up to us isn't it to do this. Good luck and heaven help our children if we dont
    • atush
    • By atush 15th Jul 17, 10:01 AM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    currently the house I have on BTL is taking all of my spare cash as the previous tenant left with 4 months arrears and the house in a poor state. Once the house has been rented out again my finances should improve.
    Do you own the property where you live now?
    • Bazofts Revenge
    • By Bazofts Revenge 15th Jul 17, 10:16 AM
    • 295 Posts
    • 151 Thanks
    Bazofts Revenge
    You must really love your job if you are still there and haven't had a pay rise in 6 years. Not even rises to combat inflation. That means you are getting paid less each year. Overtime at time and a 1/3 isn't that great either.
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    • NewLlrd
    • By NewLlrd 15th Jul 17, 10:24 AM
    • 15 Posts
    • 8 Thanks
    NewLlrd
    Do you own the property where you live now?
    Originally posted by atush
    No I live with my parents.
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