Pension rule of thumb: the percentage of gross or net salary?

aristote33

Hello,

I have read with interest the Pensions page of MSE, and I have a small - but somewhat important - question about the pension rule of thumb that follows:

Take the age you start your pension and halve it.
Put this percentage of your salary aside each year until you retire.

What salary is it all about? Gross salary before paying NIC, tax, and stakeholder pension? or net salary after NIC, tax, and stakeholder pension have been debited?

In other words, is it the percentage of the gross salary or the disposable salary?

(It might sound a picky question, but over 30-50 years, with interests adding up, it might make a big difference when retirement comes)

How do you understand it yourself?

Thanks,

William

Paul_Herring

Gross.

http://forums.moneysavingexpert.com/showthread.html?p=540864#post540864

dunstonh

That is a very rough guide so it doesnt really matter if its gross or net. The margin of error is too great.

aristote33

Thank you.

I am able to save every month with taking into account my gross earnings, and I put aside more than half my age (per cent), so that I somewhat catch up with the delay in the years I have waited for to start doing that.

exil

It's not wise to take this rule as gospel. How much you should save depends on how big a pension you want. There is no point in reducing your current standard of living to pauper level to save to achieve a higher standard of living in retirement than you currently enjoy. In my opinion!

Paul_Herring

exil wrote: »

There is no point in reducing your current standard of living to pauper level to save to achieve a higher standard of living in retirement than you currently enjoy. In my opinion!

If, for no other reason, that if you're used to living as a pauper now, you'll carry on doing that in retirement out of habit, and end up not spending all that pension anyway.

aristote33

I understand your point.

It's just I'm entering active earning life rather late and I'm conscious of the fact that I would rather retire at a normal age rather than having to work unreasonable extra years because I have not planned ahead enough with putting cash aside, on top of having started my working life rather late.

I don't take the rule of thumb as a gospel, but working on a part-time basis, and still earning far much money than what I need to enjoy everyday life, I feel just right with putting away in savings 20% of my gross salary.