how much

westkirby

i am twenty years of age what percentage of my wages do i need to invest in a stakeholder pension,and does it increase as my age goes up ,is there a general rule of thumb thanks

Stompa

westkirby wrote:

i am twenty years of age what percentage of my wages do i need to invest in a stakeholder pension,and does it increase as my age goes up ,is there a general rule of thumb thanks

There used to be a rough rule of thumb which said that you should take the age at which you start to contribute towards a pension, and halve it. Then contibute that percentage of your income until retirement.

So in your case (age 20) you'd contribute 10%.

I've no idea whether this is still a sensible rule though.

dunstonh

It is best to increase any contribution with RPI or NAEI otherwise what is £50pm now doesnt have the same value as £50pm 20 years down the road. You have to keep the contribution at the same value real terms.

What percentage depends on how much money you want to earn in retirement and when. The very rough rule of thumb is to take your age and halve it, so 10% gross contribution should be what you are looking at. However, that is without any fine tuning.

You should also consider whether a stakeholder pension is most appropriate or not for you. With 45 years or so, a number of personal pensions could offer better terms and better investment options over a stakeholder.

EdInvestor

If you're a basic rate taxpayer you might be better to max out your ISA ( both the cash (3k) and the stocks and shares,(4k) total 7k per year) as this tax allowance is "use it or lose it."

Whereas you can pick up the pension tax relief later, when you pay higher rate tax and can get the full benefit.

Imelda

I was about to ask a similar question (sorry for hijacking your thread). I am 25 and this year I have just crept into the higher rate tax band, does this mean it would be more beneficial for me to make greater AVC payments? Do the payments have to be greater than the amount of earnings upon which I pay 40% tax? I currently only pay 1% (my company 6.5%). I don't think I can be trusted with an ISA as the temptation to spend it will be far too great!
(Please ignore debts in my sig, any AVCs will be made after these have been cleared up, which should be by september)