Pension MoneySaving: Buy a different way to boost returns Article Discussion Area

SlingShot

bilbo51 wrote: »

How much income do you think you would need in today's terms - ie if you were retiring now?

Hey there,

Ah that's a very good question. It's difficult to really be sure. Although I am realising after posting yesterday that to get a decent income (i.e. Over £20,000) is going to require a pretty huge monthly contribution for the next 30 years... I'm hoping that I can perhaps start with a manageable contribution and then keep toping it up substantially at various points over the years where possible.
I assume that a strategy like that may be doable?

Bigsmak

SlingShot wrote: »

Hey there,

Ah that's a very good question. It's difficult to really be sure. Although I am realising after posting yesterday that to get a decent income (i.e. Over £20,000) is going to require a pretty huge monthly contribution for the next 30 years... I'm hoping that I can perhaps start with a manageable contribution and then keep toping it up substantially at various points over the years where possible.
I assume that a strategy like that may be doable?

Ran a couple of quotes for a 36year old retiring at 65 and if you pay £300 (which is actually £240 due to the tax relief you get if assuming your a lower rate tax payer) a month based on a 7% yearly rate of return your looking at a tax free lump sum of just under 80k and a pension of £14,800pa add this to your state pension and you get your 20k a year

This is based on today's figures and just projections mind you. But the earlier you put money into a pension the more impact it has due to compound interest.

So - your £250 car loan figure is not too far of. Glad to see you thinking about it. Good luck.

SlingShot

Bigsmak wrote: »

Ran a couple of quotes for a 36year old retiring at 65 and if you pay £300 (which is actually £240 due to the tax relief you get if assuming your a lower rate tax payer) a month based on a 7% yearly rate of return your looking at a tax free lump sum of just under 80k and a pension of £14,800pa add this to your state pension and you get your 20k a year

This is based on today's figures and just projections mind you. But the earlier you put money into a pension the more impact it has due to compound interest.

So - your £250 car loan figure is not too far of. Glad to see you thinking about it. Good luck.

Hey thanks for that - massively appreciated. That is a much more positive outcome than I was thinking. Good to see that I can take action soon and get myself back on track. Always easy in hindsight but I just wish I had been thinking about this when I first started work at 23.

As I only had my state pension being paid into for 10 years will that still be right based on the figures you mention above?

Just to start researching the best kind of pension to go for now.

With a base pension like the above, I assume it's easy enough to throw in a lump sum now and again to boost it up?

Linton

Bigsmak wrote: »

Ran a couple of quotes for a 36year old retiring at 65 and if you pay £300 (which is actually £240 due to the tax relief you get if assuming your a lower rate tax payer) a month based on a 7% yearly rate of return your looking at a tax free lump sum of just under 80k and a pension of £14,800pa add this to your state pension and you get your 20k a year

This is based on today's figures and just projections mind you. But the earlier you put money into a pension the more impact it has due to compound interest.

So - your £250 car loan figure is not too far of. Glad to see you thinking about it. Good luck.

Looks too good to be true. Have you accounted for inflation?

According to my calculations if you assume inflation at 3%, return at 7% and that income and pension contribution increase with inflation I do get about the annuity you calculate. BUT in the 30 years inflation has reduced the value of that annuity by about 60%.

So I think you should be doubling the amount you pay into your pension.

bilbo51

You can play here to work it out for yourself...

http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

Bigsmak

Linton wrote: »

Looks too good to be true. Have you accounted for inflation?

According to my calculations if you assume inflation at 3%, return at 7% and that income and pension contribution increase with inflation I do get about the annuity you calculate. BUT in the 30 years inflation has reduced the value of that annuity by about 60%.

So I think you should be doubling the amount you pay into your pension.

Nope.. This is based on today's figures.. However I always say to people that inflation will erode what you can buy with your money and encourage them to up their payments every year.

So Linton is spot on... And you do need to be aware of this.

Basic rules are that the more money you put in early the better. If you can afford to put more in, do it.

Linton

Did you display the results in money terms or todays terms?

If you display in money terms I get roughly what you said. However, in todays terms (ie taking inflation into account) the figure is about halved.

SlingShot

Thanks guys. So essentially while £240 is a good starting figure I really need to up that as much as I can over time?
I'm still thinking about the idea of boosting the pension with lump sums as I am able to.

Linton

Suggest you play around with the h-l calculator.

IMHO your starting figure is much too low. Because of compound interest, money paid early on is worth much more than payment deferred. If the 7% return figure is correct each £1 you pay now will increase to £7.5 at 65. Delay 10 years and the value reduces to about half that.

SlingShot

Linton wrote: »

Suggest you play around with the h-l calculator.

IMHO your starting figure is much too low. Because of compound interest, money paid early on is worth much more than payment deferred. If the 7% return figure is correct each £1 you pay now will increase to £7.5 at 65. Delay 10 years and the value reduces to about half that.

Thanks Linton. I do need to be pretty brutal I think. I suppose it's just facing that kind of outlay each month. Almost feels like things like annual holidays need to pretty much be scrapped just to have enough to pay into the pension. Either that or it's time to get rich.