What percentage of income to save for retirement?

fruitgum15

I have looked at this and other sites with regard to how much money you should be putting away each month with regard to saving for retirement and the general consensus for a person in their thirties is to put away half your age as a percentage of salary. However this site says for people "starting" in their thirties. Does this mean that as my age increases I therefore need to keep increasing my savings percentage to keep in line with my age or should I keep my savings more or less flat at around this level? I have not had a pay increase for the last 3 years and am unlikely to see one for the next few years due to the economic situation etc and cannot see me being able to save 27% of my salary at the age of 55. I would be interested in all your thoughts and opinions.

Paul_Herring

I asked that a few years ago: https://forums.moneysavingexpert.com/discussion/55601

Since the "half your age" is a rough guideline to begin with, the rough answer is the %age should stay the same.

The advice itself is just a general guideline for those just starting to save for their pension anyway. Anyone who takes the slightest interest in it for a while after they've started will generally tend to form their own opinion on how much they can afford/should be putting away.

fruitgum15

Just had a look and thanks Paul. So I assume that by "salary" they are talking about "net" after NICs and not "gross"?

fruitgum15

....and of course the tax!

Paul_Herring

fruitgum15 wrote: »

Just had a look and thanks Paul. So I assume that by "salary" they are talking about "net" after NICs and not "gross"?

No - gross.

"15%" of your "gross salary" should end up in your pension fund. It probably won't cost you 15% of gross (nor will it result in a 15% reduction in net)

If you're contributing out of net pay, it'll be less than 15% of gross due to tax relief.

If you're contributing out of gross pay, it'll be less than 15% due to reduction in NI.

How much less will depend on a variety of factors including your actual gross salary, your tax code, how much you're contributing, whether your employer contributes....

dunstonh

You look at gross salary. Not net.

The half age thing is just a guideline starting point. It is a saying to get people to realise what sort of realistic level they should be looking at. For some people, they can pay less than that, others need to pay more.

For example, depending on what level of indexation you have with your premiums, you could afford to start with less. If you have no indexation then you will have to start with more.

HappyMJ

fruitgum15 wrote: »

I have looked at this and other sites with regard to how much money you should be putting away each month with regard to saving for retirement and the general consensus for a person in their thirties is to put away half your age as a percentage of salary. However this site says for people "starting" in their thirties. Does this mean that as my age increases I therefore need to keep increasing my savings percentage to keep in line with my age or should I keep my savings more or less flat at around this level? I have not had a pay increase for the last 3 years and am unlikely to see one for the next few years due to the economic situation etc and cannot see me being able to save 27% of my salary at the age of 55. I would be interested in all your thoughts and opinions.

It depends on what you define as "savings". Savings could be the capital that you have paid off your mortgage. You won't be paying a mortgage when you are retired so that's a huge saving if a third of your income goes there. Save whatever you can afford but invest it wisely. It needs to outpace inflation to be worth more than it is today. And if you don't save much well don't worry too much there is always pension credit. Which for me pays more than any private pension could anyway. So I save nothing in private pensions and pay off the mortgage as fast as possible. The home you live in is excluded for any benefit calculations so buy a bigger house. At the very least you'll enjoy living in it now rather than later.

DavidHayton

HappyMJ wrote: »

... And if you don't save much well don't worry too much there is always pension credit. Which for me pays more than any private pension could anyway. So I save nothing in private pensions and pay off the mortgage as fast as possible. The home you live in is excluded for any benefit calculations so buy a bigger house. At the very least you'll enjoy living in it now rather than later.

Is there anything to be said for HappyMJ's argument ... enjoy today spending your cash and then throw yourself on the mercy of the state when you retire?

Let's say Hypothetical Harry manages to dodge paying any NI (earns everything over the personal allowance as undeclared cash in hand), and never saves a penny towards his retirement. In retirement he lives in a rented house, paying say £500 pcm rent. Two questions for the IFA's on the board

(1) How much would Harry be entitled to every week in benefits?
(2) How big a pension pot would Diligent David need to buy the same income?

I hope I am not being duncy david for trying to build up a pension pot to look after myself in retirement!

David

dunstonh

And if you don't save much well don't worry too much there is always pension credit.

Which is proposed to be abolished for people retiring after 2015.

Which for me pays more than any private pension could anyway.

My pension is on track to pay around £30k a year. Are you telling me that your pension credit is paying that sort of level?


edit: added after DH post above:

Two questions for the IFA's on the board

(1) How much would Harry be entitled to every week in benefits?
(2) How big a pension pot would Diligent David need to buy the same income?

1 - virtually nothing for fruitgum as pension credit wont exist. You will just have a few lesser benefits and there is no guarantee they will exist in future
2 - not a lot. Pension credit brings you up to £137.35 per week. The Govt proposals are £140 flat pension (indexed). So any provision after that will be incremental to the state pension. If you work on old rules though, then a state pension of £120 per week (lets say £96 basic and £24 S2P) would only require a pension pot of £10,000 to match that.

p00hsticks

HappyMJ wrote: »

And if you don't save much well don't worry too much there is always pension credit. Which for me pays more than any private pension could anyway. So I save nothing in private pensions and pay off the mortgage as fast as possible.

Personally, I'd be concerned if I ended up in a position at the age of 60+ where I was still having to pay off a mortgage whilst on an income low enough to entitle me to Pension Credit.

bendix

The idea of selfishly living for today with the assumption that you can just throw yourself at the mercy of the state in retirement sums up everything that is wrong with the country - I'll be alright, jack, someone else can take care of me.

What is wrong with people and their sense of personal pride?