Is a pension worth investing in nowif you're going to be earning a lot more later?

Derivative

dunstonh wrote: »

You wont miss what you never had. However, once you have it, then going backwards is much harder.

If you're saving for a house deposit, then you 'never had' the money either.

It's not a choice between retirement planning and booze and fags...

somethingcorporate

dunstonh wrote: »

You wont miss what you never had. However, once you have it, then going backwards is much harder.

I think this is a really important but often overlooked psychological point. Once you are used to putting money aside and never seeing it (as your pension is usually deducted from your wage) then it becomes much easier over the long-term.

My wife recently moved from a company that paid directly into her pension, now she works for a company that doesn't. It is a lot mentally tougher to discipline ourselves to pay £500 religiously into the pension every month, especially with a baby on the way, big mortgage, need a new car etc etc. So far so good and it is good to see the money building up! Starting early will get you into the habit of losing a little bit of your income 5-10% or so than living a lifestyle to 100% of your income and having to sacrifice a much larger chunk in later life to receive the same level of pension.

Tesco's mantra of every little helps also is important here. Just because you work in a highly paid industry there are no guarantees in this world. You haven't landed one of those jobs and a lot will happen to you in the next 18 years. I met a woman I would give up everything for, money, cars, education, life itself to be with. You may find a person that doesn't want you working in a highly- pressured, long-hours job and you may find you don't either! So if you change tack later in life at least you would have started making some provision for your retirement.

dunstonh

It's not a choice between retirement planning and booze and fags...

Why should it be between a house and retirement planning? Treat it as another bill that needs to be paid.

atush

You wont miss what you never had. However, once you have it, then going backwards is much harder.

ALL savings (not just pensions ) work this way.

Anytime you have more money- from starting a new job, to a pay rise, to becomming a 2 person household etc- savings always work best if you time it from then. As once you have money in your acct you tend to spend it. If it goes out payday or shortly after- to a pension to a reg saver/ISA etc, then you won't notice it isn't there and you wont feel the loss of missed spending opportunity.

Another way to use this is if you have something you used to pay for but dont anymore (ie your mtg lowers due to rate, you paid off your car, you paid off debt etc) then you put that money away automaticaly as well. We did this first with the mtg (kept payments the same when rates dropped many years ago) and then with car payments (now save the cash for new car ahead of time etc) and it is surprising how fast things go in your favour using this "dont see don't spend" plan.

ermine

Why should it be between a house and retirement planning?

These are big commitments, of roughly the same order of magnitude, and for many people they can do one or the other but not both well. I was able to do both serviceably by having a professional job and not having had children. Some people can do both, but a household on the national average wage (£50k-ish assuming both adults work) can't do both well if they have children IMO.

Derivative

atush wrote: »

ALL savings (not just pensions ) work this way.

Anytime you have more money- from starting a new job, to a pay rise, to becomming a 2 person household etc- savings always work best if you time it from then. As once you have money in your acct you tend to spend it. If it goes out payday or shortly after- to a pension to a reg saver/ISA etc, then you won't notice it isn't there and you wont feel the loss of missed spending opportunity.

Another way to use this is if you have something you used to pay for but dont anymore (ie your mtg lowers due to rate, you paid off your car, you paid off debt etc) then you put that money away automaticaly as well. We did this first with the mtg (kept payments the same when rates dropped many years ago) and then with car payments (now save the cash for new car ahead of time etc) and it is surprising how fast things go in your favour using this "dont see don't spend" plan.

Yes, indeed.

I personally go for a more extreme version, which is that ALL money is automatically saved unless earmarked for spending.

I give myself an annual budget of 'fun things' so that it doesn't seem like too much of a grind, and have exceptions for purchases that will save money long term (for example, a home computer, more efficient fridge freezer, the aforementioned deposit, etc).

dunstonh wrote:

Why should it be between a house and retirement planning? Treat it as another bill that needs to be paid.

It's not - my point is that I believe that if you have a limited amount of monthly income, allocating 100% to a home deposit, and then 100% to a pension is likely going to end better long term, if you are in a position to buy, simply because when you begin saving and are dealing with small sums, rent* will outstrip any annual returns in the pension.

That is excluding any employer contributions or salary sacrifice for higher rate taxpayers, of course.

* rent minus mortgage interest on an equivalent property, to be clear

somethingcorporate

ermine wrote: »

These are big commitments, of roughly the same order of magnitude, and for many people they can do one or the other but not both well. I was able to do both serviceably by having a professional job and not having had children. Some people can do both, but a household on the national average wage (£50k-ish assuming both adults work) can't do both well if they have children IMO.

That depends on priorities.

If that family chooses a new car on finance, sky TV, mobiles etc then I agree they won't be able to. If they make some sacrifices it is perfectly possible.

ermine

dunstonh wrote: »

If you have a lifestyle of an additional rate taxpayer then dropping down to £10k in retirement is not likely to appeal.

I'm doing this right now, battle testing my retirement plans. I am/was a HRT payer until I discovered the power of salary sacrifice.

Don't underestimate the value of owning your house outright. Or the desperation of an old git knowing he's all washed up Yes, my income is less than NMW (if you don't include what I am saving post-tax into an ISA). My lifestyle is vastly above that, because I am resting on the capital assets of a working lifetime. My accommodation costs are Council Tax plus 1% of the house value for maintenance. I paid more in real terms when I was 25!

Derivative

ermine wrote: »

I'm doing this right now, battle testing my retirement plans.

Trial by fire is an excellent approach - it's all too easy to convince yourself ~£200pw is enough before you actually have to get everything within.

dunstonh

I like threads like this. People with different views, considering options and discussing pros and cons and all being very nice about it.

In reality, there is no 100% perfect answer here. The early start with lower but building contributions or the late start going hell for leather after mortgage cleared still result in provision being made. At the end of the day, you know your personality better than anyone else and as long as you can see the pros and cons of each method and decide for yourself what is right for you AND STICK WITH IT, then that is good.