Age/Pension Pot

planteria

further to this thread https://forums.moneysavingexpert.com/discussion/4694793 i am interested in the model that people follow. is there a template for the size of pension pot that someone should have at various ages :question:

MoneySaverLog

1/2 final salary by 60 and a few smaller pension pots

quotememiserable

Its hard for people to give you a value, because it depends how much you want as a pension. I suggest you use a pension modeller like this one from the money advice service. You can put in your current ideas, so how it could outturn then play around with the variables.

hugheskevi

For me, the target is not the size of pension pot, but the size of overall savings.

How those savings are distributed depends on what incentives I face.

To just set a strategy early in life based on some sort of model and follow it without any reference to incentives faced would in many circumstances lead to a far worse outcome than constant optimisation and switching between investment vehicles.

Personally I am finding that at age 35 this is leading me to have a lot of my net worth in pensions, some in property and not much else beyond precautionary saving in ISAs. That is because I want to put enough into pension to maximise employer contribution and remove higher rate tax liability. With property purchase, furnishing and upgrades/repairs, car and wedding in recent years, it has been a challenge to optimise pension contributions, let alone have surplus for ISAs. But that is changing rapidly now those expenses are gone.

So working from left to right and optimising amount put in based incentives, my priority order is:

3-6 months precautionary savings > 10-25% equity in property > pension > 40% equity in property > ISA > mortgage > unwrapped investments

marathonic

The whole 'have £x in your pension by the age of y' is an EXTREMELY rough rule of thumb and serves no real purpose.

For example, the '£35k in your pot by 35' idea does nothing except to show those in their mid twenties, or older, that think they're doing brilliant by putting £50 per month into their pension that they are falling short.

For example, it's been going about for years, but not rising by inflation. Also, a 35 year old with £35,000 in their pot after the market crash of 2008/9 is a very different thing to a 35 year old with £35,000 in their pot at the high market levels seen this year.

An interesting thing I done with my budget spreadsheet is add a column with 'Projected Pension Requirement in Todays Money'. I use a 4% drawdown rate in retirement so multiple the annual cost of an item in my budget by 25 in this column.

Basically, if I have an expense like Sky TV costing £30 per month (£360 annually) and I want to keep this in retirement, it'll require a pension pot of £360 * 25 = £9,000.

I didn't go so far as to create a spreadsheet for expected retirement expenses but I find it interesting to switching my thoughts to, for example, getting the latest smartphone every 2 years doesn't cost £34 per month in retirement. It costs me a £10,200 pension pot to sustain for life.

I'm not sure if anyone else would find any value in thinking this way but it's a good way for me to look at it.

Looking at Sky alone, their complete package, including line rental, sports, movies, broadband and phone costs £89.25 per month. That's absolutely ridiculous and I'd probably do with a cheaper package in retirement - but I don't want to be forced into going for a cheaper package at a time when I'm most likely to spend more time at home. There's a £26,755 pot required on it's own.... :eek:

MoneySaverLog

£9,000 a year for sky :eek:

planteria

MoneySaverLog wrote: »

1/2 final salary by 60 and a few smaller pension pots

you mean a pot that would generate an income of half of your final salary...or that you have a final salary scheme that will make up half of your pension provision?

planteria

quotememiserable wrote: »

Its hard for people to give you a value, because it depends how much you want as a pension. I suggest you use a pension modeller like this one from the money advice service. You can put in your current ideas, so how it could outturn then play around with the variables.

thanks, ive just had a play with that.

marathonic

MoneySaverLog wrote: »

£9,000 a year for sky :eek:

No.... a pension pot of £9,000.

With a drawdown rate of 4%, I can take £360 per year from this £9,000 pot - to fund the £30 per month Sky bill.

Basically, £9,000 for Sky for life....

You're not going to be able to afford Sky on the state pension so, if you want it, you better make damn sure you've got £9,000 for it.... the same could be said about all the other little luxuries that you take for granted today.

dunstonh

For example, the '£35k in your pot by 35' idea does nothing except to show those in their mid twenties, or older, that think they're doing brilliant by putting £50 per month into their pension that they are falling short.

That is exactly what it is for.

If you notice the other thread, you will see some people think that figure is not achievable. Yet when you look at the monthly amounts needed at the various starting ages, you can see that it is achievable quite easily but it seems that some feel the contribution level is unreasonable. That has always been a problem with retirement planning. Some people feel that paying £30pm for 30 years is going to give them £1000 a month pension in retirement. When it doesnt, they blame the pension but its their own planning that was off.

marathonic

dunstonh wrote: »

That has always been a problem with retirement planning. Some people feel that paying £30pm for 30 years is going to give them £1000 a month pension in retirement. When it doesnt, they blame the pension but its their own planning that was off.

I completely agree. A lot of people seem to have rosy visions of retiring at 55. Retiring at 55, for a lot of people, will mean a retirement that is just as long as their working lives.

Yet, they contribute £100 gross to a pension, spend the other £1,000+ and think that this will get them to where they want to be.

I have very high hopes for this complulsory financial education in schools - it just needs a very well laid out curriculum.