35,000 vs 240,000

tir21

Think I read somewhere earlier in the week that the average pension pot upon retirement is 35k, but that to get a yearly income of 16k you need 240k to buy an annuity with

That seems a bit of a missmatch. How are people supposed to save 240 when they can't afford to buy a house or rent?

Lokolo

Who or how?

They can, by making sacrifices and start early enough. It's quite simple really.

If house prices were so unaffordable then they wouldn't keep rising.

tir21

Lokolo wrote: »

Who or how?

They can, by making sacrifices and start early enough. It's quite simple really.

If house prices were so unaffordable then they wouldn't keep rising.

But isnt the only reason house prices are rising because people are becoming more and more indebted?

Arent the house prices just rising to match what banks are prepared to lend?

Lokolo

tir21 wrote: »

But isnt the only reason house prices are rising because people are becoming more and more indebted?

Arent the house prices just rising to match what banks are prepared to lend?

And what people are prepared to borrow.

gadgetmind

tir21 wrote: »

How are people supposed to save 240

Some of that often comes from employer, some from tax relief, and a whole load from investing sensibly. If you start early and contribute appropriately, it's not too hard.

mania112

gadgetmind wrote: »

Some of that often comes from employer, some from tax relief, and a whole load from investing sensibly. If you start early and contribute appropriately, it's not too hard.

Perfect. What he said.

lvader

A lot of people struggle prioritising pensions over short term needs/wants. If you start early and get used to lower income you don't notice it's missing and it soon builds up.

tir21

I never realised it was so easy

gadgetmind

tir21 wrote: »

I never realised it was so easy

A lot of people don't find it easy because they don't start early enough, don't contribute enough, don't increase contributions in line with inflation, don't keep an eye on costs, and (most importantly) can't get their heads around the concept of doing without a few luxuries now so that they can benefit in a few decades.

Let's face it, many people regard long-term planning as being who to go for a curry with next Friday and which of their (this season) football shirts to wear.

jamesd

tir21 wrote: »

Think I read somewhere earlier in the week that the average pension pot upon retirement is 35k, but that to get a yearly income of 16k you need 240k to buy an annuity with

That seems a bit of a missmatch. How are people supposed to save 240 when they can't afford to buy a house or rent?

You did. See the Policy Exchange discussion to see how they rigged the numbers to get an unrealistic result.

The annuity they are assuming pays out just 3.5% because it's inflation-linked. That's an inefficient market and drawdown is a better deal. Unfortunately the report's authors didn't seem to realise that drawdown was possible without a guaranteed income of £20,000. Taking between 4% and 6% in drawdown is likely to work fine.

To see how much you'd have to put in to get any particular pension pot size, try a regular savings calculator. Use 5% as the interest rate for historic UK stock market rate after about 0.1% of tracker fund charges or 2.7% to see what Policy Exchange used (they used 3% minus 0.3% charges). If you're assuming no employer help cut your net monthly cost to 80% of the monthly payment it takes. Cut it to 5/8 if you assume auto-enrolment matching levels in a few years.

For someone 40 years from retirement it takes only £156 a month gross to get to £240,000. If in a scheme with 100% employer match that drops to a net cost of only £62.40 after tax.

gadgetmind

jamesd wrote: »

he report's authors didn't seem to realise that drawdown was possible without a guaranteed income of £20,000.

Stupid? Lazy?