How am I doing at 43 years of age !

GAFFER

Hi,

I am 43, I earn 62k pa, my current pension pot is 84k, i am married with 2 kids who are 3 & 8. wife doesnt work. 140k mortgage and 30k in shares.

i put £200 p.m into my pension and my employer puts in £800pm, so obviously 12k a year goes in. this sounds pretty good to me, but i guess i may be being a bit naive.

my question is simply this - in trems of my pension funding - how am i doing?!

I would dearly love to retire at 55 (be gone by then) mortgage would on a modest annuity payment each month, but would appreciate peoples opinions on whether or not this is a realistic aim.

Always very knowledgeable people on here and i very much appreciate your time if you are able to respond. Thank you.

GAFFER

sorry typos there - mortgage would be gone by 55 (not me hopefully!!)
and think can live on a modest monthly annuity payment

Triumph13

You would be looking at a very severe drop in income unless you can substantially increase your contributions.

Rough and ready calculation:
By 55 your pension pot should be around £300k on your current trajectory. If you have enough NI years to get a full £8k state pension at 68 then you need £100k to replace that for 13 years. That leaves £200k which at a 3% withdrawal rate yields £6k pa.

£6k + £8k = £14k. As I said, a BIG drop from £62K.

mania112

could be a lot worse, perhaps once you've paid off your mortgage at age 55, you can carry on working for 10 more years and add further funds (that were being directed to your mortgage) into your pension.

In the meantime, try to ensure you've got some cash to put into an ISA.

You should also have income protection and life assurance to ensure your family are covered if something happens to you.

mania112

Play around with the numbers yourself: https://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

Triumph13

If you contributed another £12k a year, costing you £600 a month after tax relief, then you should be able to get that retirement income figure up to £19k or so.

In your position, if I did genuinely want to go that early, I'd be looking to make pension contributions of around £20k pa plus employer contributions so as to get completely out of the 40% tax band.

grey_gym_sock

your adjusted income (i.e. after deducing pensions contributions) is barely under £60k, so you must be losing almost all the child benefit for 2 children. there would be a huge advantage is increasing your pension contributions to take your adjusted income down to £50k, at which point you get all your child benefit back. with 2 children, the effective marginal tax rate between £50-60k is c. 58% (40% income tax + 18% loss of child benefit), or 60% if you have access to a salary sacrifice pension (also saving 2% employee NI).

GAFFER

Triumph and Mania - thank you - i appreciate your advice

grey gym sock - thank you also - i had no idea i could increase pension contributions and get back child benefit! - i recently told them to stop paying it as my income only recently went over 60k

AlwaysLearnin

Excellent point from GGS

If the company you work for has a salary sacrifice scheme, you would save another 2%, plus any NI rebate the company might offer you from their saving.

It all helps

lisyloo

If the company you work for has a salary sacrifice scheme, you would save another 2%

If you get down into basic rate tax band then increases to about 12% for your own NI.
I'm putting 30% into my pension because the NI benefits (12% mine and 6.9% employer) are better than any other investment.

If I was in my 20's I'd be concerned about typing it up, but in your 40's that's less of a concern as it's only tied up until 55.

Radiantsoul

From a lifestyle perspective you probably need to figure out how much you really need to live.

Also do you really want to retire, or perhaps you want to go and do something different? Clearly if you have a decade working at B&Q you will not need so much from your pension(you might also have money making hobbies that could become income earning..)