How much do I need to save?

d.white

... to produce an income of £40,000 p.a.? Without depleting the capital relative to inflation.

How much would my pension/investment fund need to be? How would you calculate it?

sandsy

I'd suggest finding some online pension calculators to help you get a rough idea in the first instance.

You'll see that the fund you need will vary depending on things like what age you intend to start taking an income.

But otherwise, multiply your required income by about 20 to get a very rough idea.

Your_Hero

This requires a lot of assumptions. If you require £40,000 income, without depleting the capital in real terms is a big ask.


Assuming a withdrawal rate of 3%, plus 2.5% inflation. You require an annual growth rate of at least 5.5% a year (need to also factor in the costs of investing). Therefore the capital you require based on these assumptions would be £1,333,333, if you want an income of £40,000 (increasing in nominal terms, since capital is growing at 2.5% same as inflation), whilst preserving the capital in real terms.

d.white

sandsy wrote: »

I'd suggest finding some online pension calculators to help you get a rough idea in the first instance.

You'll see that the fund you need will vary depending on things like what age you intend to start taking an income.

But otherwise, multiply your required income by about 20 to get a very rough idea.

I've looked at some online pension calculators but the calculators are for pension funds only (not retirement savings in ISAs and non-pension) and the calculators don't make clear if the capital remains intact. I suspect they assume buying an annuity which I would not want to do.

sandsy

Then find an income drawdown calculator, and work with it until you find the size of fund you'll need to produce £40k. Then use a pension calculator to see what you need to save to produce that fund, ignoring the annuity section. That's the pension route.

The investment route is different only due to tax. But with the sort of income you're targeting, presumably you're already a higher rate tax payer which would make pension saving a better savings vehicle due to higher rate tax relief.

atush

I would plot your income with a gradual (not no) decline in capital. that is the way pensions are generally done.

As you can't take it with you, and we assume other assets like your house/investments/cash to pass on.

d.white

atush wrote: »

I would plot your income with a gradual (not no) decline in capital. that is the way pensions are generally done.

As you can't take it with you, and we assume other assets like your house/investments/cash to pass on.

Most of my savings and investments are not in a pension - personal choice and I have as much as I want in a pension. I am really more trying to get an idea of how much I would realistically need as an investment pot in total to generate that level of income without reducing the capital.

atush

But why not reducing the capital? It would help you reach your goal and as I sadi, you can't take it with you.

Funny you dont like pensions. I like tax relief.

Anyway, annuity rates are around 6% flat. DD rates are 4-6%. So use that figure, 40K is 5% of 800K so that is what you need.

FatherAbraham

d.white wrote: »

I suspect they assume buying an annuity which I would not want to do.

What's the problem with annuities?

An annuity to guarantee £40k index-linked for life, and any surplus assets will remain intact and invested until needed.

Warmest regards,
FA

atush

for an index linked income, he'd need 1.15 million.

But it would be easier if they planned a slow reduction int he capital over the years.

d.white

atush wrote: »

But why not reducing the capital? It would help you reach your goal and as I sadi, you can't take it with you.

Funny you dont like pensions. I like tax relief.

Anyway, annuity rates are around 6% flat. DD rates are 4-6%. So use that figure, 40K is 5% of 800K so that is what you need.

True you can't take it with you but if it's not tied into a pension then I think you can pass it on to your children more easily and with less inheritance tax with life time gifts or trusts, which I don't think you can with a pension pot but am ready to be corrected.