Is this calculator right?

atush

No, I was a govt research scientist.

lalman

I'm 28 and put 466.66 into my pension each month... 10k total now and I did similar calculations- quite depressing and I think I'll need to diversify my income stream to be able to live the life style I want at say 55/60/65/68... Whenever I retire depending on my circumstances at the time!

I am beginning to actively manage my pot though- which could be deemed as clever or stupid but past experience of speaking to fund managers has been mixed.

jumperabv3

lalman wrote: »

I'm 28 and put 466.66 into my pension each month... 10k total now and I did similar calculations- quite depressing and I think I'll need to diversify my income stream to be able to live the life style I want at say 55/60/65/68... Whenever I retire depending on my circumstances at the time!

I am beginning to actively manage my pot though- which could be deemed as clever or stupid but past experience of speaking to fund managers has been mixed.

Thank you for sharing your experience.
I am going to rely on pension from "abroad" and not only on UK pension, so the only way to plan the lifestyle you want is to get a similar pension from another country, there is no way you can get along just with this type of pension, just note the residency rules and you would be fine ... the US allows you to work and get paid even if you live abroad (they also tax you regardless of where you live but being less than 30 days a year there allows you to not pay any tax for the first $100k you make per year!)

lalman

jumperabv3 wrote: »

Thank you for sharing your experience.
I am going to rely on pension from "abroad" and not only on UK pension, so the only way to plan the lifestyle you want is to get a similar pension from another country, there is no way you can get along just with this type of pension, just note the residency rules and you would be fine ... the US allows you to work and get paid even if you live abroad (they also tax you regardless of where you live but being less than 30 days a year there allows you to not pay any tax for the first $100k you make per year!)

I think that's good advice, but I was thinking more about having rental property, stocks and shares and cash savings too. I think fundamental to retirement is having a home that doesn't have a mortgage - once that is cleared living expenses would drop significantly... I just need to buy and pay for a home now! lol:rotfl:

jumperabv3

lalman wrote: »

I think that's good advice, but I was thinking more about having rental property, stocks and shares and cash savings too. I think fundamental to retirement is having a home that doesn't have a mortgage - once that is cleared living expenses would drop significantly... I just need to buy and pay for a home now! lol:rotfl:

Yes, those are also great tools to save.
I personally don't think pension can do it all for you for the future, it just doesn't work like that anymore...

atush

No one ever sasid a pension could do it all, but givent eh taqx relief, if you retire before SPA you have a whole lotta PA to mop up so pay no (or very little) tax on t he way out.

A house free of mtg, an emergency cash savings pot, a pension of considerable size, and outside investments in equities are the 4 basic planks of a good retirement.

Teacher2

The above posters who say that annuities are currently paying about 3% at the moment are right. With an annuity you give up your capital forever and are paid a fixed sum for the rest of your life. It's a simple and straightforward product and it gives you peace of mind and security while at the same time having the disadvantages of leaving nothing for your heirs to inherit and always being at the lower end of potential investment yield.

This year's budget has changed the rule that obliged those saving in a pension scheme to convert it into an annuity. You can now take 25% of your pension tax free (you always could!) and the new part is that you can take the rest of your pension to do what you want with it rather than having to convert it into an annuity. The drawback is that you have to pay tax on it at the rate you are paying when you take the money. Clearly not too attractive for 40% tax payers. But you can delay taking the pension for a while so you could wait until your tax rate went down to 'cash in' your pension.

It might well be worth paying some tax on your pension pot to get hold of the money for yourself. You then have control of your own cash, leave the residue to your heirs, avoid the low rate of return of an annuity and avoid annuity charges which have been swingeing and rendered an 'invisible' sting by the annuity industry.

However, you would need to be confident you could manage your own money and, as you have said you like things simple, an annuity might be safer for you.

But, one good way of getting a much better return on your money might be to purchase a buy-to-let property. The first year's income on £120,000 would recoup the tax paid on the capital sum in a year if you live in a low property price area. Then the returns would be well worth having and more than twice that of an annuity. This is what my husband is going to do with his pension pot. We want to leave something to our kids, not Aviva!

Another thing to consider is that the current government has changed the state pension. When you retire, as long as you have made 30 years' worth of National Insurance payments, you will get the new amount which is projected to be worth £148 in today's money. That's pretty good!

Age UK say you will get the new pension as follows:-

"The age at which you can claim State Pension is changing. It is currently 65 for men. State Pension age for women is gradually increasing from 60 and will reach 65 by November 2018. State Pension age for both men and women will then increase to 66 by October 2020 and after that to at least 68."

A further consideration is that, after 55, your health will not be the same as it was when you were young. I retired early at 55 from teaching because, although I had to lose a quarter of my pension to retire early, it seemed to me to be better to get what was left while I was healthy enough to enjoy it. How much money will you need at 70? At 80? You might be lucky and still be fit and healthy. But you might not. How galling it would be to struggle on to 65 and be too ill to enjoy the few extra quid you made by waiting?

I think that the best provision you can make for your retirement is buying a property and then paying off the mortgage. Then you will have no outgoings on rent or mortgage. Think of what you are paying now on housing costs and imagine what sort of income you would need if those costs disappeared. Much, much less. Have a look at the 'Mortgage Free Wannabe' website in the MMF fora to see how others are bringing their retirement dates forward by years and also how they are managing to do it.

Good luck with your saving!

Daniel54

Teacher2 wrote: »

.

The drawback is that you have to pay tax on it at the rate you are paying when you take the money.

This is completely and dangerously wrong.

All drawdown after the 25% tax free amount is taxed as income,so even if you have no earnings at all you will pay 20% tax on any withdrawal amount above £10k and 40% tax on any withdrawal amount above £44,371.

To get to a net lump sum of £120k for your BTL in one go,you would have paid tax in the region of £75k. What a huge waste of money and poor retirement planning that would be !

Unless it is part of a much larger pension savings /provision,I find BTL pretty unappealing as a retirement vehicle.The capital is completely inaccessible (you can't spend bricks) and you get to pay tax each and every way -both on earnings and on capital gains.

Completely agree that buying your own home is an important thing to do

nicknameless

Teacher2 wrote: »

Have a look at the 'Mortgage Free Wannabe' website in the MMF fora to see how others are bringing their retirement dates forward by years and also how they are managing to do it.

Good luck with your saving!

Go see how lots of people are wasting money paying down mortgages at low rates of interest foregoing potential growth of that money via investment returns, and thereby delaying potential early retirement by reducing their overall wealth?

Linton

Teacher2 wrote: »

The above posters who say that annuities are currently paying about 3% at the moment are right. With an annuity you give up your capital forever and are paid a fixed sum for the rest of your life. It's a simple and straightforward product and it gives you peace of mind and security while at the same time having the disadvantages of leaving nothing for your heirs to inherit and always being at the lower end of potential investment yield.

The purpose of a pension is to provide the income you need for retirement. If you want to leave money to your descendents put it in a separate pot. An annuity guarantees this will last no matter how long you may live. You can drawdown, but the % of your pension pot you can safely take with minimal danger of running out of money is less than what you will get from a fixed rate annuity.

This year's budget has changed the rule that obliged those saving in a pension scheme to convert it into an annuity.

No - this was changed in 2006.

You can now take 25% of your pension tax free (you always could!) and the new part is that you can take the rest of your pension to do what you want with it rather than having to convert it into an annuity. The drawback is that you have to pay tax on it at the rate you are paying when you take the money. Clearly not too attractive for 40% tax payers. But you can delay taking the pension for a while so you could wait until your tax rate went down to 'cash in' your pension.

No, as Daniel54 says this is very wrong. Money from a pension is taxed as income, the rate being determined by the standard bands.

It might well be worth paying some tax on your pension pot to get hold of the money for yourself. You then have control of your own cash, leave the residue to your heirs, avoid the low rate of return of an annuity and avoid annuity charges which have been swingeing and rendered an 'invisible' sting by the annuity industry.

Are annuity charges greater than the costs for example arising from funds held in an online SIPP or from running a BTL?

However, you would need to be confident you could manage your own money and, as you have said you like things simple, an annuity might be safer for you.

But, one good way of getting a much better return on your money might be to purchase a buy-to-let property. The first year's income on £120,000 would recoup the tax paid on the capital sum in a year if you live in a low property price area. Then the returns would be well worth having and more than twice that of an annuity. This is what my husband is going to do with his pension pot. We want to leave something to our kids, not Aviva!

If you are planning to go this way I suggest you put together a detailed business plan including all costs. Would the return really be twice that of an annuity?

Another thing to consider is that the current government has changed the state pension. When you retire, as long as you have made 30 years' worth of National Insurance payments, you will get the new amount which is projected to be worth £148 in today's money. That's pretty good!

No- the new pension rate is based on 35 years NI.

Age UK say you will get the new pension as follows:-

"The age at which you can claim State Pension is changing. It is currently 65 for men. State Pension age for women is gradually increasing from 60 and will reach 65 by November 2018. State Pension age for both men and women will then increase to 66 by October 2020 and after that to at least 68."

A further consideration is that, after 55, your health will not be the same as it was when you were young. I retired early at 55 from teaching because, although I had to lose a quarter of my pension to retire early, it seemed to me to be better to get what was left while I was healthy enough to enjoy it. How much money will you need at 70? At 80? You might be lucky and still be fit and healthy. But you might not. How galling it would be to struggle on to 65 and be too ill to enjoy the few extra quid you made by waiting?

I am not planning on my money needs dropping significantly. Either one is healthy and still able to enjoy the good life, or one isnt and needs to pay for care and assistance.

How much more galling would it be if you lived rather longer than the expected average lifespan of 85, and found you had run out of money?

At 70+ would you have the ability, focus and patience to run a BTL business?

I think that the best provision you can make for your retirement is buying a property and then paying off the mortgage. Then you will have no outgoings on rent or mortgage.

How much extra has the mortgage cost you in interest charges, compared with what you could have earned in investment returns? Bear in mind that if you are using a BTL to generate pension income any increase in the value of the property doesnt do you any good - you cant sell it without losing your income. On the other hand equity investing provides a larger pension pot on retirement which you can immediately use.

Think of what you are paying now on housing costs and imagine what sort of income you would need if those costs disappeared. Much, much less. Have a look at the 'Mortgage Free Wannabe' website in the MMF fora to see how others are bringing their retirement dates forward by years and also how they are managing to do it.

Good luck with your saving!

The additional danger you have with relying on a BTL for your pension is that all your eggs are in one asset basket. This is high risk. Supposing the government decides to fix the housing problem by building lots more houses? Suppose your BTL gets trashed by the unlikely but possible tenant from hell? It would be better to have multiple uncorrelated income streams. In your case I guess you have a significant DB pension from teaching, but others arent so lucky.