Will I achieve my goal?

tony4147

I’m 51 and would like to know if people think I’m on target, I’ve tried various calculators and have ended up with different results.

My goal is to have a pension of approx. £18K (in today’s money) at age 65 when I would like to retire (sooner if I could) and then this will be boosted when I’m 67 with the state pension (supposedly £7.5K) which would give me approx. £25.5k (in today’s money), which I think would be reasonably comfortable.
I have 35 years of NI contributions.

My present pension is valued at £140K, of which approx. £30k is made up of contributions from when I contracted out for several years, I’m now contracted in.

I'm very unsure as to how the £30K contracted out element will affect my state pension.

Contribution – I work Via an Umbrella Company and a total of £1K gross Employee/Employer contributions are paid every month, and plan to increase this contributions 5%/yr until retirement.

Linton

Very roughly the size of the pot at retirement needs to be 25-35 times the desired gross pension to be reasonably sure that it could provide a broadly inflation matching income for as long as you live. Dont forget the inflation between now and then.

It is reasonably easy if you are happy with using Excel to put together a year by year plan including inflation, investment return and pension contributions to see if it all works.

tony4147

Linton wrote: »

Very roughly the size of the pot at retirement needs to be 25-35 times the desired gross pension to be reasonably sure that it could provide a broadly inflation matching income for as long as you live. Dont forget the inflation between now and then.

It is reasonably easy if you are happy with using Excel to put together a year by year plan including inflation, investment return and pension contributions to see if it all works.

So from what I can gather I'm going to fall short of the £18K by a fair amount!

somethingcorporate

tony4147 wrote: »

So from what I can gather I'm going to fall short of the £18K by a fair amount!

It would seem that way.

Linton

tony4147 wrote: »

So from what I can gather I'm going to fall short of the £18K by a fair amount!

It depends how much you can save in the 16 years from now til your proposed retirement date. Lets look at some very rough figures.

Say investing can get you an average 6% return each year. That would increase your current £140K to around £350K, a factor of 2.54. Now if you paid in a fixed amount each year there would be an average investment period of 8 years giving a factor of 1.6. So you would need to invest (£600K-£350K)/1.6/16 = about £10K per year to get a pot of £600K which would help considerably. Is this completely out of the question?

Admittedly I have ignored inflation, though the 6%/year average return is not too demanding as long as you arent a cautious investor.

PS £10K/year would cost you £8K if you are a standard rate tax payer because of tax relief.

Thrugelmir

tony4147 wrote: »

and plan to increase this contributions 5%/yr until retirement.

Perhaps may an effort to save more money now. As it's compounding and reinvestment of income that does the majority of the heavy lifting. The longer the monies invested the higher the probability of a better return. Will you still be in work at 65 earning as much money?

tony4147

Linton wrote: »

It depends how much you can save in the 16 years from now til your proposed retirement date. Lets look at some very rough figures.

Say investing can get you an average 6% return each year. That would increase your current £140K to around £350K, a factor of 2.54. Now if you paid in a fixed amount each year there would be an average investment period of 8 years giving a factor of 1.6. So you would need to invest (£600K-£350K)/1.6/16 = about £10K per year to get a pot of £600K which would help considerably. Is this completely out of the question?

Admittedly I have ignored inflation, though the 6%/year average return is not too demanding as long as you arent a cautious investor.

PS £10K/year would cost you £8K if you are a standard rate tax payer because of tax relief.

Are you suggesting paying £10k a year on top of the £12k I pay every year now?

Linton

tony4147 wrote: »

Are you suggesting paying £10k on top of the £12k I pay every year now?

Unless I have missed it you havent mentioned this before!

Yes, I believe the £12K is of the right order of magnitude for you to achieve your aim, especially if you increase it each year with inflation. I suggest you do some planning with Excel assuming a sensible inflation rate and investment return to estimate the pot size you need to get to each year and track your actual progress against this.

tony4147

Linton wrote: »

Unless I have missed it you havent mentioned this before!

Yes, I believe the £12K is of the right order of magnitude for you to achieve your aim, especially if you increase it each year with inflation. I suggest you do some planning with Excel assuming a sensible inflation rate and investment return to estimate the pot size you need to get to each year and track your actual progress against this.

It was at the end of my original post, £12k pension contribution every year and planning on increasing contribution by 5% per year.

Linton

tony4147 wrote: »

It was at the end of my original post, £12k pension contribution every year and planning on increasing contribution by 5% per year.

Apologies - missed it!

On your question of reduction because of being contracted out, you are in the fortunate position of benefiting greatly from the new State Pension Scheme, assuming it is implemented as was originally proposed.....

Under the new scheme you get a full pension with 35 years NI, but this is reduced to account for contracting out. However if you are in that situation, further NI years after 2016 beyond the 35 continue to uplift your SP until you reach the standard full pension. So you should get a full SP with no deductions, and you get the money paid into your contracted out personal pension as well.