Is my pension contribution "worth it"

silver_4444_uk

greenglide wrote: »

But it is far too simplistic.

By far the "best" is to save throughout the 40 years. Save for 10 and then dont bother is the message here which people will associate with "I am over 30 / 40 / 50 - it is too late".

There is no single simplistic answer.

I agree that the article is simplistic.


However it does show the value of compound interest when starting saving 10 years earlier.

Andy_L

I think the articles main flaw is that it doesn't increase the contributions by inflation eg someone contributing £2.5k in the 40th year this year is, compared to 40 years ago, only contributing ~£240 so theres "double-dipping" on the effects of compounding

kidmugsy

Tough luck if the first ten years are ten years of bear market, of course. Markets do not grow at a steady annual percentage. Compound interest calculations just pretend they do.

gadgetmind

kidmugsy wrote: »

Tough luck if the first ten years are ten years of bear market, of course.

Bear markets are *much* better times to be putting money into equities than bull markets!

In 2011, I made 30 share purchases that together represented a six figure sum. In 2012, I made 12 purchases, in 2013 only three, and in 2014 found absolutely nothing to buy!

The last few weeks have got my nose twitching again.

N1AK

Ad86 wrote: »

If I remember rightly my employer will match up to 6.

But an increase in my sacrifice up to 6-7% pushes the plans of marriage/house even further away.

If you've got a rough financial plan then you should have a good idea whether paying more into a pension or getting a mortgage sooner is the best choice if not then I'd suggest getting one. You're going to spend most of your life working, you might as well have some idea what all that work is doing for you.

I think it's a pretty universal view amongst those on this board that you're going to want more than just the state pension in retirement, even if you own your property. Whether the 'more' is a pension, savings, investments etc may vary.

My own opinion is that you're likely to regret not putting the full 6% into the pension if it is fully matched. Accounting for tax you're giving up 4.8% of your salary paid to you for 12% of your salary in pension contributions.

Thrugelmir

kidmugsy wrote: »

Tough luck if the first ten years are ten years of bear market, of course.

Providing the investments generate income i.e. dividends and this is reinvested. Then funds will continue to grow.

Companies can bust at any time. If you'd held shares in Polly Peck, Maxwell Publishing, Enron, Northern Rock, OW Bunker or London Mining for example. Then you've lost a 100% of your capital. That's far harder to recover from.

Nor do the indexes tell the full tale. As the shares are merely replaced by others.

kidmugsy

gadgetmind wrote: »

Bear markets are *much* better times to be putting money into equities than bull markets!

OK: tough luck if the first ten years are ten years of bull market.

atush

but if you are drip feeding into a pension monthly, having years of dropping prices means you are getting more shares/assets for your money.

And 10 years of a bear market are overly pessimistic. Even after the credit crunch we didn't have that.

gadgetmind

kidmugsy wrote: »

OK: tough luck if the first ten years are ten years of bull market.

Yes, that's less good, but you still get the magic of rebalancing working for you for the next few decades.

kidmugsy

atush wrote: »

but if you are drip feeding into a pension monthly, having years of dropping prices means you are getting more shares/assets for your money.

And 10 years of a bear market are overly pessimistic. Even after the credit crunch we didn't have that.

The US had a couple of bear markets longer than that in the twentieth century.