What size pot do I need?

tony4147

I’m 52 and would like to try and retire at 60 (can go longer if needed) and have a pension of £20K/yr in ‘todays terms’ until I’m 90 (30yrs), I would also like to take 25%TFLS at 60.

No state pension to be included as I would like the £20K+state pension at 67 (until 90)

At present I have a pot of £154K and contribute £1000 gross/month, there are no employer contributions.
(I am considering increasing the contribution to £1500 gross/month).

What size pot would I need ?
and what would I need to increase my contributions by to achieve the above?

TIA

atush

3x that w/o lump sum to spend, 4x with

232607

tony4147 wrote: »

I’m 52 and would like to try and retire at 60 (can go longer if needed) and have a pension of £20K/yr in ‘todays terms’ until I’m 90 (30yrs), I would also like to take 25%TFLS at 60.

No state pension to be included as I would like the £20K+state pension at 67 (until 90)

At present I have a pot of £154K and contribute £1000 gross/month, there are no employer contributions.
(I am considering increasing the contribution to £1500 gross/month).

What size pot would I need ?
and what would I need to increase my contributions by to achieve the above?

TIA

I've just crunched some numbers off for you:-
I've made the following assumptions, obviously if these change the final total pot will change.
I've assumed 5% return from investment.
I've assumed your monthly deposit will increase annualy by 2.5% to cover pay increases.

Based on the £1000 deposit route you would end up with a pot of £358K.

Based on the £1500 deposit route you would end up with a pot of £422K.

I think you'd just about be OK with the £1500 route but the £1000 route would be a stuggle.

Regards.

Triumph13

Having crunched the numbers, I'm afraid you have a nasty shock in store.
To get £20K pa on the oft-quoted 4% safe withdrawal rate would need a pot of £500k. If you want a 25% lump sum on top of that then you need £670k.
Starting from £154k at 52 and assuming a fairly generous 4.5% real terms investment return you'd need to be putting in £4k a month gross to meet your target by 60. If you want to get there contributing £1,500 a month then you need to keep going to 67.


Unless you are prepared / able to significantly up your contributions and/or delay your retirement then something else will have to give. Working on £20K pa including the state pension and using most of your lump sum to fund the gap between retirement and state pension age is probably a more realistic target.

atush

and even with the higher amt you would not be able to splurge with your TFLS, it too would need to be invested to return 5%.

tony4147

I'm not suprised as I've been crunching numbers for a while, it's no problem for ma to continue working past 60, 60 was a nice thought but 64/65 is probably more realistic.
I've been using the HL pension calculator and also this one which looks quite good and suggests that I may get £20K ish and TFLS at 64 if I put £1500/month gross.
Growth rate 7%, changes 0.7%, inflation 2%, and increase by RPI

http://www.invidion.co.uk/pencalc/index.php?linker=http://www.invidion.co.uk/css/tools.css

jamesd

Most pension calculators use growth rates that are well below historic growth rates, including the HL one that you mentioned, then assume that you'd buy the spectacularly unpopular RPI-linked annuity type that further decrease the income. It's good business for them since if it doesn't cause people to give up it causes them to pay in too much money.

The Invidion one isn't too bad since the UK stock market historic average growth rate has been about 5% plus inflation and it uses 4.9% after inflation for its default values (7% growth, 2.1% inflation). The AMC of 1.5% is probably on the high side though, particularly if using trackers as I'll assume. So I set inflation 2.0%, growth 7.1%, years to retirement 8, proposed contribution 1000 gross, increasing with average earnings 1.4% real, current value 154k, annual management charge 0.5%, desired annual income 20000, expected annuity rate 4%. Those numbers give a pot size of £246k and 4% pension increasing with inflation of £9855 after taking a 25% lump sum, £328k and £13141 without.

I suggest that you use the Invidion one since it's quite decent. I also suggest that you add 50% to the target pot size to allow a decent safety margin unless you'd be content to have an income 30% or more lower if you encounter truly horrible long term investment results just after retiring. Delaying makes a pretty big difference to the numbers when you're as close to the target age as you are.

For what it's worth I'm making around £2200 a month in pension contributions and expect to increase that to over £3300 in the new tax year.

You might want to consider not wanting to keep all of the income after state pension age. Allowing it to drop either then (by say 8k so total income is about level if that's your state pension amount0 or later, at say 75, can significantly help the numbers and be more realistic about changing physical ability to use money at increasing ages. This sort of thing helps to increase the amount you have available at younger ages when you might say want to travel more.

Radiantsoul

jamesd wrote: »

Most pension calculators use growth rates that are well below historic growth rates, including the HL one that you mentioned, then assume that you'd buy the spectacularly unpopular RPI-linked annuity type that further decrease the income. It's good business for them since if it doesn't cause people to give up it causes them to pay in too much money.

Do you think a lot of people are paying too much into their pension?

Chickereeeee

To be clear I assume we are all talking about GROSS income in this type of dicsussion? ie there will be tax taken off the £20k pa.

C

tony4147

jamesd wrote: »

Most pension calculators use growth rates that are well below historic growth rates, including the HL one that you mentioned, then assume that you'd buy the spectacularly unpopular RPI-linked annuity type that further decrease the income. It's good business for them since if it doesn't cause people to give up it causes them to pay in too much money.

The Invidion one isn't too bad since the UK stock market historic average growth rate has been about 5% plus inflation and it uses 4.9% after inflation for its default values (7% growth, 2.1% inflation). The AMC of 1.5% is probably on the high side though, particularly if using trackers as I'll assume. So I set inflation 2.0%, growth 7.1%, years to retirement 8, proposed contribution 1000 gross, increasing with average earnings 1.4% real, current value 154k, annual management charge 0.5%, desired annual income 20000, expected annuity rate 4%. Those numbers give a pot size of £246k and 4% pension increasing with inflation of £9855 after taking a 25% lump sum, £328k and £13141 without.

I suggest that you use the Invidion one since it's quite decent. I also suggest that you add 50% to the target pot size to allow a decent safety margin unless you'd be content to have an income 30% or more lower if you encounter truly horrible long term investment results just after retiring. Delaying makes a pretty big difference to the numbers when you're as close to the target age as you are.

For what it's worth I'm making around £2200 a month in pension contributions and expect to increase that to over £3300 in the new tax year.

You might want to consider not wanting to keep all of the income after state pension age. Allowing it to drop either then (by say 8k so total income is about level if that's your state pension amount0 or later, at say 75, can significantly help the numbers and be more realistic about changing physical ability to use money at increasing ages. This sort of thing helps to increase the amount you have available at younger ages when you might say want to travel more.

Thanks, I get the gist of what you are saying, I find the Invidion calc quite good and as you say if I probable won't want equiv of £27.5k (incl State Pen) ALL the way through full retirement, can;t see me wanting to change my car every few years after 80/85 etc.

TH1878

My first inclination was to post 'No chance' but I thought I should perhaps be a little bit more helpful than that.

I've assumed 5% growth and 3% inflation and that your income is taken annually in advance by drawdown..

Your £20,000 (gross!) requirement will be £25,335 at age 60 and will increase thereafter by 3% per annum.

In order to ensure you spend your last £1 at age 90 (I would plan to 100) you need to accumulate a fund of £583,092 at age 60.

Based on your current fund and £1,000 gross per month (increasing by 3% per annum) you will accumulate a fund of £357,337.

Based on your current fund and £1,500 gross per month (increasing by 3% per annum) you will accumulate a fund of £422,242. This would only support an annual income of £14,482 in today's terms (£18,346 in 8 years).

To get to your target of £583,092, you need to start contributing £2,739 gross per month, increasing by 3% each year.

Not the news you probably wanted to hear but I hope it helps. 90 really isn't a sensible age to project to though - you don't want to be running out of money in late retirement.

I would go and find a Certified (not Chartered, although they may be both) Financial Planner near you - they can help you out with this by producing a cashflow forecast which will take into account tax and longevity.

By the way (for anyone else reading) - this is exactly what a good IFA does. It's not about picking good investments, that's part of the job but this is much more important.