28 years old, how much should i be putting into my pension?

dtj1990

Hi All,

i am 28 with 2 children earning 30k PA (soon to go up) i have a meagre £3000 in my pension pot and i obviously would like to retire at some point in the distant future. What would be a starting point in terms of a monthly amount to put start putting into my pension pot?

Any suggestions would be most welcome.

Anonymous101

There's lots of opinions around on the internet as far as what is a good amount. A rule of thumb you might hear is half your age when you start paying in.
So as you have £3,000 you might just say you're starting out. So you should be paying in 14% of you gross income per year. This obviously sounds like a lot to some people but remember that you may get an employer contribution to consider and you'll get tax relief on your contributions so as a net amount it won't be 14% of your take home.

Whats your employment situation? Does your employer offer a work place matched contribution or salary sacrifice scheme for example?

Also you mention your pay is increasing shortly, I've used that opportunity several times to increase my pension contributions. For example if you're getting a 3% pay rise why not put 2% extra into the pension and just take the 1% extra as a pay rise for yourself?

dtj1990

Thanks for the response it is much appreciated.

according to my pension (bad that i do not know the ins and outs) the monthly contribution is 7.14% which i believe 5% of that is from the employer and the remainder from myself. The rise in wage will take me up to 40k PA so I was thinking to pay an additional £150 per month until I feel comfortable to increase the amount I am just wondering if this is well below what I should be aiming for?

AnotherJoe

You'd be putting in 7% plus £150 x 12 comes to another 4.5% or 11.5% total

So no, not enough to match 14%

14% of £40k comes to, overall £466 a month which is probably beyond you Id guess?

Note that if you can match the 14% you can keep it like that when you are 38 48 58.

Or another technique is do what A101 suggested , you are presumably getting by on £30k so put the lions share into your pension. You can retire early because youve got a double whammy of living on less and saving more.

As outlined here in extremity by Mr Money Mustache https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/



However no one knows other calls you may have such as saving for a house or whatever.

Spreadsheetman

AnotherJoe wrote: »

...
Or another technique is do what A101 suggested , you are presumably getting by on £30k so put the lions share into your pension. You can retire early because youve got a double whammy of living on less and saving more.
....

This exactly - put most of the payrise into pension / savings. Avoiding lifestyle inflation is an important factor in retiring early.

Triumph13

Just a thought, but are you anticipating further big payrises in the future? If you expect to keep climbing the greasy pole and become a higher rate tax payer in the future then you might want to consider just paying in enough now to get the max employer's contribution and parking any extra in an S&S ISA to be recycled into your pension with higher tax relief later on.

k6chris

Spreadsheetman wrote: »

This exactly - put most of the payrise into pension / savings. Avoiding lifestyle inflation is an important factor in retiring early.

That sentence is the best finacial advice you will ever get. Period. Take some time to let it sink in and then act on it. Good luck.

Anonymous101

Some good advice on the thread so far. Lifestyle inflation is the No.1 area that will keep you in work until you're 67! Just avoiding that will have you retire early on a good nest egg.

Given that you're about to jump from £30k to £40k I'd suggest using that opportunity to really sort you pension planning out. If you put half of that as a % into your pension from then on... £5k on top of the contributions you're putting in now get you up around 20% and you still get a £5k pay rise after considering that. Win Win.

Marcon

You have 2 young children. These lovely warming remarks about avoiding lifestyle inflation, adding as much cash as you can etc are all very worthy but your costs are going to balloon as the kids get older, no matter how much you try to control them (costs and kids!). Make very sure that you have a substantial rainy day fund in case things don't go to plan with your working life and don't invest so much in your pension - a long term savings fund which you probably won't be able to access for around another 30 years - that you have to borrow to cover your living expenses today.

dtj1990

Thanks to everyone who has contributed. I am going to think on all of your advice and come up with a financial plan that will keep in mind my pension but also allow me to have available cash for all of life's curveballs.

Thanks once again.

edinburgher

AnotherJoe wrote: »

14% of £40k comes to, overall £466 a month which is probably beyond you Id guess?

It's considerably less because of tax relief?