Whats a good amount per year to have a decent pension

Bravepants

I agree with AnotherJoe and Brynsam. I also regret not being able to stash as much as possible from a younger age. I started work before all the FIRE blogs appeared and the Internet is a wonderful resource these days for information and motivation from others of a like mind.


To retire as early as possible you need to increase your savings rate. Think about what pension provision you have, and very importantly think about any consequences of taking those pensions at an early age (actuarial reduction), say 55. Then how are you going to bridge the gap between your desired retirement age (say 40(?) for example) and when those pensions become available to you.


Some things to think about:


"Can I afford to live on half my salary, and stash the other half away splitting the stash between extra pension payments and a simple index tracking fund of funds with at least a 60/40 percentage split between equities and bonds?"


"Am I a higher rate tax payer and would it benefit me to pay more into my work pension to take me out of the 40% tax band? Especially if I am going to be a basic rate tax payer in retirement...woohoo 20% free cash!"


"Will I have a family one day?" - Plenty of people with families retire early too!


"What is my mortgage interest rate compared to savings and investment returns rate? Is it therefore worth me paying extra off my mortgage or not?" - Probably not given current interest rates.


"Can I use the 25% tax free lump sum from say a SIPP to eventually pay my mortgage off at age 55?" (Note: 55 may become 57, but who knows!)


Basically if you want to retire early stash as much away as possible in the various tax saving wrappers available, so S&S ISAs, SIPPs, work's pension! Also think about retirement phasing, you won't have access to pensions until you are 55 (for now), so how will you live between your retirement date and 55. This is where your S&S ISA comes in!


Get yourself some knowledge about Microsoft Excel (other spreadsheet software packages are available!) and develop your personal retirement spreadsheet.


Once you have a plan and have started your Get Out of the Prison Camp stash, review it once a year and between those times don't forget to live your life!


Good luck!

Spreadsheetman

Just as a very simplified illustration.

If you assume pension growth is 5% pa and inflation is 3% pa and you increase your current contributions by inflation % every year then you would end up with a pot of circa £513k at 68. This would be worth about £167k in today's terms. You could take about 3.5% pa out of this in the UK and have a good chance of it lasting 30 years - that is about £5.8k pa (increasing by the rate of inflation each year), or about 72% of the current state pension (all in today's money).

Very roughly you'd need to increase your current contributions by 40% (to £305pm) to match the state pension (at SP age).

If you want to retire earlier than SP age you need to contribute a LOT more - the amount depends on when you want to retire and how much income you need in retirement.

AnotherJoe

v896 wrote: »

Thanks for the advice apologies if the phrase "as earliest as possible" was mis-leading I meant that in the most practical terms possible not like person living in la la land.
Most people wish to retire at 60-65 but in my situation I think be more like 70 if don't start doing something radical about it now

"Radical" isn't saving 10% more.

We are getting Orwellian here, it seems then when someone says "as early as possible" they actually mean "aged about 65" and "radical" means "10% different".

:mad:

Read the link in Cobsons post. You are at the right age to take it on board. Though possibly not the right mindset, if not knowing anything about it brings out a reflex "living in lala land" response.

k6chris

v896 wrote: »

34K per year

What percentage is your employer contributing to you pension each month and do they have a scheme where they match additional contributions that you put in??

Spreadsheetman

AnotherJoe wrote: »

"Radical" isn't saving 10% more.

We are getting Orwellian here, it seems then when someone says "as early as possible" they actually mean "aged about 65" and "radical" means "10% different".

:mad:

Read the link in Cobsons post. You are at the right age to take it on board. Though possibly not the right mindset, if not knowing anything about it brings out a reflex "living in lala land" response.

Yes, "radical" starts from tripling the contribution and goes up from there!

People generally aren't really appreciating how poor DC pensions are compared to the DB pensions that people are familiar with from our parent's generation. I didn't myself and it was almost too late before I woke up and dealt with it. I've been very lucky to recover the situation since then.

v896

AnotherJoe wrote: »

"Radical" isn't saving 10% more.

We are getting Orwellian here, it seems then when someone says "as early as possible" they actually mean "aged about 65" and "radical" means "10% different".

:mad:

Read the link in Cobsons post. You are at the right age to take it on board. Though possibly not the right mindset, if not knowing anything about it brings out a reflex "living in lala land" response.

Please can you link me to Cobsons post?

k6chris

v896 wrote: »

Please can you link me to Cobsons post?

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/


Link is above, a brilliant post - take time to read and digest!

kidmugsy

One argument is that you should seek to contribute more to a pension if (i) it lets you avoid 40% income tax, or (ii) it lets you "harvest" a larger employer contribution, or (iii) it lets you use salary sacrifice.

If none of those apply you might prefer to save into an ISA with a view to switching the money into a pension later in your career when you can hope to get better terms.

You could also consider a LISA as part of your retirement planning. You might at least open one for £1 so that you've kept your options open.

The other possibilities for spare money include (a) clearing all non-mortgage debt (except on 0% credit cards), (b) accumulating a decent amount of emergency cash (preferably earning good interest e.g. regular savers and current accounts that pay 5% AER), (c) overpaying the mortgage, if that were to allow you to get a better interest rate when you remortgage by virtue of a lower LTV.

cfw1994

I often think the key for people who would like to "retire early" is to actually lead cheaper lifestyles.
We focus a lot in discussions here around the "how much do I need", & clearly that is important....but "need for WHAT?" is less often explored!

Retiring early doesn't necessarily mean stopping work....it means "having the choice to do what you want", instead of being a slave to the wage (which is what I currently am, BTW, hence I am exploring thoughts along these lines too!!)

I have colleagues who take big leases out on flash vehicles, who buy designer clothes, who would not be seen dead in cheap shops & perhaps would't even shop at Lidl or Aldi!

I'm clearly generalising here, but if people learned to enjoy holidays camping in the UK (or abroad), there is some spectacular scenery in the Peak District, much of Wales, Cumbria, Yorkshire etc etc....of they spent more time cooking their own food, taking a flask instead of always eating/drinking out.....if they found enjoyable low-cost hobbies (run or cycle instead of spending XXX every month to the gym), then their lifestyles can perhaps be funded by much less money.
Not to say any of those things I view as expensive or luxury are bad - paying for a gym is great if you make good use of it 2-3 (or more!) times a week!

Just a thought.
Think about what the life you want to lead looks like, both today and also into the future....for some, it will need lots more money than for others, but they may not be any more happy!
I can't recall if I found this link here or somewhere else, but an interesting list: http://newescapologist.co.uk/2012/05/09/things-of-value

atush

v896 wrote: »

Pension 1 - 4K

I currently have three funds

0 to 35% in shares
Absolute return fund

Asset fund with American bank north American equities (very risky)


Pension 2 - Value 1K

Started with old employer mainly north American equities



I should be putting in 7K a year then based on my salary ?

Very heavy US focus, so not well diversified. I'd be looking at a more global focus.

If you put more in will your employer put more in? Have you got 6 months outgoings in cash? Have you used your S&S isa allowances?