Average pension as % of salary

Sobraon

Suggest the OP may wish to read this post on Mr Money Mustache. In this post MMM argues that "your time to reach retirement depends on only one factor: Your savings rate, as a percentage of your take-home pay."

dunstonh

Sobraon wrote: »

Suggest the OP may wish to read this post on Mr Money Mustache. In this post MMM argues that "your time to reach retirement depends on only one factor: Your savings rate, as a percentage of your take-home pay."

I disagree.

The time to retire depends on if you can afford it. i.e. have you enough money. The rate you save could be variable over the years. Plus, lower risk investors have to pay more than higher risk to make up for shortfall risk.

Also, people's spending habits and their state pension qualification can alter things. So, its not a rate of saving. Its an amount of saving.

Zorillo

I contribute 10% of my salary and my employer contributes 6%. My pot should reach £100k before I'm 40.

I have a plan to increase my contribution by 1% each year providing I get a pay rise of at least 2%. The eventual plan is to be contributing 30-40% or more in the years leading up to retirement.

Because I don't think this is enough, I also contribute the full £4k into a LISA each year. The eventual plan is to dump the LISA money into my pension in my early 60s, or use it to supplement my pension income, depending on my personal circumstances and the tax landscape in the 2040s.

I don't anticipate retiring much before SPA but it'd be nice to have options a few years earlier.

bostonerimus

If you are self employed (or work for a company and you are the only employee) then you are responsible for both the employee and employer contributions to a pension. I think those together should total at lease 15% of your gross salary....20% would be better.....so on 30k annual salary that would be at least 375/month.

bostonerimus

Sobraon wrote: »

Suggest the OP may wish to read this post on Mr Money Mustache. In this post MMM argues that "your time to reach retirement depends on only one factor: Your savings rate, as a percentage of your take-home pay."

If you can earn far more than you spend the you have two things going for you; you can save aggressively while you work and your retirement pot has a chance of being far larger than required to produce your income. It also helps you through life's ups and downs.

In my first job my employer put 17% of salary into a pension fund and I put another 30% into the pension and other savings with the idea that as I was single and living much like a student I should make the best of the time value of this money and save as much as possible. This started me in good habits and even when some jobs only had 5% employer contributions I kept up a high level of saving and always tried to max out pension contributions for tax reasons. My ex-wife helped greatly in this and even after our divorce we were both in good financial shape because we had been sensible and had no debts other than a mortgage. By my final job my salary was $200k and I was only spending a third of my salary and putting the rest towards pensions, regular investment accounts and a BTL mortgage. I know that I've been lucky to have a well paid job, but coupled with careful spending it's allowed me to avoid the often financial disaster of a divorce and retire at 52 with far more than I need. That doesn't happen over night, it took 30 years of aggressive saving and a simple approach to investing that netted me an 8.5% average annual return....it's not easy to do, but it certainly isn't complicated. As Mr. Micawber said:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

If you don't do that the maybe another of is sayings will be applicable

“Welcome poverty! Welcome misery, welcome houselessness, welcome hunger, rags, tempest, and beggary! Mutual confidence will sustain us to the end!”

cfw1994

bostonerimus wrote: »

If you can earn far more than you spend the you have two things going for you; you can save aggressively while you work and your retirement pot has a chance of being far larger than required to produce your income. It also helps you through life's ups and downs.

In my first job my employer put 17% of salary into a pension fund and I put another 30% into the pension and other savings with the idea that as I was single and living much like a student I should make the best of the time value of this money and save as much as possible. This started me in good habits and even when some jobs only had 5% employer contributions I kept up a high level of saving and always tried to max out pension contributions for tax reasons. My ex-wife helped greatly in this and even after our divorce we were both in good financial shape because we had been sensible and had no debts other than a mortgage. By my final job my salary was $200k and I was only spending a third of my salary and putting the rest towards pensions, regular investment accounts and a BTL mortgage. I know that I've been lucky to have a well paid job, but coupled with careful spending it's allowed me to avoid the often financial disaster of a divorce and retire at 52 with far more than I need. That doesn't happen over night, it took 30 years of aggressive saving and a simple approach to investing that netted me an 8.5% average annual return....it's not easy to do, but it certainly isn't complicated. As Mr. Micawber said:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

If you don't do that the maybe another of his sayings will be applicable

“Welcome poverty! Welcome misery, welcome houselessness, welcome hunger, rags, tempest, and beggary! Mutual confidence will sustain us to the end!”

Good quotes! If you enjoy Dickens, do look out for shows by his great great grandson, http://www.geralddickens.com/events.htm. He does do some US shows although his schedule through the rest of this year is UK based.

back on topic..well done for a solid approach to saving, mine didn’t get properly serious until relatively recently, but I am curious about your “simple approach to investing that netted me an 8.5% average annual return” I highlight above: in my younger days I have to confess to paying little real attention to my pension investments!

bostonerimus

cfw1994 wrote: »

back on topic..well done for a solid approach to saving, mine didn’t get properly serious until relatively recently, but I am curious about your “simple approach to investing that netted me an 8.5% average annual return” I highlight above: in my younger days I have to confess to paying little real attention to my pension investments!

I've followed a simple indexing strategy with 60% equities and 40% bonds. I'm in the USA and used broad US and global indexes. Right now my core portfolio is just a US total equity index, a global equity index and a US total bond index, but I don't need to use it for retirement income as I have a DB pension and rental income from that BTL I mentioned, which is now mortgage free.

thickasabrick

I've been contributing 15% of my salary to my pension fund for the last 20 years. That's from age 30, previously it was 10%.

Have recently upped this to 25% (5% employer / 20% me) after comparing my contributions against a friends teacher pension contributions.

Not quite like for like as the teachers pension is defined benefit but I used 20 x the annual pension amount for the Lifetime Allowance calculation for defined benefit to compare against my personal pension fund total.

Using the table from here with your example salary of £30,000 you would contribute 8.6% and the Employer 16.48% so that's 25.08%
https://www.teacherspensions.co.uk/members/working-life/paying-in.aspx

I usually run the figures through the UK Tax Calculator on Listen to Taxman and the difference in net take home pay when contributing 15% on a £30K salary is £300
https://listentotaxman.com/

I'm not sure what is the most tax efficient method to get that 15% into a pension fund as a self employed person but definitely start doing it now.

It might seem like a lot of money now but you'll thank youself in 20 years time. Seeing those contributions compound and double up every 7 years is something incredible to see. You might also see a reduction in your tax bill to offset increasing the contribution to a decent level.

Good luck

dilby wrote: »

Thanks all. I've read the 'half your age' rule, but that was an odd one to me because obviously the salary is not a fixed figure. But using that example, let's use a salary of 30k which i think is pretty standardish for my age and industry, and my age (33), that would mean putting away £412.50 per month which to me sounds quite a lot, and more worringly, not close to what I'm currently doing. (30,000 / 12 = 2,500 x .165) Am

I missing something or do I just need to get more realistic?

Thanks for your kind help and patience with such a newbie!

kidmugsy wrote: »

The old Final Salary Pensions that tended to give people a decent retirement often absorbed 20% - 25% of earnings, between employer and employee contributions. They might typically have aimed at paying out an annual pension of 50% of salary (and 50% of that to a widow) plus, say, a tax-free lump sum of 3 x annual pension.