Is you salary / house out performed by your pension.

Terron

I have no salary and a liave in an area with reasonable house prices .



I have several pension pots and a FS pension. The largest pot makes almost as much as I earn. In total, they make more.


On the other hand the total value of the properties I own is more than my pensions, though my equity is less than the total value of my pensions.

pensionpawn

Hi Anotherjoe. If running your own business I would see earnings as the amount of profit after the usual taxes and costs of keep you business running at its present level. I don't consider personal interest from savings and personal growth from investments as earnings.

lisyloo

pensionpawn wrote: »

Hi Anotherjoe. If running your own business I would see earnings as the amount of profit after the usual taxes and costs of keep you business running at its present level. I don't consider personal interest from savings and personal growth from investments as earnings.

You have a very different view of income from HMRC.
Profit in a limited company is not the same as income or earnings at all.
Profit can be unpaid to not e and stay in the company (perhaps to provide and income in lean times).

I’m not sure what you are trying to achieve with your poll but I think you need to think carefully about how you present it to achieve your aims particularly if you are departing from traditional definitions.

For b I would have assumed equity as any property on a mortgage effectively equals zero in terms of assets for the householder.

pensionpawn

Hi Lisyloo. I've never run a business so I am naively (in that respect) just trying to help someone who posted that they are not employed. I posted the poll (obviously too hastily as I've omitted some options) just for fun (I did say that) and as potentially another (loose) metric on retirement investment performance. Some time ago a heard someone on the radio state that their pension was now earning more than they are. Regardless of the actual amounts involved that struck me as at least one gauge on whether you can afford to retire or not. Assuming, that is, costs don't rise in retirement if the annual growth in your pension fund is sufficient to replace your salary then that does open a door. In respect to if your pot is larger that the value of your (main) residence, this was just loosely based on the thread querying whether it is better to invest in bricks and mortar or your pension. I'm not trying to offer advice, just merely interested in facts and figures. Personally I'm nowhere near A or B. Growth would have to double to match my net salary and my pot is around two thirds of my house value. That said, I agree that the answers are also age dependent however with 'a fair wind' I could achieve both in around 3 to 4 years.

Paul_Herring

pensionpawn wrote: »

Hi Anotherjoe. If running your own business I would see earnings as the amount of profit after the usual taxes and costs of keep you business running at its present level.

But isn't 'salary' considered the number before taxes are taken off? Hardly comparing apples with Malus pumila if you're doing that...

lisyloo wrote: »

You have a very different view of income from HMRC.
Profit in a limited company is not the same as income or earnings at all.
Profit can be unpaid to not e and stay in the company (perhaps to provide and income in lean times).

I’m not sure what you are trying to achieve with your poll but I think you need to think carefully about how you present it to achieve your aims particularly if you are departing from traditional definitions.

I get the impression that a career in Public Health beckons; they abuse numbers regularly in ways worse than this :rotfl:

pensionpawn wrote: »

In respect to if your pot is larger that the value of your (main) residence, this was just loosely based on the thread querying whether it is better to invest in bricks and mortar or your pension.

The problem with that particular way of thinking is that 'investing in bricks and mortar' generally refers to buildings that specifically are not your main residence, since you can generally sell those buildings to raise funds for your retirement. Selling your own home, unless downsizing (which tends to not raise as much as thought initially,) or selling to subsequently rent, tends not to be an option.

sevenhills

I earn around £17k, and save or invest some of that. Looking at my earnings vs pension, which I have never really done, state pension is £8k and LGPS is £5k with a £30k one-off payment.
I will be paying my mortgage untill the age of 65, so my balance available will be similar to what I get now, or maybe more. I am quite happy with that.
I am 55, so a few years to go yet.
I have a drawdown pension pot of £6k, which I am thinking about using, as my pension income looks ample.

lisyloo

Some time ago a heard someone on the radio state that their pension was now earning more than they are.

I think caution is required here.
I’m currently in an aggressive portfolio and would probably switch in retirement. So my ballpark figure would be that I’m expecting a 7% return right now but would only plan on 4% for drawdown.
I believe there is a consensus around 4% as a long term drawdown rate to ensure you don’t run out of money if you live a long time.
So my calcs are that I want a £750k pot to generate £30k.
That has absolutely nothing to do with my current earnings and I think you making an assumption that people current earnings relate to what they need to live on now or choose to live on in retirement. They might but they might not.
I think there is a concensus that you need to work out what you need to live on which would ideally be without a mortgage, without pension contributions and without working expenses e.g. commuting.
This is a much better guide than salary.

I would also question What main residence has to do with it.
It’s only useful if there is equity and again that’s not any use if you are going to live in it.
Equity is only useful if you are going to downsize and many people who’ve intellectually bought in to this struggle emotionally to give up their family home.
I have a home in excess to my needs so I may downsize one day particularly if one of us becomes widowed/widower but one needs to be entirely realistic about liquidity of property and transaction costs and the realities of the wrench of leaving a family home.
Downsizing is often discussed way too casually.

I appreciate it’s just for fun, but it is somewhat complicated.

As for the technicalities some people earn income through dividends, interest, profit, rental income and not salary.
Many of the folks here are financially sophisticated (I don’t include myself as particularly sophisticated).

Terron

lisyloo wrote: »

I believe there is a consensus around 4% as a long term drawdown rate to ensure you don’t run out of money if you live a long time.
So my calcs are that I want a £750k pot to generate £30k.

I wouldn't call it a consenus. Some research was done in the US which came up with the result that if you rake 4% initially then increase it by inflation each year then based on historical records there is a low (5%) chance of running out of funds in less than 30 years.
4% works as a starting point and rule of thumb, but there have been lots of challenges.
For the UK 3.5% might be a better figure, but on the other hand the state pension can reduce the amount you need.

Alexland

Terron wrote: »

For the UK 3.5% might be a better figure, but on the other hand the state pension can reduce the amount you need.

I am hoping to retire early at 58 so in addition to saving an extra £90k to cover the missing SP in the early years am only planning to drawdown at 1/35th circa 2.85% as I doubt even a 60% equities ratio in retirement will return much more than inflation after fees.

Alex

lisyloo

Terron wrote: »

I wouldn't call it a consenus. Some research was done in the US which came up with the result that if you rake 4% initially then increase it by inflation each year then based on historical records there is a low (5%) chance of running out of funds in less than 30 years.
4% works as a starting point and rule of thumb, but there have been lots of challenges.
For the UK 3.5% might be a better figure, but on the other hand the state pension can reduce the amount you need.

Thanks.
I have issues with using a fixed figure because I think my desires e.g. trave, will be higher in early retirement. Most people won’t be going skiing in later retirement and it’s difficult to travel after 85 e.g. health insurance becomes prohibitive.
I think one needs a flexible approach e.g. ISAs and possibly property sales (although recognising lack of liquidity).

But I’m at the stage of working out when to retire and we do need some tools to help out with that. I think a low % can help that decision, rather than the higher figure I’m hoping for in growth currently.