Is my pension pot on track?

Alexland

planteria wrote: »

putting away c£1k/m is a big ask for most people, but it's the kind of commitment that many of us here should be making.. so it's good food for thought.

Contributing enough into a DC pension means pushing your career a bit harder than you would if you only had to meet your current living expenses. Most people seem happy 'getting by' without realising they are damaging their future by underestimating the challenge.

Alex

JoeCrystal

First of all, rebeccaw689, welcome to the Pension forum, you would find this forum a fantastic goldmine of useful information.

It may be possible to achieve an annual retirement income of £30,000, and you shouldn't doubt the big challenge behind your goal. Hugheskevi did an excellent job highlighting just how much you would need to contribute to aim. Three decades is a long time for all kind of events to happen so it is essential to be more realistic on how much retirement income you can expect.

There is a rule of thumb that 67% of your salary may sustain your standard of living after retirement as you would generally pay lower taxes, not be saving for retirement, paid off your mortgage, no longer need to support children or to pay work-related expenses.

The Pension Commission analysis back in 2004 assume that benchmark replacement rates for gross earnings (adjusted in today's term by RPI) are

80% for less than £14,300
70% for £14,300 - £26,400
67% for £26,400 - £37,700
60% for £37,700 - £75,400
50% for £75,400 and more

Is the question what do you need to aim for £30k? Nothing wrong with making a significant contribution, I contributed 25% of my salary myself, but it does involve in giving up what you enjoy now to ensure a better chance for your future self.

planteria

agreed Alexland, and 25% is good going JC.. do you mean you consistently contributed 25% of salary for a prolonged period? i have saved/invested 50% of my salary in some years.. but most of that would now be in an ISA rather than a Pension, and may not be used for retirement directly.

rebeccaw6891

Thanks for the brilliant illustrations and thoughts.

My current outstanding mortgage is 1.81x my salary (without ANY deductions). I was thinking to overpay my mortgage (haven't done yet) but it seems workplace pension contribution should be priority over mortgage overpayment.

FIRSTTIMER

I agree about pension over mtg. I was looking at the difference in costs. If I was to retire in say 20 years. My outstanding mtg would be more than covered with any lump sum I request from a pension. The growth of which would be much more significant including the tax relief the government give too. Especially as mortgage rates are around 1.6-1.9 fixed.

Thrugelmir

FIRSTTIMER wrote: »

The growth of which would be much more significant.

Investment returns are far from guaranteed. History is littered with periods of underperformance.

JoeCrystal

planteria wrote: »

agreed Alexland, and 25% is good going JC.. do you mean you consistently contributed 25% of salary for a prolonged period? i have saved/invested 50% of my salary in some years.. but most of that would now be in an ISA rather than a Pension, and may not be used for retirement directly.

I am a firm believer in making hay while the sun shines, so it has been 25% of my basic pay since I started working back in 2008 I am in a fortunate position of having a job with a good bonus, but I am painfully aware that I may have a hard time finding another job if I found myself unemployed.

rebeccaw6891 wrote: »

Thanks for the brilliant illustrations and thoughts.

My current outstanding mortgage is 1.81x my salary (without ANY deductions). I was thinking to overpay my mortgage (haven't done yet) but it seems workplace pension contribution should be priority over mortgage overpayment.

I agreed. It is nice to overpay the mortgage as having the mortgage paid off can have a sense of relief but nothing stopping you from doing both. But in this case, having pension contribution invested this early would be more effective than overpaying the mortgage especially with such a high goal in your case. Focus on pension contribution and only if you can afford it and take into account the rest of your financial situation, overpay the mortgage.

FIRSTTIMER

I think Joe is spot on here

rebeccaw6891

Thank-you everyone.
Unfortunately I have to chose between mortgage over-payment vs increasing pension contribution. But sensing the consistent responses from everyone, even I agree that I should increase pension contribution so that they have long time to grow.

That means you need £21,500 p/a from private pension. Using a drawdown rate of 4% that is a pot of £537,500.

Add to the £537,500 six years of State Pension to fund early retirement and that is an extra £51,000 for a total pot of £588,500.

I am not sure how you calculated the pot using drawdown rate and target income. Can you please share with me the formula.

Can you also please share with me formula (if possible) for calculating that for my goal of pre-tax income = £30k at age = 62 years, what should be my pension pot be at various life-stages?

35 = ?
40 = ?
45 = ?
50 = ?
55 = ?
60 = ?
62 = 588,500

NoMore

rebeccaw6891 wrote: »

I am not sure how you calculated the pot using drawdown rate and target income. Can you please share with me the formula.

4% of 537500 is 21500.


Or to put it another way, multiply your target income by 25 to get total pot based on 4% drawdown.