Pension planning

James131994

Hi, I am 24, just bought our house and will have repaid the mortgage by 54. I am on a salary of £34k and pay 2.5% pension contributions and my employer pays 6.5% totalling 9%.

I am having problems working out if this is going to be enough for retirement, I know it depends on the lifestyle I want when I retire however it’s very difficult to work out annual payrises, promotions and investment returns.

I want to be as prepared as possible from an early age so want to try and understand this now. Does anyone have any suggestions or an opinion on my current situation?

Thanks!

justme111

On a salary of 34 how much is a take home pay? How much are your mortgage payments? When you deduct from the first number the second you will know (very roughly of course) how much you will need. Your pension contributions are about 3 k a year. Put them into a compound interest calculator , decide what growth you are happy with assuming ( let's say 3%/year) and see what you will have there at 55, 65 etc.
Once you paid off the mortgage you can add the amount you were paint into pension increasing your contributions and see how it changes the outcome

Dox

I'm suitably impressed that you are thinking so far ahead! It's impossible to predict anything at this stage, so the old adage of save as much as you can as early as you can holds good - but don't save so much into a pension that your run the risk of having to borrow if that infamous rainy day turns up. You can't access your funds until at least age 55 (and that will probably rise before you get there), so make sure you have an emergency fund building up somewhere accessible, such as an ISA or savings account.

Zorillo

Up your contribution to 10% and review it when you're 40...

...Is what I'd have said to myself at 24 if I'd been more sensible. Unfortunately I wasn't, so am playing catch up now!

MallyGirl

same here. I am now putting 50% in plus employer 10%. I always put enough in to get the full employer contribution, but never more. That was a mistake and I am massively in catchup now as I don't want to work beyond 60.

enthusiasticsaver

I would up that 2.5%.

You need to know the amount you will need to live off so if your mortgage will be gone you can deduct that but having more free time means usually more expensive leisure budget.

You also need to know what age you are aiming to retire at and assuming your pension is a DC one there are calculators which can forecast average growth.

What is the maximum your employer will put in and if you up your 2.5% will they increase that 6.5%? For information purposes my DH put in 10% to a booster pension aimed at early retiree wannabes which was matched by his employer. Slightly complicated in that he had a part DB pension frozen in 2008 and they incentivised payments into his new DC pension by paying in 20% to his 10%. I paid 6.5% into my DB pension. Both are much higher than your 2.5% and we retired at 58. A blanket rule is halve the age you start paying a pension and pay that as a percentage including employers contribution. So at 24 a good aim is 12% overall.