Help someone who has no clue!

Pink_Butterfly

I’ve not been paying into a pension for long and I’m not that clued up on the subject. I need to read a book on pensions (any recommendations?) but in the meantime can someone help me understand the below? Preferably explain it like I’m a 5-year-old?!

Total pension value: 2,232.30
Projected funds: 87,006.18

This will probably be so obvious to the majority of you but to me it’s confusing!

I’m about 36 years away from retirement, so would love some advice as to what I should be doing now. Should I have more than one pension for example? Is it too risky to put “all my eggs in one basket”?

Thank you x

Pension_Geek

The projection will be based on you continuing to contribute at your current level and industry standard growth rates. It will generally take into account inflation as well.

Albermarle

There is a book by a guy called John Edwards. Normally another poster will send details .
In the meantime there are some government backed websites with useful info :
https://www.moneyadviceservice.org.uk/en ( click on 'pensions & retirement' tab)
https://www.pensionsadvisoryservice.org.uk/

Should I have more than one pension for example? Is it too risky to put “all my eggs in one basket”?

Normally this is not necessary but through your working life you will probably end up with more than one anyway .
However within your pension your money is invested in fund(s) . Normally it is better to have some diversification but only when you understand about these things better.

barnstar2077

Pink_Butterfly wrote: »

I’ve not been paying into a pension for long and I’m not that clued up on the subject. I need to read a book on pensions (any recommendations?) but in the meantime can someone help me understand the below? Preferably explain it like I’m a 5-year-old?!

Total pension value: 2,232.30
Projected funds: 87,006.18

This will probably be so obvious to the majority of you but to me it’s confusing!

I’m about 36 years away from retirement, so would love some advice as to what I should be doing now. Should I have more than one pension for example? Is it too risky to put “all my eggs in one basket”?

Thank you x

You say you are 36 years away from retirement, but what that really means is that you have enough time to put into action a plan that will let you retire earlier!

Read this forum, do some homework, think about how much money you would need a year if you were retired. Then you can work out how big a pot you will need. Then work backwards from there to see how much money you will need to invest to make it happen! It might all sound confusing and even a bit overwhelming, but you have plenty of time to get to grips with things and to make your future a brighter one!:)

MallyGirl

A good read:
DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning by John Edwards.
He also has an Investing one and an Income one.
Good entry level stuff - and free if you have kindle unlimited (although KU isn't free)
Pensions aren't really 'one basket'. They will be invested in a number of different things - shares, bonds, property, cash. Unless you have chosen otherwise you would start in the default fund but it would be worth revisiting that once you have done a bit of reading. There will be other options. You might be a little more open to risk with so many years to go.

jonnygee2

ut in the meantime can someone help me understand the below? Preferably explain it like I’m a 5-year-old?!

Total pension value: 2,232.30
Projected funds: 87,006.18

Ok, putting it in the most simple terms, you are not putting anywhere near enough into your pension at this point for a healthy retirement.

The projected funds is the amount they expect you to have in your pension fund when you retire. Bear in mind you'll probably plan to be retired for about 20 years or so, obviously 80k isn't going to go very far for anyone.

That doesn't mean it's absolutely necessary to hugely increase your contributions right now. You obviously have to think about your short term goals and finances too! But, it means a signifiacnt increase in the amount you contribute should be part of your financial planning, and the earlier the better

Should I have more than one pension for example? Is it too risky to put “all my eggs in one basket”?

No, your pension provider is just the 'wrapper' - the pension provider manages the money and charges a fee for managing it. The actual money is generally invested across a range of assets in a diversified portfolio. Generally they will be a reasonably secure and diversified portfolio, so for most people at this stage there is no need to worry about this (you should still try and understand it, but if that takes you ten years, probably not a problem - until you understand it its safe to leave it and build it up where it is).

LHW99

Two easy things to do, now that autoenrollment is here are:
1) Never ever opt out if you can find any way around it - you are getting "free" money from your employer, plus the tax relief from the Government.
2) Check whether you could get a bit more from your employer if you pay n more than the minimum amount - more "free money"


And if you ever earn less than the limit for your employer to automatically opt you in - remember you can ask to join the scheme and they should let you.

Pink_Butterfly

Thank you for all the replies & recommendations! Much appreciated. I’ll be doing my homework over the next few weeks and will definitely be increasing my contributions

jamesd

Pink_Butterfly wrote: »

Total pension value: 2,232.30
Projected funds: 87,006.18

This translates to:

"your pension pot is currently worth 2,232.30. If you increase your current contributions by inflation each year and get the investment growth we project your pot will be worth 87,006.18 in today's money at the end date you told us to use"

Those are the standard practices for this sort of projection.

There are various ways to follow to produce income but something between 3.5% and 5% of the pot value as an income for life that increases with inflation is reasonable. So additional meaning is:

"You could take an income between 3,045 and 4,350 a year if this happened"

Projections often include an income based on buying an annuity. At the moment those are usually a lot lower than the income drawdown income I just gave.

To proceed, consider first working out absolute minimum, happy to retire on and gives welcome extra spending levels for state pension age. Then for nice to do earlier retirement age and another it'd be really nice to retire at this age level. Once you have those you can estimate how much you need to be investing to get there.

I'll use 36 years away for an example. Open a regular savings calculator and put in monthly saving of 100, duration 36 and annual interest rate of 4. That is expected to produce a pot of £96,318. Income could be 3.5-5% of that, so £3,731 to £4,815 a year, say 3731/12 = £311 a month. So 100 / 311 * 100 = £32.15 a month including tax relief for every £100 a month of taxable income you want in 36 years. Increase that £32.15 by inflation each year.

4% is about right for the after inflation growth rate of a mixture of investments. A touch conservative compared to 5% for only shares.

Mr.Saver

jamesd wrote: »

"You could take an income between 3,045 and 4,350 a year if this happened"

Help you corrected it, so people don't get confused.