The Double Pension Effect

Nasqueron

For someone like me, a DB or even DC pension is a long gone dream, I will likely be working to 67 to afford to retire as I don't imagine my personal pension savings are going to allow me to retire early no matter what magic numbers get waved around

I earn 23k and am 38 this year, I pay 6% a month into work pension and firm currently pays 2% (soon to be 3%) through the mandatory scheme which will be around £172.47 a month combined, before tax relief. I have a separate managed pension plan which I pay £350 a month into which I have been doing since I was about 23 (it was moved into a proper plan 2 years ago when I moved in old work pension and the stakeholder one) and is about 51k at the moment. Assuming maybe 3% growth and annual increases it would maybe be 250-300k + the work place scheme

Where would I manage to get enough money to retire on from that lol?!

Personally I am fit and healthy, I want to live many years and don't see why I couldn't hit 100+ but I can't see myself being able to retire early at any time. It's all well and good imagining being able to retire at 55 or whatever but realistically - not a chance

lisyloo

Spreadsheetman wrote: »

That's the thing; it was possible to sleepwalk into a decent income with a DB pension, but a DC pension is going to require some thought and sacrifice to get to a similar place. It also requires that planning to be done when retirement is over the very distant horizon - there is very little support and education for that.

I don’t understand you comment about when retirement is over.
After retirment is death and you won’t be able to plan then.
Did you mean planning FOR when retirment is over? And did you specifically mean death? Long term care? Or something else?

Spreadsheetman

lisyloo wrote: »

I don’t understand you comment about when retirement is over.
After retirment is death and you won’t be able to plan then.
Did you mean planning FOR when retirment is over? And did you specifically mean death? Long term care? Or something else?

Lol - no, I meant for someone in their early 20s retirement is so far away it isn't even visible on the horizon.

lisyloo

blisteringblue wrote: »

I was the same Nikon ours was "ripped" out even earlier in 2006 after acquisition, you have to deal with what you are dealt. I chose to take good CETV from 2 of my 3 DBs and I've been paying between 12-15% now and the company only match to 8%. I will probably rank it up to 20-25% for my final 3 years.

It certainly won't be all flash cars in retirement, but my life goal has always been to retire early and I think I've used my pensions well, even without DB for 13 years.

We all have to deal will what we are dealt, but you’ve guys who’ve had DB for most of your working lives have been lucky.

I guess this is a glass half full or half empty thing, but I think that you’ve been luckier than many and also would be happier in yourselves if you appreciated that you have had a glass 3/4s full.

lisyloo

Nasqueron wrote: »

For someone like me, a DB or even DC pension is a long gone dream, I will likely be working to 67 to afford to retire as I don't imagine my personal pension savings are going to allow me to retire early no matter what magic numbers get waved around

I earn 23k and am 38 this year, I pay 6% a month into work pension and firm currently pays 2% (soon to be 3%) through the mandatory scheme which will be around £172.47 a month combined, before tax relief. I have a separate managed pension plan which I pay £350 a month into which I have been doing since I was about 23 (it was moved into a proper plan 2 years ago when I moved in old work pension and the stakeholder one) and is about 51k at the moment. Assuming maybe 3% growth and annual increases it would maybe be 250-300k + the work place scheme

Where would I manage to get enough money to retire on from that lol?!

Personally I am fit and healthy, I want to live many years and don't see why I couldn't hit 100+ but I can't see myself being able to retire early at any time. It's all well and good imagining being able to retire at 55 or whatever but realistically - not a chance

What’s wrong with 67?
My current relative are iving until 90 and some older.
Having 23 years retired means spending half of your life not working.

Obviously we’d all like more time off, but stop looking at yourself as hard done by.
You really aren’t.
It’s just there’s a tiny number of people better off, And even in this country it’s a small number let alone globally.

Your salary is low and most people retiring early will be on higher salaries, at least £40k+ to put decent amounts in their pension.

You say you could live until 100, so you expect 45 years in retirement for someone on a low income??
I think your expectations are flawed or it’s just pure jealousy?

lisyloo

Spreadsheetman wrote: »

Lol - no, I meant for someone in their early 20s retirement is so far away it isn't even visible on the horizon.

Ah ok - I read “retirement is over” not “over the distant horizon”.

maisie_cat

My husband retires next week, we are both 55, we will live on his reduced pension plus drawdown if we need to until we hit 60. At that point I have 3 pensions and then at 67 we get our state pensions in the same month. We got to a point that my husband's work was affecting his health and we do not have an expensive lifestyle anyway. Thankfully we have no debt part from our mortgage which is manageable while we wait for a buyer.
I created a 15 year budget and tested scenarios, and I know where we could easily cut out expenditure if needed. We also have skills that can be used in a small business which we have done in the past.
I persuaded my husband to retire, I would rather live on less money and have him healthy than live very well as a widow.
My neighbour on the other hand prefers to have lots of money and in his words loves it too much to retire early and live on less.
Each to their own

thickasabrick

That's a very impressive 27% savings rate on your salary, you'll easily hit Financial Independence by 55 years of age.

Using the figure from this Which article "How much will you need to retire?"
£206,500 - How much you need in your pension to get £26,000 a year from income drawdown.

Using this "Savings Goal Calculator" will have you hit it within 13 years at age 51.

Savings Goal: £206500
Already Saved: £51000
How Much You Save Each Year: £6269.64

5% growth

Or this www.moneyadviceservice.org.uk Savings-calculator

Nasqueron wrote: »

For someone like me, a DB or even DC pension is a long gone dream, I will likely be working to 67 to afford to retire as I don't imagine my personal pension savings are going to allow me to retire early no matter what magic numbers get waved around

I earn 23k and am 38 this year, I pay 6% a month into work pension and firm currently pays 2% (soon to be 3%) through the mandatory scheme which will be around £172.47 a month combined, before tax relief. I have a separate managed pension plan which I pay £350 a month into which I have been doing since I was about 23 (it was moved into a proper plan 2 years ago when I moved in old work pension and the stakeholder one) and is about 51k at the moment. Assuming maybe 3% growth and annual increases it would maybe be 250-300k + the work place scheme

Where would I manage to get enough money to retire on from that lol?!

Personally I am fit and healthy, I want to live many years and don't see why I couldn't hit 100+ but I can't see myself being able to retire early at any time. It's all well and good imagining being able to retire at 55 or whatever but realistically - not a chance

Paul_Herring

£206,500 - How much you need in your pension to get £26,000 a year from income drawdown.

No, that's not what that article says. Well, it does, but it's not what they actually mean.

That's a 12.6% initial withdrawal rate, massively more than the usual 4% SWD bandied around - there's clearly something wrong there. To quote that section in full:

If you were looking to get a comfortable post-tax income of £26,000 a year and wanted to get a guaranteed income paid to you via a joint-life annuity, you'd need a pot of £267,800, according to our calculations.

To get the same amount from income drawdown, which sees you keeping your money invested in your pension and withdrawing a regular income, you’d need £206,500. This assumes your savings grow by 3% annually.

What they aren't explicitly pointing out there, however, is the presumption that you (both!) won't be retiring until SRA, and thus you need to subtract the state pension, both of them, from that £26,000 to get what you'd need in a private pension. From an earlier paragraph:

The state pension is currently £258.40 per week for a couple (if you qualify for it before 6 April 2016). This is equivalent to £13,437 a year, bringing a couple half way towards the £26,000 annual income level (before tax).

So that's £12,500 that the pot needs to fund, not £26K, so we're down to a 6% initial withdrawal rate on that £260.5K.

Which, if you're starting to draw on it at 67/68, is - I suppose - just about cromulent...

thickasabrick

I was being more than a bit disingenious quoting that article as it is based on a couple at normal state retirement age (NRA 68 years) and the figures include the state pension as Paul Herring quite rightly points out

Still, kudos to Nasqueron for acheiving such a high savings rate on a salary of £26,000 and I would say the future is looking bright at 55 !

Going with a simple wasted asset retirement model you could pull out £16,000 per annum to a straight line depletion of the fund to coincide with picking up your state pension at NRA of 68 years ( £208000 / 13 years starting at age 55).

With a safe withdrawal rate you'd probably have to live somewhere with very low living costs on £7611 per annum.

That's from the figures I threw into the pensions calculator on www.yourpension.gov.uk

Age State Pension Defined Benefit Other Income Pot Income Estimated Income Shortfall/Surplus Age
55 £0 £0 £0 £7,611 £7,611 Shortfall: £9,809 55
68 £8,767 £0 £0 £5,477 £14,244 Shortfall: £3,176 68

Based on
Target income in retirement: £17420 (67% of annual salary of £26000)
gross contributions £5,760 per year (22%)
employers contributions £780 per year (3%)
Retirement Age: 55 years

Assumptions
Monthly payments into your pension pot Increase by 2.5% a year to reflect annual pay rises.
Pension charges Charges of 0.75% a year are taken from your pension pot.
pension investments grow by 5% a year.
inflation at a rate of 2.5% a year.

Paul_Herring wrote: »

No, that's not what that article says. Well, it does, but it's not what they actually mean.
That's a 12.6% initial withdrawal rate, massively more than the usual 4% SWD bandied around - there's clearly something wrong there. To quote that section in full:
What they aren't explicitly pointing out there, however, is the presumption that you (both!) won't be retiring until SRA, and thus you need to subtract the state pension, both of them, from that £26,000 to get what you'd need in a private pension. From an earlier paragraph:
So that's £12,500 that the pot needs to fund, not £26K, so we're down to a 6% initial withdrawal rate on that £260.5K.
Which, if you're starting to draw on it at 67/68, is - I suppose - just about cromulent...