Question regarding total pension pot value

butterfly88

Hi, Just a quick question regarding private pensions, is it true that your total pension pot should ideally be 10x your current annual salary? If this is not achievable can you comfortably retire for less? 

JoeCrystal

Depends on your age and income goals really. How old you are for a start, and what is your total DC pension pot and your retirement income goal? If you are on the eve of retirement, then 25 to 34 times of your retirement income goal would be ideal for example, assuming you are doing drawdown safely.

Dazed_and_C0nfused

Your current salary is really irrelevant, it's what you need to support your requirements in retirement that is important.

Don't know where you have heard about 10x current salary but it makes no sense really.

It would means someone aged 25 earning £30k would want a pot of £300k, not easy.

Someone aged 65 earning £30k would also want a pot of £300k.  Much easier to achieve after another 40 years but of no real relevance to what they need to fund their retirement.

bowlhead99

You can retire with whatever assets you want. 3-4% of your pot drawn down every year in retirement may be sustainable. So if you started with 10x your gross salary at the point of retirement, and were drawing 3-4% of it a year, that would be 30-40% of your gross salary. It would likely be more than 30-40% of the old net salary because a quarter of the private pension can usually be drawn tax free and you don't pay tax on all the taxable income anyway, due to the personal allowance which would be a greater proportion of your pension income than it would be of your larger salary.

For some people that will be easily enough once they've taken account of the index-linked state pension they'll receive and also the fact that their expenses will typically be lower in retirement (may have finished paying the mortgage on their home, likely to spend less on going out as they get older, etc). Not everyone will get a full state pension so you should check your personal forecast to see how much that's likely to be and when it will start.

Really, all these 'rules of thumb' are just an idea to give you a number to start from, so you can estimate what income you might get from it, and then consider how that compares to how much income you actually want. Nobody can answer that for you.

If your personal answer is 'yes, to produce enough to get by for forty comfortable years of retirement and whatever I want to leave to my heirs, taking into account my savings and non-pension investments, I do need at least 10x my salary in my pension before I stop working', but you don't have that much... you can either keep working, or retire on less and hope to get lucky with your investments to make it work, or moderate your expenses so you don't use up your money so fast.

Dox

butterfly88 said:

Hi, Just a quick question regarding private pensions, is it true that your total pension pot should ideally be 10x your current annual salary? If this is not achievable can you comfortably retire for less? 

No. These sort of nonsense statistics are everywhere. What is a comfortable retirement for one person is penury for another.

Current annual salary is no guide at all these days, given how frequently people change jobs, go part time, drop to a less demanding job in the years leading to retirement.

dunstonh

Hi, Just a quick question regarding private pensions, is it true that your total pension pot should ideally be 10x your current annual salary?

No.   Never heard that one before and it does not seem at all realistic.
At the end of the day, you need enough to live on.   I know people who have spending needs in retirement that require an income similar to what they had in their working life.  And others that need far less than what they did in their working life.    So, you cannot have a hard and fast rule.

If this is not achievable can you comfortably retire for less? 

Some could. Some could not.    Forget about other people.  Focus on what you need.

manetti

To those questioning the '10x salary' guidance - I have seen this on a couple of occasions and I believe it is based on the assumption that you work until state pension age and will be including the state pension in your calculations.

Eg. Someone on 30k might have an income of roughly 2/3rds their salary in retirement if they work until 67 and generate a pot of 10x their salary (9k SP + 3-4% drawdown of 300k)

That's not to say I agree that anyone should be basing their saving on it, just that I have seen it discussed.

Dox

manetti said:

To those questioning the '10x salary' guidance - I have seen this on a couple of occasions and I believe it is based on the assumption that you work until state pension age and will be including the state pension in your calculations.

Eg. Someone on 30k might have an income of roughly 2/3rds their salary in retirement if they work until 67 and generate a pot of 10x their salary (9k SP + 3-4% drawdown of 300k)

That's not to say I agree that anyone should be basing their saving on it, just that I have seen it discussed.

Who's to say 2/3rds is the appropriate multiple? That was long fixed in the minds of everyone because it was the maximum HMRC would let you have from a DB scheme, but those days are long gone. Nowadays there are many other options for retirement savings and these need to be factored in to any individual's planning - ditto a careful analysis of what their retirement needs are actually expected to be. For some, half their 'working day' income will be more than sufficient; for others, 2/3rds is not going to be enough for the standard of living they'd like. 

manetti

Dox said:

manetti said:

To those questioning the '10x salary' guidance - I have seen this on a couple of occasions and I believe it is based on the assumption that you work until state pension age and will be including the state pension in your calculations.

Eg. Someone on 30k might have an income of roughly 2/3rds their salary in retirement if they work until 67 and generate a pot of 10x their salary (9k SP + 3-4% drawdown of 300k)

That's not to say I agree that anyone should be basing their saving on it, just that I have seen it discussed.

Who's to say 2/3rds is the appropriate multiple? That was long fixed in the minds of everyone because it was the maximum HMRC would let you have from a DB scheme, but those days are long gone. Nowadays there are many other options for retirement savings and these need to be factored in to any individual's planning - ditto a careful analysis of what their retirement needs are actually expected to be. For some, half their 'working day' income will be more than sufficient; for others, 2/3rds is not going to be enough for the standard of living they'd like. 

Absolutely agree with all you have said. Presumably based on the DB scheme reasoning you describe, I have seen numerous websites proposing a 2/3rds income benchmark for the basis of calculation which can be misleading and is possibly linked to where the OP's 10x salary guidance has originated from.