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[Deleted User]

Mutton_Geoff said:

[DELETED USER] said:

Let's say 25 years of work left, want to end up with £300,000 pot. That's 300 months, £1000/month. Not easy with a mortgage but not impossible.

Your calc assumes no growth which would be a useless pension investment. If you took a growth rate of 6% over 25 years, then the monthly investment is less than half that (c £425 to reach £300k at 6% over 25 years). Naturally you may want to inflation proof your investment by increasing monthly contributions along with inflation/payrises as you go along.

Do you think 6% is realistic? At the moment it seems very optimistic. Brexit and lingering effects of COVID...

[Deleted User]

MaxiRobriguez said:

[DELETED USER] said:

Let's say 25 years of work left, want to end up with £300,000 pot. That's 300 months, £1000/month. Not easy with a mortgage but not impossible.

I picked £300k because that's what Which? said was needed for a fairly comfortable lifestyle... But they are assuming you own your own home, and are retiring with today's pension products and cost of living. I have a feeling that when I retire things will be significantly worse.

They mean £300k in today's money.

A £300k pot on 3% drawdown (to build in some resilliency) is £9k a year, add state pension and you get to about £17k a year, which might be OK for most people, especially if mortgage is paid off and especially if the household has two earners both on £17k.

You need to factor in inflation though. Your investments should be giving you gains greater than inflation. If they do you can do less than £1000/month. Or, you can do £1000/month and expect a bigger pot than £300k in today's money.

As always, your mileage may differ, and you need to work out your own needs. My needs are a pot of £900k as I don't expect to have paid the mortgage off by the time I retire (plan not to too as quite happy to avoid 40% tax on pension contributions), want to retire earlier than normal so no state pension for ages, and I also want to fund children's university and first houses. 

Oh, in that case I need much more than 300k. Assuming I own a house by then I'd say a single 17k income is a bit low.

Or just work until I drop dead... I suppose the only mitigating factor is that I will inherit a lump sum at some point which should help. Hopefully not for a very long time yet.

MaxiRobriguez

[DELETED USER] said:

MaxiRobriguez said:

[DELETED USER] said:

Let's say 25 years of work left, want to end up with £300,000 pot. That's 300 months, £1000/month. Not easy with a mortgage but not impossible.

I picked £300k because that's what Which? said was needed for a fairly comfortable lifestyle... But they are assuming you own your own home, and are retiring with today's pension products and cost of living. I have a feeling that when I retire things will be significantly worse.

They mean £300k in today's money.

A £300k pot on 3% drawdown (to build in some resilliency) is £9k a year, add state pension and you get to about £17k a year, which might be OK for most people, especially if mortgage is paid off and especially if the household has two earners both on £17k.

You need to factor in inflation though. Your investments should be giving you gains greater than inflation. If they do you can do less than £1000/month. Or, you can do £1000/month and expect a bigger pot than £300k in today's money.

As always, your mileage may differ, and you need to work out your own needs. My needs are a pot of £900k as I don't expect to have paid the mortgage off by the time I retire (plan not to too as quite happy to avoid 40% tax on pension contributions), want to retire earlier than normal so no state pension for ages, and I also want to fund children's university and first houses. 

Oh, in that case I need much more than 300k. Assuming I own a house by then I'd say a single 17k income is a bit low.

Or just work until I drop dead... I suppose the only mitigating factor is that I will inherit a lump sum at some point which should help. Hopefully not for a very long time yet.

Don't get too downhearted. I too am young with similar problems. Running a mortgage into older life isn't a problem if you can take advantage of the tax breaks along the way.

£900k target for me, but £800k of that is going to be accumulated in the next 17 years. Sounds a lot, and without any investment gains that's almost £4k a month contribution required, but factoring in investment gains and inflation it's actually nearer £1.8k a month. Still a lot, but, you can add employer contributions, and you can also factor in that if you took it as salary instead you'd be losing 32%+ to tax. 

Mutton_Geoff

[DELETED USER] said:

Do you think 6% is realistic? At the moment it seems very optimistic. Brexit and lingering effects of COVID...

The issues you mention are very short term, the OP is looking at a 25 year investment. Over the last 100 years, the stock market (using S&P500 as a reference) has averaged 10% so my 6% was a little pessimistic but is a figure I've used in my own planning. This will be eroded 2-3% by inflation so I hope/plan for a 3-4% growth after inflation.

frugalandsave

What i have done the last few years is add any salary increases to my pension. That helped me in last few yrs to get up to 20 % from my salary going towards pension and 4 % top up from employer. Any bonus I get i save that in an ISA & part Sipp account. This helped me avoid the higher tax bracket and pay that instead into my pension. Its also advisable once you read up and educated yourself a bit on investing, where your pension money is invested in. I.e. whats the growth like, what fees are associated and etc. This has some bearing on long term growth. But id do this once you know your budget and how much you can invest each month. 

MaxiRobriguez

Mutton_Geoff said:

[DELETED USER] said:

Do you think 6% is realistic? At the moment it seems very optimistic. Brexit and lingering effects of COVID...

The issues you mention are very short term, the OP is looking at a 25 year investment. Over the last 100 years, the stock market (using S&P500 as a reference) has averaged 10% so my 6% was a little pessimistic but is a figure I've used in my own planning. This will be eroded 2-3% by inflation so I hope/plan for a 3-4% growth after inflation.

I don't think that's too pessimistic - 4% after inflation is my base case scenario. We're in a world where equities are expensive, it's not that far fetched to think a decade of <4% annual growth could occur.

I'd also avoid using the 100 year record for the S&P as 1) presumably you're not just invested in the S&P500 and 2) the US has gone from a emerging market to a fully developed market in that time frame.

Terron

Very rough figures which should give you a target to aim for.Everything worked out in todays values for simplicity.

The Which survey suggests £19k pa for a single person, £26k pa for a couple spending in retirement for a comfortable life, i.e. pre tax income. Call it £28k pre-tax for the two of you. Subtract £9k *2 for the state pension. So the aim should be a pension pot big enough to pay £10k pa. According to the 4% rule you need 25 times that, i.e. £250k, minus the £10k you already have. Assume the pension rises in line with inflation for simplicity. You need to save close to £10k per year between you. With the tax relief and your being a higher rate payer that would be £6k pa, or £500 per month.