Average pension pot on retirement and whats your aim ?

anonmoose

Yes I agree with this Ganga.  I have no big aims beyond being comfortable in retirement and being able to travel extensively but on a budget.  When you are not tied to school holidays it makes cheap travel a possibility.

Also I think it is misleading for many people to assume you need 70% of your working income as a minimum.  In our case downsizing is part of our plan which I will be glad to do when the time comes.  Our annual council tax is currently over £3K a year and we live in a very energy greedy old house!  A smaller place built to modern eco standards is part of our plan to downsize our income requirements and give us more freedom to lock up and leave.  

I think anyone who is on MSE has the edge over the average person as they are constantly thinking of how to maximise the resources they have big or small.

Grumpy_chap

Mick70 said:

morning all 
would anybody happen to know what the average pension pot is come retirement , and also out of curiosity what posters realistic aims are for their pot value ?

mick 

Is that the correct question to ask? "What is the value of the pot at retirement?" implies an answer in the absolute, so an actual number of £££.

Would the more appropriate question be on a relative basis?  "What is the average income multiple required in the pot at retirement?" links the individual's retirement income to their working income in a more pragmatic (and achievable) manner.

The other big variable on size of future required income is mortgage-free property owner versus renter.

bostonerimus

Grumpy_chap said:

Mick70 said:

morning all 
would anybody happen to know what the average pension pot is come retirement , and also out of curiosity what posters realistic aims are for their pot value ?

mick 

Is that the correct question to ask? "What is the value of the pot at retirement?" implies an answer in the absolute, so an actual number of £££.

Would the more appropriate question be on a relative basis?  "What is the average income multiple required in the pot at retirement?" links the individual's retirement income to their working income in a more pragmatic (and achievable) manner.

The other big variable on size of future required income is mortgage-free property owner versus renter.

30 year retirement, inflation 2% or 3%, 95% probability of not running out of money, some fairly high proportion of stocks (maybe 50%), a bond market like the 1990s ;-), you might come up with needing a pot 25x or 30x your income needs. How long is a piece of string? Which is essentially why I pretty much gave up.

Workerdrone

Albermarle said:

Workerdrone said:

anonmoose said:

Reading flipper-72 s post it could be me!  I earn same salary as you and yes it is also half what it was 16 ish yrs ago when I gave up my career to bring up our kids. I worked part time and flexi since having children but in a lower paid job that fitted around our kids.  I went back to full time when they started school but in the same flexible lower paid job.  So I do all the sick days, orthodontic appts, hospital appointments, afterschool pickups (you get the drift).  It works well as a family set up and my husband is free to pursue his career but is fully aware it wouldn't be possible without my support.

We see our pension pots as joint and my other half has a reasonable salary but below higher tax bracket.  So between us we have done ok, brought up our kids, have a wonderful house but have modest pension pots which we are just starting to ramp up in our mid 40s.  

I personally don't get intimidated by posts from people in the top 1% of earnings.  I think this forum and the savings forum has taught me so much and by the nature of these forums it does attract very savvy savers in very well paid jobs so the results of any questions about pot size will be skewed.  You just have to search online to see what national averages are to get a more realistic picture. 

When I read posts about the LTA I chuckle and think what a nice problem to have!

But there is room for all of us and the fact is my retirement will be more comfortable because of the great advice on this forum and that is the key thing.  It's all relative from where you personally start your journey.

I find it quite inspiring and something to aim for. Theres a lot of good advice on here about how to handle your pot and general investing regardless of how big it is. I for one am simply grateful people take the time to share experience.

Also probably would not be a good sign if those sharing their knowledge about investing were skint   

Indeed, Thankfully Neil Woodford and Nick Leeson haven't graced us with their presence.

MEM62

bostonerimus said:

MEM62 said:

bostonerimus said:

Sunnylifeover50plan said:

Ibrahim5 said:

With DC pensions you never know how much you have. The valuation changes every minute. If you look at Seashell's thread a few months ago it was all about having too much money and spending more. Now it's about inflation and energy prices and keeping warm. I can cope with the turbulence because I have over £20k in DB pension. I wouldn't like no DB pension. It was on the news that Russian share prices had dropped 90%. I am sure everyone will say that could never happen with their shares but it does show the nature of share values 

But harping on about DB pensions to those who they are not available to is a little like like trying to sell the virtue of alcohol or bacon to a Muslim or Jew.  

A DB pension certainly reduces the income generation pressure, but there are other ways to do that as well. Pay off all debt, including the mortgage, while you are working, maybe diversify your investments to include a rental property, control your spending and be open to partial annuitization if the numbers look good.

Clear debt absolutely. Ideally, you want to enter retirement debt-free.  But it still surprises me that people suggest BTL's as good investments.  The come with their own risks and are neither passive or tax-efficient.  

You have to look carefully at the numbers and I'm not in the UK so taxes will be different. I would only do BTL as a long term investment with the plan being to retire without any mortgage. There is risk involved, but my BLT has provided me with good capital appreciation and I get a check every month that covers over half my living expenses. I would not advocate BLT be the first thing in a pension investment pot, definitely do workplace pensions, SIPPs, ISAs etc first, but it is a nice compliment to those sort of tax advantaged investments. My BTL flat is worth around $300k and after expenses I net $15k/year from it so that's a yield of 5%.

It works differently in the UK.  In respect of my circumstances, During the six years it has been rented I have paid tax on the income at 40%.  In that time the value of the property has fallen - people not wanting flats post-lockdown, stricter lending criterion and the fact that it is located in the West London / Heathrow areas that was largely kept buoyant by the aviation industry all impacting on that.  Valued at £320K in 2016 and probably worth £290 now.  (will find out soon as it is going on the market)  As I purchased the flat in 1987 I will have a not insignificant capital gains liability.  I accept that I have a perfect storm of circumstances not going my way but the result is that, if I sold the place in 2016 I would have walked away with £320K and no CGT liability.  When I sell it this year that figure will be closer to £290 and I have a capital gains tax bill to pay.  The net income in the six years it was rented will not even begin to cover the losses. 

The reason keep and rent it was not financial in the first place.  I was going from living on my own for 20 years to living with my OH and two teenage kids.  It was kept as plan B if things did not work out.  It is also true that I certainly will not lose out overall as I purchased it for £38K in 1987.  However, the way that taxation works means the last six years have proved to be a considerable loss.    

bostonerimus

MEM62 said:

bostonerimus said:

MEM62 said:

bostonerimus said:

Sunnylifeover50plan said:

Ibrahim5 said:

With DC pensions you never know how much you have. The valuation changes every minute. If you look at Seashell's thread a few months ago it was all about having too much money and spending more. Now it's about inflation and energy prices and keeping warm. I can cope with the turbulence because I have over £20k in DB pension. I wouldn't like no DB pension. It was on the news that Russian share prices had dropped 90%. I am sure everyone will say that could never happen with their shares but it does show the nature of share values 

But harping on about DB pensions to those who they are not available to is a little like like trying to sell the virtue of alcohol or bacon to a Muslim or Jew.  

A DB pension certainly reduces the income generation pressure, but there are other ways to do that as well. Pay off all debt, including the mortgage, while you are working, maybe diversify your investments to include a rental property, control your spending and be open to partial annuitization if the numbers look good.

Clear debt absolutely. Ideally, you want to enter retirement debt-free.  But it still surprises me that people suggest BTL's as good investments.  The come with their own risks and are neither passive or tax-efficient.  

You have to look carefully at the numbers and I'm not in the UK so taxes will be different. I would only do BTL as a long term investment with the plan being to retire without any mortgage. There is risk involved, but my BLT has provided me with good capital appreciation and I get a check every month that covers over half my living expenses. I would not advocate BLT be the first thing in a pension investment pot, definitely do workplace pensions, SIPPs, ISAs etc first, but it is a nice compliment to those sort of tax advantaged investments. My BTL flat is worth around $300k and after expenses I net $15k/year from it so that's a yield of 5%.

It works differently in the UK.  In respect of my circumstances, During the six years it has been rented I have paid tax on the income at 40%.  In that time the value of the property has fallen - people not wanting flats post-lockdown, stricter lending criterion and the fact that it is located in the West London / Heathrow areas that was largely kept buoyant by the aviation industry all impacting on that.  Valued at £320K in 2016 and probably worth £290 now.  (will find out soon as it is going on the market)  As I purchased the flat in 1987 I will have a not insignificant capital gains liability.  I accept that I have a perfect storm of circumstances not going my way but the result is that, if I sold the place in 2016 I would have walked away with £320K and no CGT liability.  When I sell it this year that figure will be closer to £290 and I have a capital gains tax bill to pay.  The net income in the six years it was rented will not even begin to cover the losses. 

The reason keep and rent it was not financial in the first place.  I was going from living on my own for 20 years to living with my OH and two teenage kids.  It was kept as plan B if things did not work out.  It is also true that I certainly will not lose out overall as I purchased it for £38K in 1987.  However, the way that taxation works means the last six years have proved to be a considerable loss.    

Your post is why I started my post on BTL by saying you need to look at the numbers. In the US I pay tax on my rental income at my marginal rate, but I get to deduct decpeciation and expenses which limit the amount of income I actually declare. Because I bought back in 1997 I'll also have a big CGT bill when I sell, but I look at it as being lucky enough to have a big tax bill.

Marmot

Lifematters said:

hugheskevi said:

Lifematters said:

I am taking a large cut in my headline pay to join the CS entirely so that I can transfer some of my DC into the CS DB scheme.

I am seriously considering this option. Have you had a quote as to the amount of DB you could get for x amount of DC at x age?  Wondering just how generous the transfer in is. I know it gets more expensive with age.

The actuarial factors are at this link - https://www.civilservicepensionscheme.org.uk/media/yxhmcyya/cetv-factors-and-guidance-alpha.pdf

Thank you @hugheskevi, this is perfect! 

Hi, just jumping on this thread a bit.  I'm in the process of doing the same, so I've been offered a CS role which is quite a cut to my current salary but I'm going to do it so I can transfer my DC into the Alpha scheme.  I'm a bit confused by the Factors for CETV guidance document... so I'm currently 50 (51 in May) so I'll have a pension age of 67.  The document says I should use the values in table 4.  So for a Female of 51 it says pension factor of 8.40.  But I'm not sure what I need to do with that pension factor.  I can see the formula/calculation that's on page 6 but I don't understand how to work out if I don't actually have any pension yet (due to start with CS next month) and I'd like to transfer in 100k once I've started with the CS how much would that actually buy me...?  I'm probably being a bit dim but any help anyone can give would be great!  

IamWood

ex-pat_scot said:

General ambition - to hit LTA by 55, in a couple of years. If nothing else, the LTA is a powerful disincentive to carry on beyond.
I might carry on a little longer, perhaps to optimise the last year's tax position, or if the markets are not as kind.
Or I might stop and settle for what I have.
Who knows? It's not a bad starting point.

I'll certainly have to get to 55, and then reflect.

From a financial standpoint, the optimum would be clearly to hit the LTA, then stop.
I suspect I'll want to work until the summer, so as to collect a final year's NI, and also get a decent tax refund.
My quandary is that I'm reasonably well paid (approx £140,000 pa) so the draw of "one more year" is strong.

From an emotional standpoint, I can't wait to stop.
I struggle, and always have, with managing my time and the work/life interface. I am rather overwhelmed with work, but there isn't any ready solution. 

From a family standpoint, there will undoubtedly be challenges on children leaving for uni, funding of school fees and uni contributions etc for a while.

In terms of costs, I'm not entirely sure.
I have a good friend whose early retirement base costs are £1,500/m to run the house. Bills etc and day to day expenses. Fun budget and capital expenditure on top. Modern house (and pre-Ukraine energy prices). It seems pretty decent as a starting point, perhaps adjusting to £2,000/m in light of the current utilities prices. (he's a rich retired ex C suite from large PLC, so doesn't need to budget).
I'm expecting our current costs will ebb back once the youngest children make their way out into the world, but at the moment it seems that the elder ones are replacing direct costs (lots of teenage spending on music, drama, sports etc) with indirect costs (uni support, discretionary help).
I think that £3,000 pm would be OK, £4,000 pm good. Simplistically this would mean that I'd take out of the DC pot up to the top of BR tax threshold, which is the most tax-efficient approach anyway. It's a good start.

I am in a similar situation to you. Happy to be an earlier retirement buddy and to review our situation each year together.

If you are interested, you can check my post on: https://forums.moneysavingexpert.com/discussion/6307046/how-close-am-i-to-my-early-retirement#latest

Cheers

Albermarle

Also I think it is misleading for many people to assume you need 70% of your working income as a minimum.

Clearly this 70% figure is a huge generalisation and is probably based on a typical middle earner, middle class family .

Someone on a low income probably needs 100% as they are struggling even when working . Likewise a high flyer could manage on a lot less than 70%.

On the positive side you do not need 70% gross income to get 70% net income , as probably you will be paying proportionately less tax , no NI and no pension contributions .

hugheskevi

Marmot said:

Lifematters said:

hugheskevi said:

Lifematters said:

I am taking a large cut in my headline pay to join the CS entirely so that I can transfer some of my DC into the CS DB scheme.

I am seriously considering this option. Have you had a quote as to the amount of DB you could get for x amount of DC at x age?  Wondering just how generous the transfer in is. I know it gets more expensive with age.

The actuarial factors are at this link - https://www.civilservicepensionscheme.org.uk/media/yxhmcyya/cetv-factors-and-guidance-alpha.pdf

Thank you @hugheskevi, this is perfect! 

Hi, just jumping on this thread a bit.  I'm in the process of doing the same, so I've been offered a CS role which is quite a cut to my current salary but I'm going to do it so I can transfer my DC into the Alpha scheme.  I'm a bit confused by the Factors for CETV guidance document... so I'm currently 50 (51 in May) so I'll have a pension age of 67.  The document says I should use the values in table 4.  So for a Female of 51 it says pension factor of 8.40.  But I'm not sure what I need to do with that pension factor.  I can see the formula/calculation that's on page 6 but I don't understand how to work out if I don't actually have any pension yet (due to start with CS next month) and I'd like to transfer in 100k once I've started with the CS how much would that actually buy me...?  I'm probably being a bit dim but any help anyone can give would be great!  

So working on age 51, the member factor is 8.4 and the partner factor 1.39. Assume a pension of £1,000 which has a survivor pension of 37.5%, or £375 (this is just to plug in numbers to produce a multiplier rather than use algebra, for simplicity). Note there are 16 1 Aprils between May 2022 and NPA in May 2038, and this gives a factor of 1.37 from Table 6.

So the CETV is:

[ (£1,000 x 8.4) + (£375 x 1.39) ] x 1.37 = £12,222.11

So the multiplier is £12,222.11 / 1,000 = 12.22. Divide whatever the DC pot is by 12.22 and the result should be the transfer-in value.

This is assuming that transfer-in quotes are calculated on the same basis as CETV transfer-out quotes. Without speaking to the administrator, this is probably as close as you can get to an estimate.