Saving for Retirement - Is employer contributions enough?

Cien

Brenster said:

I do look at these massive pots and wondered how they were acheived, and i didnt start looking into my pension until my i was 38 !  I had student debt, other debt, mortgage and young family to pay for.  But i am so glad i started, my goal is to retire by 56-57, much better than the enevitable state pension age of 70 on a pittance which will be the age it is in 25 years time, and it will only allow for a basic survival !
Its amazing the difference compound interest makes to pensions, especially those with plenty of time, like yourself.

As do I! Makes me very anxious and self conscious how I can get there or even if I can get there myself. Likewise I don't want to rob today's to a detriment so that my potential late life I'd comfortable. Its a hard choice! But like has been previously mentioned I need to find my personal middle ground.
I hate student loans too, its so very cumbersome.

squirrelpie

"I know there's a lot of crystal ball gazing involved however with my health I've had 6 major operations on my stomach and I'm just concerned about my future and don't think I'll live to an old age and saving for retirement sometimes seems like it'll never happen."

If it was me, I'd do some more investigation of my likely future possibilities to try to put my mind at rest. I don't know how your mind works but read a lot around the subject, or find one or two consultant doctors you can trust and find out what the long-term possibilities really are for whatever condition(s) you have. What is your life expectancy, assessed by experts? What is your healthy life expectancy? How much variation in those predictions is there, and are there any setps to improve or at least clarify the estimates?

On the financial side, you say you want to live in the now, but getting into the habit of also making savings, whether they be into a pension or a LISA or an ISA or payments on your mortgage, is a useful habit to form. Balancing current outgoings against savings for later is a good skill to have.

Cien

squirrelpie said:

"I know there's a lot of crystal ball gazing involved however with my health I've had 6 major operations on my stomach and I'm just concerned about my future and don't think I'll live to an old age and saving for retirement sometimes seems like it'll never happen."

If it was me, I'd do some more investigation of my likely future possibilities to try to put my mind at rest. I don't know how your mind works but read a lot around the subject, or find one or two consultant doctors you can trust and find out what the long-term possibilities really are for whatever condition(s) you have. What is your life expectancy, assessed by experts? What is your healthy life expectancy? How much variation in those predictions is there, and are there any setps to improve or at least clarify the estimates?

On the financial side, you say you want to live in the now, but getting into the habit of also making savings, whether they be into a pension or a LISA or an ISA or payments on your mortgage, is a useful habit to form. Balancing current outgoings against savings for later is a good skill to have.

Thank you thats a good shout. 
I did use a LISA for my house purchase back in 2019, I think I should get one open again for retirement. 
I know cash doesn't perform well long term but the thought of having to choose funds via stocks and shares makes me nervous as I wouldn't have a clue what to pick or where to start. 

Linton

I dont think 12% employer contribtion is enough "for a comfortable retirement e.g a few lavish holidays a year, and have enough income to not have to worry about day to day spending too much" and retire early.

Some very rough calculations.....

Assuming:
-you carry on at 12% until you retire at 68
-your salary increases with inflation
-you get an average investment return of 3% annual return above inflation

 you could have a pot of about 9 times your salary at 68.  That could give you an income of 1/3rd your salary.  Adding in £10K for SP, would mean an income of £20K at current prices.

So certainly doable for 1 person but pehaps not quite the comfort you seem to be aiming for.

But if you want to retire in 30 years time the pot would be about 2/3 the value at 6 times salary.  Bearing in mind the first 10 years would be without SP making up the gap would cost 10 X £10K leaving you with only about £90K to produce extra income.  So you would be struggling.

Cien

Linton said:

I dont think 12% employer contribtion is enough "for a comfortable retirement e.g a few lavish holidays a year, and have enough income to not have to worry about day to day spending too much" and retire early.

Some very rough calculations.....

Assuming:
-you carry on at 12% until you retire at 68
-your salary increases with inflation
-you get an average investment return of 3% annual return above inflation

 you could have a pot of about 9 times your salary at 68.  That could give you an income of 1/3rd your salary.  Adding in £10K for SP, would mean an income of £20K at current prices.

So certainly doable for 1 person but pehaps not quite the comfort you seem to be aiming for.

But if you want to retire in 30 years time the pot would be about 2/3 the value at 6 times salary.  Bearing in mind the first 10 years would be without SP making up the gap would cost 10 X £10K leaving you with only about £90K to produce extra income.  So you would be struggling.

Thank you Linton, useful insight.

In short, pull my finger out! 😄

MEM62

Many have compromised their retirement provision based on the fact that they believe they 'may not live that long'.  The majority of us do enjoy a long retirement and this approach is, in my opinion, short sighted.  You are fortunate in that the contribution made by your employer is generous.  (How much do you pay?)   Also, because you have the opportunity to make contributions via salary sacrifice.  At your age you have plenty of time before retirement so a reasonable contribution now will make a big difference.  The decision is, of course, yours but neglecting to provide for your future self will lead to your final years being somewhat miserable.  

MX5huggy

I think you’re doing well, your taking advantage of opportunities to make your money work.

The mortgage worries me, I would be saving with a view to making that outstanding balance as small as possible come remortgage time. Best rates are for those with LTV’s under 60%. Do you pay rent for the 20% you don’t own?

The best investment you could make is probably in yourself, what do you need to do to get that next job (inside or outside the current employer). If you did a £5000 course would you then be qualified to earn £60k? Here James explains the value of this.

https://youtu.be/S01ydjRBGAU

ewaste

Good clarification and rationalisation on the sharesave, many don't seem to put half as much thought into it.

They are often great schemes but many also end up getting burnt by having a huge concentration of risk with a single employer. 😬
I'd still avoid holding a large number of employer shares once they mature and make sure to diversify.

The sharesave is not a potential risk as with this particular organisation I'll never in my lifetime see their shares drop as low as 84p again.

I'd be wary of such predictions regardless of the organisation 😄 

The insurance part is tricky. I have critical illness (75k) and death in service 12x my salary paid to my nominated beneficiaries through work.

Big lump sums are nice but only really apply in worst case scenarios. Do you have any income protection cover, it's often neglected yet probably the most useful and valuable. Especially as the majority like yourself no longer have Defined Benefit pension schemes with ill health retirement options. 

I'd certainly love to retire by 50, but short of a miracle or being launched up the career ladder on a rocket, can't see that happening 🙈

Oh wouldn't we all, I'd ideally like to go at 60 so worked backward from there. Like yourself that's thankfully decades away so plenty of time even with pessimistic assumptions. 😅

Edit:- If you're pessimistic about your long term health, for good reason. It could be worth looking into public sector employment. 🤔 

MallyGirl

With your health concerns I would be thinking about aiming for early retirement, or downshifting to part time in later working years, so that you can enjoy it. This means contributing a bit more than just the employer 12%. With you using sal sac and getting the employer NI back as well then you have the opportunity for some good compounding.

Cien

ewaste said:

Good clarification and rationalisation on the sharesave, many don't seem to put half as much thought into it.

They are often great schemes but many also end up getting burnt by having a huge concentration of risk with a single employer. 😬
I'd still avoid holding a large number of employer shares once they mature and make sure to diversify.

The sharesave is not a potential risk as with this particular organisation I'll never in my lifetime see their shares drop as low as 84p again.

I'd be wary of such predictions regardless of the organisation 😄 

The insurance part is tricky. I have critical illness (75k) and death in service 12x my salary paid to my nominated beneficiaries through work.

Big lump sums are nice but only really apply in worst case scenarios. Do you have any income protection cover, it's often neglected yet probably the most useful and valuable. Especially as the majority like yourself no longer have Defined Benefit pension schemes with ill health retirement options. 

I'd certainly love to retire by 50, but short of a miracle or being launched up the career ladder on a rocket, can't see that happening 🙈

Oh wouldn't we all, I'd ideally like to go at 60 so worked backward from there. Like yourself that's thankfully decades away so plenty of time even with pessimistic assumptions. 😅

Edit:- If you're pessimistic about your long term health, for good reason. It could be worth looking into public sector employment. 🤔 

Yes thats also true. I'll hopefully be able to sell straight away for a healthy gain but not looking so well with the latest clowns in office (that's another issue entirely).

I do have income protection. 6 months full sick pay then an extra 2 years which costs around £5pm for 75% salary. I think I've covered all bases that I can do. I hope?