Is my Pension Pot too Small?

Albermarle

Workerdrone said:

Your comment caused me to look back at mine. At 39, mine was around 58k.  Divorce, losing a house and a good 6 years disastrous self employment where I couldn't afford to contribute had a knock on effect. But to be honest I wasn't worried back then. I was quite pleasantly surprised by how it had racked up. But it did make me take pension saving more seriously for the past decade. I've only just hit 38.5k salary last month. I'd definitely be putting more in if I were you. I also wouldn't take heed to anyone who says its disastrously low at 39. I know plenty of people who have less than that in there 50's. Now that to me is worryingly low.

 also wouldn't take heed to anyone who says its disastrously low at 39.
Nobody actually said that.

As Eskbanker says in the previous post to yours.
The OP had a previous thread asking what to do with £115K in a savings account.
As is often the case they were enquiring about investing, whilst ignoring their pension as an option.
As usual the regular posters pointed out that putting some of it in their pension would probably be a good idea, especially as it was not that large a pot.
OP then started this thread, and the general consensus is that the pot is not that bad, but could be better, especially as they have spare chunk of money to invest.

Anonymous101

Albermarle said:

Workerdrone said:

Your comment caused me to look back at mine. At 39, mine was around 58k.  Divorce, losing a house and a good 6 years disastrous self employment where I couldn't afford to contribute had a knock on effect. But to be honest I wasn't worried back then. I was quite pleasantly surprised by how it had racked up. But it did make me take pension saving more seriously for the past decade. I've only just hit 38.5k salary last month. I'd definitely be putting more in if I were you. I also wouldn't take heed to anyone who says its disastrously low at 39. I know plenty of people who have less than that in there 50's. Now that to me is worryingly low.

 also wouldn't take heed to anyone who says its disastrously low at 39.
Nobody actually said that.

As Eskbanker says in the previous post to yours.
The OP had a previous thread asking what to do with £115K in a savings account.
As is often the case they were enquiring about investing, whilst ignoring their pension as an option.
As usual the regular posters pointed out that putting some of it in their pension would probably be a good idea, especially as it was not that large a pot.
OP then started this thread, and the general consensus is that the pot is not that bad, but could be better, especially as they have spare chunk of money to invest.

I was unaware of the previous thread. This does add a little context. I would now add that OP's pension as a proportion of net worth is out of kilter. Against salary it looks reasonable but against net worth its low. Nothing to worry about but the £115k does allow either a route to contribute directly into the pension or for OP to increase contributions significantly in the knowledge they have a relatively large post tax, therefore accessible, pot.

handful

lisyloo said:

I can do a very rough formula, but it does depend on what kind of lifestyle you want.

So as a rough and ready example, I want 28K net to live on which is 30K gross (you have to pay income tax).
So I think I need a pot of £750K for that.
That would be for quite a comfortable retirement with nice holidays.

So yes I'd say your pot is low.

What level of income do you want? start from there.

I have mine broken down, so for example I know I want £2K to run my vehicles and £1200 to spend on travel (petrol, parking), £1500 on gifts and £2500 on entertainment.
I worked this out by looking at my current spending.

So the important question is how much per annum do you want to live on Net of tax?
From there we can work out gross and size of pot.

Th rough formula I'm using is 
25 x annual gross (before tax) income requirement

Some will say that's not quite right but I think it's ballpark for the stage your at right now - which I'd call macro rather than micro planning.

Your calculations for the pot required for £30k pa are assuming no SP?

SieIso

Albermarle said:

Workerdrone said:

Your comment caused me to look back at mine. At 39, mine was around 58k.  Divorce, losing a house and a good 6 years disastrous self employment where I couldn't afford to contribute had a knock on effect. But to be honest I wasn't worried back then. I was quite pleasantly surprised by how it had racked up. But it did make me take pension saving more seriously for the past decade. I've only just hit 38.5k salary last month. I'd definitely be putting more in if I were you. I also wouldn't take heed to anyone who says its disastrously low at 39. I know plenty of people who have less than that in there 50's. Now that to me is worryingly low.

 also wouldn't take heed to anyone who says its disastrously low at 39.
Nobody actually said that.

As Eskbanker says in the previous post to yours.
The OP had a previous thread asking what to do with £115K in a savings account.
As is often the case they were enquiring about investing, whilst ignoring their pension as an option.
As usual the regular posters pointed out that putting some of it in their pension would probably be a good idea, especially as it was not that large a pot.
OP then started this thread, and the general consensus is that the pot is not that bad, but could be better, especially as they have spare chunk of money to invest.

Just to clarify this was said to me in person, I wasn't referring to the separate thread.

SieIso

I am trying to attach an image but it disappears, is there a guide on how to do this on MSE?

lisyloo

handful said:

lisyloo said:

I can do a very rough formula, but it does depend on what kind of lifestyle you want.

So as a rough and ready example, I want 28K net to live on which is 30K gross (you have to pay income tax).
So I think I need a pot of £750K for that.
That would be for quite a comfortable retirement with nice holidays.

So yes I'd say your pot is low.

What level of income do you want? start from there.

I have mine broken down, so for example I know I want £2K to run my vehicles and £1200 to spend on travel (petrol, parking), £1500 on gifts and £2500 on entertainment.
I worked this out by looking at my current spending.

So the important question is how much per annum do you want to live on Net of tax?
From there we can work out gross and size of pot.

Th rough formula I'm using is 
25 x annual gross (before tax) income requirement

Some will say that's not quite right but I think it's ballpark for the stage your at right now - which I'd call macro rather than micro planning.

Your calculations for the pot required for £30k pa are assuming no SP?

Yes you’re correct.
that’s partly because I’m looking to retire a long time before 67 so won’t have SP.

ader42

Finger in the air maths…

Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
£400k would buy a pension of about £16k a year. 

That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.

kinger101

ader42 said:

Finger in the air maths…

Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
£400k would buy a pension of about £16k a year. 

That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.

Planning using a 7% growth rate is a little optimistic, and you have not factored in inflation. 

All predictions will be wrong, but they do need to be useful (NB they cannot access pensions at 55 anyway).

I plan growth at 2.5% above inflation, which by my calculations would give OP an inflation adjusted pot of around £420K at 67.  At a drawdown rate of 3.5% pa, would mean £14,700 pa.  On top of state pension of ca. £9650 per year, then I'd say OP's plans are reasonable to give the a strong plan for a comfortable retirement at state pension age.  But it would be useful if they can work out their expenditure too.  Of course, I'll be wrong too, but hopefully wrong in a more useful way.

Albermarle

kinger101 said:

ader42 said:

Finger in the air maths…

Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
£400k would buy a pension of about £16k a year. 

That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.

Planning using a 7% growth rate is a little optimistic, and you have not factored in inflation. 

All predictions will be wrong, but they do need to be useful (NB they cannot access pensions at 55 anyway).

I plan growth at 2.5% above inflation, which by my calculations would give OP an inflation adjusted pot of around £420K at 67.  At a drawdown rate of 3.5% pa, would mean £14,700 pa.  On top of state pension of ca. £9650 per year, then I'd say OP's plans are reasonable to give the a strong plan for a comfortable retirement at state pension age.  But it would be useful if they can work out their expenditure too.  Of course, I'll be wrong too, but hopefully wrong in a more useful way.

In an earlier post I 'guessed' at a pot of £330,000 at age 60 (also in real terms, )so we are approx in the same area.

kinger101

Albermarle said:

kinger101 said:

ader42 said:

Finger in the air maths…

Current pot is £73k, expecting to pay in circa £7k a year for 15 years, gives a pot of approx. £200k
You can hope the pot doubles in size over that time period (around 7% growth) so becoming approx £400k.
£400k would buy a pension of about £16k a year. 

That’s assuming you hope to retire at age 55 of course. If retiring at state pension age then you are in a much better position.

Planning using a 7% growth rate is a little optimistic, and you have not factored in inflation. 

All predictions will be wrong, but they do need to be useful (NB they cannot access pensions at 55 anyway).

I plan growth at 2.5% above inflation, which by my calculations would give OP an inflation adjusted pot of around £420K at 67.  At a drawdown rate of 3.5% pa, would mean £14,700 pa.  On top of state pension of ca. £9650 per year, then I'd say OP's plans are reasonable to give the a strong plan for a comfortable retirement at state pension age.  But it would be useful if they can work out their expenditure too.  Of course, I'll be wrong too, but hopefully wrong in a more useful way.

In an earlier post I 'guessed' at a pot of £330,000 at age 60 (also in real terms, )so we are approx in the same area.

Seems we "guess" in very similar ways as if I change it to 60, it also comes out around £330K.