So What Should I do

xymox

Hi

All this talk about us working till 70 is now concering me a little as I do not have a pension.

About me
35 years old
Salary Apx 50k
Expenditure Apx 40k less the taxes I paid
Wife Sal 15k
Wife Exp 25k
Savings 0
Assets
House 300k, Mortgage 100k
2nd home 75'k ish (rent to mother-in-law, for cost, no mortgage, no profit)

I have not taken out a pension as I always find somewhere else to spend my money, house needs lots of updating etc etc. Always mean to but think my assets + inheritance will cover me. My parents house is worth about 800k, half of which I will receive (-40% I guess) by the time I reach 60 my parents will be in their 90's so I guess I can include their house value in my plans.

So should I invest in a pension and if so based on that info how much per month?

If my parents decided they hated me and left my half to the dogs home, how much more should I invests?

If I wanted say 1000 per month equivalent to today’s value for me and my wife how much would I need to save now ignoring other assets, assuming inflation at the current rate?

I guess in reality I need to speak to an IFA but would like to assess it before I do.

Tnks
Xym

dunstonh

The main question is how much (in todays terms) income will you want in retirement.

At what age do you want to retire?

If you answer those two, i will stick your figures in my pension calculator (like i did earlier today for another post) and see what the monthly damage comes out at.

xymox

Guess I'm looking for £1000-1500 per month, retiring at either 60 or 65.

dunstonh

Ok, looking at 25 years
ignoring state pension (as that is 65 and maybe later in future)
growth of 7% pa and 1% amc
with zero existing benefits
target £1500pm income gross (in todays terms).
looking at annuity with 50% spouse benefit with 5 year guarantee with level annuity
Contributions should be: £579pm gross (as a higher rate tax payer you would pay 22% less than that but your tax code would be adjusted to claim back another 18% via the payslip making a net effective contribution of £347pm

If you want an increasing annuity, you should be looking at £597pm gross.

xymox

Thanks...
That's a lot of money every month, is that fixed or will it go up with inflation?

Is there a formula that I could use to change term/payment figures to see how things differ.

Also forgot to mention, I opted out of Serps about 10 years ago on advice of a salesman, never really known since if that was a good move or what it really meant to me.

dunstonh

That's a lot of money every month, is that fixed or will it go up with inflation?

Whenever you use a target figure in todays terms, you should make your contributions increase annually to keep up.

Is there a formula that I could use to change term/payment figures to see how things differ.

There is no easy formula. Its easy for me to change it on the software as I do it but that sort of software isnt available to consumers unless you want to pay for it.

Also forgot to mention, I opted out of Serps about 10 years ago on advice of a salesman, never really known since if that was a good move or what it really meant to me.

In the early days it was good to contract out. Unless you have a pre royal assent 1989 personal pension for contracting out and ordinary rights (which you dont), then you should be contracted back in again at the moment. However, that may change again in 2006 as there MAY be some enhancements to contracting out again.

Contracting out benefits can be taken from age 60 and have to include 50% spouse benefit and increase annually.

Darryl

Try using this calculator too:

http://www.pensioncalculator.org.uk/pages/home.php

And if you want to learn more about pensions/saving for retirement, this site is a good place to start:

http://www.fool.co.uk/pensions/pensions.htm

Darryl.

dunstonh

As mentioned in the other similar thread that is running alongside this one, that calculator gave me a provision figure that was massively incorrect.

It was twice what professionsal software was suggesting. The main reason is the way it uses inflation in the assumption. It takes inflation into account but then tells you to pay a level premium over the term. In reality, you would pay an annually increasing figure to keep up with RPI or NAEI.

Pal

As mentioned in the other similar thread that is running alongside this one, that calculator gave me a provision figure that was massively incorrect.

Given that all these calculators (including your software) are attempting to predict the future, I am not sure that accusing one of being "massively incorrect" is entirely correct either. ;D

Xymox - Please bear in mind that your parents may need medical and/or residential care in their later years and may end up selling their house to cover those costs. It is entirely possible you may end up without any inheritance at all and you should plan accordingly.

dunstonh

None of them are going to be correct as there are too many variables. Perhaps that better way of putting it is that when assumptions are used, the calculators tend to err on the more cautious side meaning your contributions would be higher.

That particular model takes inflation into account and then uses a level premium to get you there. An increasing one would be more cost effective but is not shown on that model.

The best option is to keep reviewing it every few years and make sure your premiums increase annually not only to keep up with inflation and/or earnings increases but also playing catch up from past years.

As you get closer to retirement the accuracy of the calculators will improve.

margaretclare

Hi DD

It would be better if you made NO assumptions about inheriting from your parents, whether their house, their money, or anything else.

If your parents, or one of them, survives to 90, which is possible nowadays. it's also possible that they may need to use the equity in their house to fund long-term care.

This is something I feel quite strongly about, and after all, what belongs to your parents belongs to them, and should be used to ensure their comfort and care at a time when they may need it. Your own retirement fund is your own responsibility.

My husband and I were never left a penny-piece by parents or anyone else (as is common with our generation). We are not planning to leave much to succeeding generations. No matter how much we love them, they should earn their own way in the world. whatever is left may be split between 5 grandchildren (3 of mine and 2 of his), thereby skipping a generation.

Margaret