How much to save for retirement?

beer_tins

OK, here's my situation, I didn't start my pension until I was 29 (go easy on me!). It was a work pension and I paid in 5% of my salary, which the company matched with another 5%. I am now 31 and have been with my new company since 6 months. I moved my old pension over to my new one and I now save 6% of my salary, which the company doubles with a further 12% (I know, it's a good one and I'm contributing the maximum amount they will match.). It's a standard "equity until x years to retirement, when it shifts towards fixed income & cash" style pension. My question is, roughly what kind of income can I expect when I retire (in % relation to my current income), assuming an average retirement age.

I've got a repayment mortgage which will be paid off well before I retire and I plan to have any further hose moves in the future paid of by retirement as well. I have no other retirement savings or pension plans.

I just wanted to get a feel of whether I was in a good state for retirement (some way off, I know!) or if I should be making up for the years of not paying into a pension. Any advice is greatly appreciated...

jonathon_hart

Hi.

That will depend upon how your salary increases, the performance of the fund(s) it is invested in, inflation and annuity rates at retirement. Therefore is very difficult to give a precise answer to this.

I've done a rough calc assuming the following:
Salary growth 3%
Inflation 2.5%
Fund Return 7%
Annuity rate 5%
Retirement Age 65

This gives an income assuming no Tax Free Cash taken around 50% of your current salary

or 2.5 times your salary as Tax Free Cash and 38%(ish) as pension

Jonathon

jonathon_hart

Oh yes - this didn't take into account any existing fund. Also your pension should be providing you with an annual statement giving a projected pension as well.

[Deleted User]

jonathon_hart wrote: »

Hi.

That will depend upon how your salary increases, the performance of the fund(s) it is invested in, inflation and annuity rates at retirement. Therefore is very difficult to give a precise answer to this.

I've done a rough calc assuming the following:
Salary growth 3%
Inflation 2.5%
Fund Return 7%
Annuity rate 5%
Retirement Age 65

This gives an income assuming no Tax Free Cash taken around 50% of your current salary

or 2.5 times your salary as Tax Free Cash and 38%(ish) as pension

Jonathon

Hi,

Sorry to hijack the thread but can you do the calculation for me assuming:

Salary growth 3%
Inflation 2.5%
Fund Return 7%
Annuity rate 5%
Retirement Age 65

I contribute 5% of my salary (matched by my employer) and I've contributed since I was 23.

Thanks

beer_tins

Thanks Jonathon is that 50% of my current salary adjusted? If so that's not too bad, but unadjusted 50% of my current salary in 2042 probably won't be a great deal!

Also, thanks for having a guess on salary increases, inflation etc., your guess really is as good as mine, you never know what's going to happen between then and now!

jonathon_hart

50% in current day terms - hence the inflation figure - you work out what it will be at 65 and the deflate(if thats the right word!!) it back to current date at an assumed inflation rate.

As for the assumptions - yes anyones (sensible!) guess could turn out to be right - you just need to keep an eye on it and make sure it still matches your needs.

jonathon_hart

Also it assumes that you don't hit any limits depending on what you salary is currently and that they don't change the rules again!!

jonathon_hart

Deleted_User wrote: »

Hi,

Sorry to hijack the thread but can you do the calculation for me assuming:

Salary growth 3%
Inflation 2.5%
Fund Return 7%
Annuity rate 5%
Retirement Age 65

I contribute 5% of my salary (matched by my employer) and I've contributed since I was 23.

Thanks

As I don't have your age now I've assumed you are currently 23, if so it gives an answer at about 64% of salary - if you are older than that you will have to cast you mind back a few years!

Also bear in mind all the points above about assumptions and how little these figures may actually mean in 30-40 years time

[Deleted User]

D'oh! I'm 24 at the moment so I've been paying in since October 2006 (when I was 22)

Would it be possible to tell me how you worked out 64%? It's not that I don't believe you, more so that I can use the equation in the future when things change

[Deleted User]

As posted here:

http://forums.moneysavingexpert.com/showpost.html?p=10392609&postcount=4

The Hargreaves Lansdown calculator and you're assumptions and calculations pretty much agree.

Still be nice to know you're formula...

jonathon_hart

Hi.

Essentially what I do is in a spreadsheet work out the contribution for each month (1 row per month). You then need to use the power function in Excel to project what each month's contribution would be worth at retirement. Sum all those up to give a projected fund at retirement.

Then you delate those by dividing by inflation to the power of the number of years to go this will give the fund value in today's terms. To convert it to a pension simply multiply the fund value by the annuity rate.

This forum doesn't let me post or pm the spreadsheet and I have no idea how to host it on a website (not that I have one anyway...) I'm afraid.

Jonathon