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  • FIRST POST
    • prezzacc
    • By prezzacc 14th Jan 20, 7:57 AM
    • 144Posts
    • 16Thanks
    prezzacc
    Basic Pension planning... Panic!
    • #1
    • 14th Jan 20, 7:57 AM
    Basic Pension planning... Panic! 14th Jan 20 at 7:57 AM
    Morning all.

    I've recently started to look at my pension contributions, and I've tried various calculations but the end story is... I won't have much money when I retire! Can I ask your advice on what pension pot I may require?

    Currently 35, started paying pension late (always the lowest) so have just 15k in my workplace pension. Currently paying in 13%, l and g multi asset fund.

    I'm thinking I probably need around 19k a year to live on various calculatora advised this, would like to aim for retirement at 62 but looking at my estimated income if I bought an annuity that's just over 2k a year! So it may be 68 after all.

    My work pay up to 7% am I'm in full receipt of this. Around 250 a month goes in...total So I'm guessing really I need to at least double this?

    Any advice on what realisticly I would need? Hoping mortgage will be paid off by 55 if on track. Would like to be comfortable with a couple holidays a year at least!

    Thanks
Page 1
    • BoGoF
    • By BoGoF 14th Jan 20, 8:13 AM
    • 5,922 Posts
    • 5,996 Thanks
    BoGoF
    • #2
    • 14th Jan 20, 8:13 AM
    • #2
    • 14th Jan 20, 8:13 AM
    What do you earn just now?

    Buying an annuity isn't your only option and possibly your worst option.

    Are you overpaying your mortgage? If so, stop and pay the extra into your pension (assuming you don't have a high interest rate)
    • AlanP
    • By AlanP 14th Jan 20, 8:47 AM
    • 1,846 Posts
    • 1,525 Thanks
    AlanP
    • #3
    • 14th Jan 20, 8:47 AM
    • #3
    • 14th Jan 20, 8:47 AM
    Are you on your own or is there a partner / spouse / family dimension to this? If there is joint planning will work better than individual planning.

    How much extra can you afford to pay in to a pension?
    • crv1963
    • By crv1963 14th Jan 20, 8:49 AM
    • 1,099 Posts
    • 2,433 Thanks
    crv1963
    • #4
    • 14th Jan 20, 8:49 AM
    • #4
    • 14th Jan 20, 8:49 AM
    Morning all.

    I've recently started to look at my pension contributions, and I've tried various calculations but the end story is... I won't have much money when I retire!

    I'm thinking I probably need around 19k a year to live on various calculatora advised this, would like to aim for retirement at 62 but looking at my estimated income if I bought an annuity that's just over 2k a year! So it may be 68 after all.

    Any advice on what realisticly I would need? Hoping mortgage will be paid off by 55 if on track. Would like to be comfortable with a couple holidays a year at least!

    Thanks
    Originally posted by prezzacc
    Firstly- no need to panic!

    I also would advise stop any mortgage overpayments and put it into a pension. If 19k pa is your target then you need 115k to drawdown 62-68 and around 10k pa onwards after that.

    There will be ups and downs in the market but the 15k will grow and as you're constantly adding to it then it will soon become quite large.

    If you have any spare cash each month now as you already have 20% salary going into a pension I'd open a LISA before you're 40 and save into that as well- just to give yourself an option should as is likely pension rules change over the next three decades.

    We're planning a mixture of income sources on retirement- pension, ISA and cash reserve savings. LISA too late for us in our 50s. The more options you create the better in my view- as long as you don't spread your savings too thinly around different products.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • torrence
    • By torrence 14th Jan 20, 8:58 AM
    • 34 Posts
    • 17 Thanks
    torrence
    • #5
    • 14th Jan 20, 8:58 AM
    • #5
    • 14th Jan 20, 8:58 AM
    As BoGoF says, unless you are paying a very hgh interest rate maximiing what you can put in a pension is probably better than paying the mortgage off quickly.

    The mortgage debt decreases in real terms with inflation, so a 100,000 mortgage debt will be less in inflation adjusted terms in 20, 30 years from now than paying it off now.

    On the other hand every 1 put into a pension can get an instant gain from tax relief so is intantly worth more than 1 you put in, and then over 20, 30 years the return you make from investing it compounds (for example at 6% average gain per annum every 100 will be about 570 after 30 years). Compound gains is the secret - and minimizing all investment fees and expenses which reduce your returns (again compounded so 1% fee sounds small but reducing your returns by 1% over 30 years makes a big difference).

    You can do worse than a low cost Vanguard Global Index fund - and at age 30 you have plenty of time ahead so can afford to be 100% equities. Don't worry about market crashes - they are inevitable. The key is to stay invested and use them as a chance to buy cheap - never panic sell. Ony start to to reduce equities exposer closer, maybe 10-15 years out from retirement.

    You have plenty of time at age 35. Don't worry!
    Last edited by torrence; 14-01-2020 at 9:01 AM.
    • Albermarle
    • By Albermarle 14th Jan 20, 11:51 AM
    • 2,221 Posts
    • 1,460 Thanks
    Albermarle
    • #6
    • 14th Jan 20, 11:51 AM
    • #6
    • 14th Jan 20, 11:51 AM
    .
    It is good you are thinking about pensions and all the advice above is good . However your career is an important factor . Clearly the better that you do well in your job , the more you will get paid in future.
    Nothing is better for retirement planning than having a high income when you are working !
    • prezzacc
    • By prezzacc 14th Jan 20, 12:51 PM
    • 144 Posts
    • 16 Thanks
    prezzacc
    • #7
    • 14th Jan 20, 12:51 PM
    • #7
    • 14th Jan 20, 12:51 PM
    Thanks all. Some great advice. Especially regarding the mortgage. I was due to have a savings overhaul and considering the over payments.

    To answer some queries, Mortgage is fixed for another 3 years at 2.1%.
    Family wise I should have said wife and 1 child, similar situation re the pension.

    We have 6 months of emergency cash saved, small amount in the stock market just opened vanguard vls80. Would like to keep that going towards general long term savings and really towards child, ie to help later in life if required, uni etc.

    I think we could spare 70 a month each to pension which I guess is around 100?

    What I don't understand is how to work it all out... If I want 19k a year (in today's terms) that's how much in 30 odd years? Annuity drawdown etc I'm not up to scratch on so will need more research there I'm just trying to figure out what I'd need in the pot to last us 30 years (till 90ish?) and have 19k each a year and how much that is a month.

    My current fund estimates 4% return, now I'm getting more into the markets I'm hoping I can change this fund, or st least look around a bit

    Thanks all!!
    • Anonymous101
    • By Anonymous101 14th Jan 20, 12:56 PM
    • 1,476 Posts
    • 1,234 Thanks
    Anonymous101
    • #8
    • 14th Jan 20, 12:56 PM
    • #8
    • 14th Jan 20, 12:56 PM
    .
    It is good you are thinking about pensions and all the advice above is good . However your career is an important factor . Clearly the better that you do well in your job , the more you will get paid in future.
    Nothing is better for retirement planning than having a high income when you are working !
    Originally posted by Albermarle


    I'd add to that that if you're able to increase your earnings then make sure with each pay rise a disproportionate amount is being put towards your pension, or a S&S ISA depending on your tax situation.


    Lifestyle inflation is one of the key reasons why high earners feel like they still aren't any better off. I know from personal experience that once I reached a certain income I was generally happy with my level of spending. The last 2 or 3 pay rises I have had have been 100% allocated towards my retirement savings. I'm in my late 30's.
    • crv1963
    • By crv1963 14th Jan 20, 1:00 PM
    • 1,099 Posts
    • 2,433 Thanks
    crv1963
    • #9
    • 14th Jan 20, 1:00 PM
    • #9
    • 14th Jan 20, 1:00 PM
    Thanks all. Some great advice. Especially regarding the mortgage. I was due to have a savings overhaul and considering the over payments.

    To answer some queries, Mortgage is fixed for another 3 years at 2.1%.
    Family wise I should have said wife and 1 child, similar situation re the pension.

    We have 6 months of emergency cash saved, small amount in the stock market just opened vanguard vls80. Would like to keep that going towards general long term savings and really towards child, ie to help later in life if required, uni etc.

    I think we could spare 70 a month each to pension which I guess is around 100?

    What I don't understand is how to work it all out... If I want 19k a year (in today's terms) that's how much in 30 odd years? Annuity drawdown etc I'm not up to scratch on so will need more research there I'm just trying to figure out what I'd need in the pot to last us 30 years (till 90ish?) and have 19k each a year and how much that is a month.

    My current fund estimates 4% return, now I'm getting more into the markets I'm hoping I can change this fund, or st least look around a bit

    Thanks all!!
    Originally posted by prezzacc
    80 each per month gives you 100. You work out in todays figures as the underlying investment hopefully grows at or above the rate of inflation so keeps the spending power of when it went in. Obviously there are downturns but that is also when your drip feed money buys more of the investments so when it bounces back up you've made more money.

    For example my wife invested in her 20s around 5k, left it in the pension fund and rediscovered it a couple of years ago in her 50s- now worth just shy of 100k. The power of compounding and will give her 3k pa drawndown at a rate of 3% pa.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Anonymous101
    • By Anonymous101 14th Jan 20, 1:18 PM
    • 1,476 Posts
    • 1,234 Thanks
    Anonymous101
    Thanks all. Some great advice. Especially regarding the mortgage. I was due to have a savings overhaul and considering the over payments.

    To answer some queries, Mortgage is fixed for another 3 years at 2.1%.
    Family wise I should have said wife and 1 child, similar situation re the pension.

    We have 6 months of emergency cash saved, small amount in the stock market just opened vanguard vls80. Would like to keep that going towards general long term savings and really towards child, ie to help later in life if required, uni etc.

    I think we could spare 70 a month each to pension which I guess is around 100?

    What I don't understand is how to work it all out... If I want 19k a year (in today's terms) that's how much in 30 odd years? Annuity drawdown etc I'm not up to scratch on so will need more research there I'm just trying to figure out what I'd need in the pot to last us 30 years (till 90ish?) and have 19k each a year and how much that is a month.

    My current fund estimates 4% return, now I'm getting more into the markets I'm hoping I can change this fund, or st least look around a bit

    Thanks all!!
    Originally posted by prezzacc

    Sounds like you're generally on top of things, buffer, S&S ISA etc. Any other debt besides the mortgage? At 2.1% I don't think that you should be in a hurry to pay that down. More efficient to be investing I'd say.


    With regards to working it out I think the simplest way is to just think about it in todays terms. You just need to remember that any investment returns need to be adjusted for inflation. So if you're assuming your vls80 will return 7% gross that would be 4% in real terms after inflation assuming 3% inflation.


    I use 4% as an annual nett return for my pension planning which I think some on here would consider ambitious but I think the general crowd on here is somewhat cautious. I have seen elsewhere that for 100% equity portfolio's some estimate anything up to 7% real returns over an investing life. You really need to do some reading and decide for yourself where to pitch that.


    As for the maths there's lots of "compound interest of principle" calculators which will help you calculate you your current investments future value. Combine this with a "future value for a series" calculation and that will give you your pot size. I've various formula's which I'm happy to share if you want to build your own in Excel.


    Then you open the drawdown can of worms. How much you can take from your pot each year. Most sensible people think that you can withdraw between 3-4% without ever depleting your capital. Again lots of reading online around safe withdrawal rates and the trinity study / 4% rule of thumb.
    • michaels
    • By michaels 14th Jan 20, 1:36 PM
    • 23,239 Posts
    • 105,602 Thanks
    michaels
    The only thing on the mortgage is rates go down as loan to value ratio improves down to about 60% so it may make sense for you to think about what your ltv will be in 3 years time at remortgage date. Otherwise prioritise pension as suggested.
    Cool heads and compromise
    • Albermarle
    • By Albermarle 14th Jan 20, 3:25 PM
    • 2,221 Posts
    • 1,460 Thanks
    Albermarle
    My current fund estimates 4% return,
    As said above, 4% after inflation is not bad and pretty normal by historical standards I think , although can be more, like in the past 10 years .
    4% before inflation would be acceptable to most people nearing , or in retirement as they tend to derisk.
    But at your age it would be on the low side and if this is the case then you might want to think about changing the fund in the pension.
    One caveat to this is that the projected returns and future income that are given by pension providers are very pessimistic and it could be this 4% is effectively a worse case scenario.
    Have another look at the paperwork so you are sure of the details and come back if you are not sure.
    • prezzacc
    • By prezzacc 14th Jan 20, 8:43 PM
    • 144 Posts
    • 16 Thanks
    prezzacc
    Thanks again for the advise and questions. To answer some more..

    No other debts to pay other than mortgage. LTV has just hit 60%! Salary wise I don't see any major increases in the next few years, currently happy with where I am but of course this will likely change! I do recieve small pay rises annually which I usually saved straight away... This will now go towards pension.

    Just found the last statement and it actually says they estimate 2.1% growth after inflation. So not great really. I need to look at another fund as I'm. Happy to increase risk for a good few years in return for potential higher returns.

    Calcutors all seem to vary wildly so I need to find the right one, but by my calculations I want around 500k pot if I want 19k a year for 30 years?! So 15k current, 300 a month for the next 30 years, estimated growth 2.1%.. Certainly need to up these payments 😊!

    I'm happy I'm at least looking into this now. Hopefully some more planning should get me closer to where I want to be!
    • Spreadsheetman
    • By Spreadsheetman 14th Jan 20, 9:40 PM
    • 331 Posts
    • 397 Thanks
    Spreadsheetman
    When planning for the future, don't assume you can keep a well-paid job into your late 50s and beyond. Quite a few people get made redundant in their 50s and getting a new job at the same salary level isn't always possible. (Or your health can take a downturn with a similar result.)
    • Marine_life
    • By Marine_life 14th Jan 20, 10:17 PM
    • 1,022 Posts
    • 2,036 Thanks
    Marine_life
    Thanks again for the advise and questions. To answer some more..

    No other debts to pay other than mortgage. LTV has just hit 60%! Salary wise I don't see any major increases in the next few years, currently happy with where I am but of course this will likely change! I do recieve small pay rises annually which I usually saved straight away... This will now go towards pension.

    Just found the last statement and it actually says they estimate 2.1% growth after inflation. So not great really. I need to look at another fund as I'm. Happy to increase risk for a good few years in return for potential higher returns.

    Calcutors all seem to vary wildly so I need to find the right one, but by my calculations I want around 500k pot if I want 19k a year for 30 years?! So 15k current, 300 a month for the next 30 years, estimated growth 2.1%.. Certainly need to up these payments 😊!

    I'm happy I'm at least looking into this now. Hopefully some more planning should get me closer to where I want to be!
    Originally posted by prezzacc
    I wrote this a while ago:

    http://earlyretirefree.com/could-you-retire-early-part-1-of-2/

    I still haven't finished part two
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
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