So now all I need to do is save up 300K--is this for real?

[Coffeetree]

An article from This Is Money showed up on my feed this morning. Basically someone with £290K in pension pots at 50 years old, asking whether they're on the right track for retirement. The rest of the article was various investment advice. Generally the advice was "You're nearly there."

I read these articles and I feel like someone is playing a joke on me. I usually feel very very privileged in that, at 52, I have a mortgage that I'll hopefully be able to pay off in 4 years, plus about £50K in pensions. No inheritances on the horizon. I've worked in charities my whole life, then became single about five years ago, hence not much saved.

So, after paying off my mortgage, I then need to buckle down and save up 300K? That's not going to happen. My plan is to keep working and then go part-time or contract when I reach retirement age.

Am I the only one who thinks these "retirement advice" articles are really out-of-touch?

I mean, I agree for me, but I think it's better to know what you want and plan for it than not.

I'm planning to retire at 55, but that's knowing that I have lots of drive to fill my time and not many expensive interests. Very different to someone who has fancy tastes, enjoys their job, and who wouldn't know what to do with themselves.

I've only ever looked at financing retirement as a retirement and pension-minded professional. I started retirement planning before my family. DM didn't think about it and was tossed around via a nasty divorce and a sudden bereavement that left her working until she was 78.

At the moment I have £2k per month left over after bills and savings, and it generally gets spent. I’d like the same in retirement. Assuming the state pension still exists in the same state for my retirement (which I wouldn’t count on) and covers my bills, then I need annual income after tax or £24k to have that same level of free spend. That’s £30k per year gross. With a £300k pot I could only afford to live to 78… which I may well do, but it’d be a silly strategy to assume I die then. I’d also like to give up work before 68 which compound the issue.

I don’t want to work hard and then have to cut back in retirement, especially when I’ll have significantly more leisure time. Without a £300k minimum pot I would need to. I imagine that’s where this advice is founded.

@thecatsthecats , actually your comment resonates. I loved work, and so does DH. I can't imagine doing anything as enjoyable as my profession in retirement. It all looks a bit meh. I really loved my professional work, enjoyed every single day, the intellectual stretch and the buzz. DH is thinking about retirement but is starting to acknowledge that he still wants the involvement because TBF we've worked so much we don't have hobbies. We read, I'm planning to learn a new language and DH likes TV sport, but it isn't a life.

Could you downsize and release some equity?

Thank you this is really interesting.

Of course. And we shall. But we will be incredibly picky about how far we downsize.

Happy to help @Coffeetree . Please understand this has been a 20 year project for our small business, but worthwhile. If you want to message privately, I would try to advise, but I have no professional qualification in the field.

They're probably not unrealistic but it is something I think we underestimate.

So many people these days say "My house is my pension" but unless you can massively downsize.its not much use - you still need somewhere to live.

I think we're all being delusional that the state can prop us up in a state of relative comfort for 40 years after working for 35. 😞

Dunno what the answer is though. Spend less, save more is easy to say, but the cost of living rules that out for most. ☹️

Exactly - it really depends on what your retirement plans are, doesn’t it? If you plan to enjoy your garden, and bake your own bread, £900 per month might be plenty. If you want to travel the world and take up golf (or any other expensive hobby), it probably won’t be.

Neither of those two options are “wrong”, they will suit different personalities.

This is pie in the sky stuff for the vast majority of people. It's not even really pension related at all, it's managing your company finances and tax avoidance.

It doesn't even apply to most businesses, I have my own business, but it doesn't own any property and it wouldn't be able to.

Somebody who’s been paying in since they were 21, and has an employer matching their contributions. With that and compound interest over 40 years, you’d only need to pay in £2k per year yourself to have a pot over £500k at retirement.

Do the sums yourself:

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Oh god - again, for the hard of understanding: THERE IS NO INTEREST ON PENSIONS, so interest compounding is irrelevant.

PensionBee: Interest gets paid into your pension plan and is then reinvested again, meaning the longer you leave money in your pension, the more compound interest it'll generate and the larger your pot could become.

The Government: Your pension works on compound interest. 
This means the younger you start saving into it, the more power it has to grow.

What interest, what are they taking about? No interest has ever been paid on any of my pensions, none at all. I've had several over the years and have four currently (plus a deferred DB one), literally not a penny of interest has ever been paid.

Can anyone here look at their pension statement and tell us what the "interest rate" is, how it is used and how it shows in the plan? Thanks

Well, growth indirectly compounds. And funds reinvest dividends.

But yes. There is no interest, only growth, or depreciation.

Yes, growth theoretically compounds in the same way as interest would. I didn't say there wasn't compounding - though that's still an odd concept with investments. You could invest £1000, have a 5% return one year, then a 10% loss the following year - where's your compounding gone then?

I've looked at a few sites and they basically use the term "interest" to mean "returns", which I think is actually misleading - because we think of interest (quite rightly) as a set (though maybe variable) return, usually loosely linked to the BOE base rate, so when that is high our interest rates are high. Whoop whoop.

But it does not follow that increases in BOE base rates mean increased returns on investments. And this is why people get confused and find it scary.

The 35 years of contributions only applies to people that starred paying after the changes in 2016. For anyone in their 40s already it wouldn't apply.

I just assumed everyone had to do this!

Technically some platforms do pay interest on money held as cash in a SIPP/Workplace Pension so I see it on my transactions on a HL Pension each month based on how long it is before I invest the employer contribution.

But I agree with the fundamental point, the "compound interest" bandwagon built from YouTube etc drives me potty also. Almost a distraction tactic from things people should be considering. (Extolling the virtues of "compound interest" whilst "pound cost averaging". Buzzword bullshit bingo )

I get a weeny amount of interest indeed on any cash holdings, which are very low anyway. Until this year it was like .01% or something. Not much compounding going on there on the odd bits of cash that float around when I accidentally choose dividend paying funds instead of accumulating!

This really needs to be corrected, I'm in shock that the govt website uses this terminology.

I'm 50 and I have absolutely nothing.

'The miracle compound interest' has been a thing way longer than the existence of youtube and the modern day phenomena of sharing snippets of information by video.

I have a personal finance book published in the 1990s that talks about it for a start. Likewise pound cost averaging.

But whether we are talking about interest or investment growth, compounding over many years is a significant contribution to the whole pot.

The actual money put in to a £300k pot by the individual will be a small fraction of that amount, probably £50k at most, the rest being tax relief, employer contribution and investment growth compounded over many years. £50k over 40 years works out at an average of about £100 pm, so far from unachievable to many.

Everyone does have to do it. The rules were different pre-2016 but it's contribution based so if you don't pay in you don't get out. Exceptions for protected NICS.

Same here. But I’m in the US and the articles are talking about millions not being enough. I’m 41 and two of my kids are approaching university, and I’m really struggling to come up with the $20k that financial aid won’t cover for the oldest, and I have less than a year. I’ve been a single mother most of my life and really struggled just to survive. I’m trying to start a new career with higher pay and plan to work forever. I honestly don’t know where people are getting all this money. I’ve always worked so hard and never had enough for saving. And now AI is predicted to take over my new career choice. I never wasted money on lottery tickets before, but now I might start! Since I’ll be needing those millions soon! 🙃

@OhamIreally I meant historically everyone had to do it.