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?

We have now reached retirement age. The mortgage was repaid years ago and we do have quite good savings although we only had very modest jobs. We have small occupational pensions and around £800 each from the government. We can manage ok with this but if one of us should pass the household income would be a lot less but all the household bills would be much the same so that's when the income would be difficult to pay for everything without having to resort to savings. Also should one of us need to go into care and this is likely as husband suffers from dementia, care home costs would be £3k minimum pm. So income and savings would need to cover this then it would be the house. I've worked for 50 years, mostly full time and my husband close to 50 years as well. Our children may receive little or no inheritance.

Can someone help me here. I’ve gone onto the Vanguard Calculator and put in

Starting with a zero balance pension pot
Saving £1000 a month into the pot for 27 years (age 40-67) so contributing a total of £324,000 at medium growth rate of 5% only gives me a pot of £373,000??

That doesn’t seem like a lot of growth.

Is there a better way than this to invest £1000 a month?

Yeah that doesn't sound right.

I couldn't find the calculator you're referring to. I would plug those same figures into a compound interest calculator (I know pensions don't have interest rates but growth rates! But the figures will work out the same. Give a conservative rate like 4%.)

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/pension-calculator

The problem is that you don’t know what the growth is.

Both of my pensions have performed better than that, but I noticed yesterday one is in a high risk fund.

The main advantage of pensions over other types of saving is the tax and that your employer contributes. That’s what makes the biggest difference. Not absolutely sure what to do about that tbh now I’m getting older. But then on my investment ISA the lowest risk one apparently is the one that’s lost money!

Actual interest on savings is absolutely rubbish anyway, compound or not. It is usually less than inflation so your money is just eroded.

It is your responsibility to provide for your old age as I have done by foregoing holidays expensive cars etc

I put the figures into a compound interest calculator and it’s come out with a pot of 581,818 😰 had a mild (massive) panic there when I saw the vanguard figures!!!

Assuming that £1000 is after the 25% tax has been added by the government so your actual contribution is £800 per month? Or if you have £1000 to contribute then the amount going in will be £1,250 a month. You won't get 25% interest in a savings account.

Yes the 1000 a month is including my contribution, employers contribution and tax relief. It’s the total amount going into the pot each month.

You won’t get 5% interest a year. For most of the 10’s you were lucky to get 1-2%. Plus you have to pay tax on it.

This is 4%

We're not super rich, but we have that easily in pensions, through working.

DH grew up in a council flat.

People that have good work pensions don't realise how lucky they are . I work public service the last 5 years and won't retire for 15 years when 67 and my work and I contribute a lot per month but still won't be loads but I am very lucky. I do have a small pot private pension from other jobs too. Before I worked here I got the standard compulsory 2 per cent or whatever it was. As I said people with good pensions that have worked public service and a like since young are lucky.

DH grew up in a council flat.

try getting one of those now!

There is no interest, but a properly managed pension fund should crystallize gains due to growth in share prices etc by transferring funds from shares etc, which can go up and down, to things such as bonds which give a defined return. The closer you get to retirement, the more the fund should be weighted towards safer assets.

This means that a properly managed fund should see sustained exponential growth exactly like an interest bearing account. All of this is buried within the overall value of the fund.

Every fund I have ever looked at shows growth achieved previously, along with a disclaimer saying that past performance is not a guaruntee of future growth. With the exception of funds specifically linked to particular markets, they all advertise themselves as being able to achieve sustained growth, without offering any guaruntee.

Okay you won’t get 4% for the next 30 or whatever years either. Interest rates are currently high. Not in comparison to the 70s but we aren’t going back to that.

Currently interest rates are also lower than inflation so the money is actually losing value in savings accounts.

The closer you get to retirement, the more the fund should be weighted towards safer assets.

This is outdated advice with the 'new' flexible drawdown options.

At age 67, assuming you retire then, you still have to fund maybe 20-30 years. Why would you not want most of your fund still in growth stocks fir a lot of that time?

You only need to move a years worth of pension per year across to safer assets, like bonds and cash. Let the rest continue working.

And if you retire earlier, as many people do, it's obviously even longer.

There isn’t sustained exponential growth. It goes up one year then stays the same the next, then falls. You basically own units which go up or down. You also have to pay a percentage each year.

The previous gains have been based on economic growth. So it depends what happens in the future. All the projections are based on historical data.

Exactly. You could literally lose it all, down to zero. There are no guarantees (unless it is a scheme with guarantees, but they are rare now because, funnily enough, the providers went bust - Equitable Life for example).

In Feb 2020 I bought a couple of funds in my ISA, one was Scottish Mortgage. I recall looking at the stock components and thinking I didn't have much in those areas so it was a good addition.

In late Feb, and then onwards, the world went into freefall. Nearly all of my stocks lost money, my funds really suffered, including my pension investments.

But Scottish Mortgage.....that increased by over 100%! How smart am I! (Clue, not smart at all). Turns out it has (had) holdings in Zoom, Amazon, etc. It's a tech fund (which was probably why I chose it, I don't hold any individual tech stocks).

I didn't need the cash, and it was holding up my portfolio, so I left it (if I'd sold it, what would I do with the money, buy more stocks?). It obviously went back down gradually and now, three and a half years later, it is 'only' around 10% up, but it has thrown off some dividends too.

The other one is currently down 19%, but that's because it's a high yield fund and it gives me large dividends four times a year.

A rollercoaster. NOT "exponential growth" (people don't know what exponential means to be frank).

Yes, that's exactly true and a pension can absolutely disappear, but that message sometimes scares people off pensions unnecessarily. High-risk investments are a bad idea for amateurs but a good tracker fund, historically, will have solid yields over the decades.

Some of my funds had negative yields in 2008 and in 2020 but in the long run they've performed well.

I'm not sure if it has already been mentioned, but one of the simplest and most cost effective things you can do is to ensure that you are getting as many years credit for your state pension as possible.
Check your personal state pension entitlement online, it will show you how many years you have built up and any gaps. Depending on when the gaps happened, you may be able to pay a relatively small amount to cover the gaps and get credit for those years and ensure you get the full state pension if you can.

If anyone is interested, a new podcast has launched called The Rest is Money, hosted by Steph McGovern and Robert Peston.

Interesting discussion in the final 15/20mins or so of the first episode about the British stock market and pension funds.

Since your post, I've drawn up an excel and I think I can afford to do the same for a couple of years at least (i.e. increase salary sacrifice to get to 20% rate).

Am I right in thinking that I just need to work out how much my take home pay is on 50k and increase my salary sacrifice until I reach that amount?

It looks my employer does allow this.

Is there anything else I need to be mindful of, e.g. should I be concerned about NI contributions?

*Since your post, I've drawn up an excel and I think I can afford to do the same for a couple of years at least (i.e. increase salary sacrifice to get to 20% rate).

Am I right in thinking that I just need to work out how much my take home pay is on 50k and increase my salary sacrifice until I reach that amount?

It looks my employer does allow this.

Is there anything else I need to be mindful of, e.g. should I be concerned about NI contributions?*

This is what I do - I'm in Scotland so can earn around £43k before higher tax band kicks in. So I pay enough into my pension through salary sacrifice to bring my pay to just below this. I work for a big employer and can adjust payments online - I could change it each month if I want to and sometimes I do depending how much spare cash I have. If you go into the Gov. uk tax calculator you should be able to work it out.

I've had a pension at every workplace since I started work at 17 - they're all fairly small but will give me a little to retire on when the time eventually comes. I currently work in the public sector so will have a reasonable pension by the time I retire, with around 25 years service. DH works in the private sector and has saved in his pension since his 30s, and now has around £300k due to saving for his/our future - are you suggesting he hasn't worked for the last 30-odd years?

Workplace pensions are now pretty well compulsory, so hopefully we're moving away from this ridiculous attitude that pensions are only for "others".