Parents think I don’t have enough money in pension

[Helena1985h]

Talking to my mum and dad about pension today. I’m 35 FYI.

They asked me how much I’d put away as were saying they wished they’d focused more on their pensions when young. I logged in and had a look and I have just under 55k.

They seemed to think that was way too small, and they’ve properly freaked me out TBH. Is that really not a lot at my age? I sort of assumed I was doing okay!

The amount you have isn’t the thing that interests me - because we can’t know without more detail on your life so far whether that’s an excellent start or a hugely missed opportunity!

What interests me is that at 35, your focus on your pension seems to have been prompted by your parents, you had to look up how much you had, you’re not confident on compound interest, and you’re not confident about your decisions for overpaying your mortgage.

For me the “ideal” pension situation at 35 is that when your parents ask (and fair play to them, they care) you can say, “I’ve got abc and my plan is xyz for reasons 1,2,3”

And I think you’re close to that! Fair play that you were able to log in, that you understand there’s a balance to be struck with mortgage over payment, and that you know compound interest is a thing.

I would say that more important than your next £10K saving, is your next bit of financial education 🙂

Get yourself over the MSE, check out the intro articles, and get excited about learning, planning and saving 👍🏻

@DorothyZbornakIsAQueen

I didn't have a pension until I got to 39. Luckily my employers put in 22.5% and I put in 6%.

Also, I'm on a final salary pension, so should be okay, but won't be able to retire early.

I'll get a decent lump sum payment and an okayish monthly income, but luckily my dh has a fairly decent pension too.

My goodness, that's a very very very generous employer contribution.

@Akire,

But I didn’t put £17k per year away?

I started by putting 7.5% of my gross income away at 23 and was earning £28k/yr. which is great graduate salary. Every year I got a pay raise of around 2-3% so I added 1% of it to pension saving and kept rest for me, until I got to 15% of gross income going to pension and stopped there.

This is including my employers match of 0.5% for every 1% I put away from them. So at 23, it was 5% from me, and 2.5% from them. So that was only £1,400 the first year I saved. I think I reached the 15% mark...10% from me and 5% from employer when I was 29 or 30? It was right before I got pregnant. I was on £42k/yr when I went on maternity, so that was around £4,200/yr from me and £2,100/yr from employer.

But my personal rate of return for those years was 15-20%, then I lost money in the 2009 crash. My pension went down by around 20% in value but it wasn’t that big as I’d only been saving since 2004. But then it recovered and the returns have been average 15% each year since then. It’s long term so I was invested more aggressively than I am now as retirement is closer.

You are forgetting the power of returns on investment. I’ve been with a new employer for awhile now since I was 39 and have just left that pension pot to grow with nothing added to it except the returns on investment. It’s over £400k now and last quarter it grew by over £30k...again with zero pence from me being put into it.

I started early and aggressively on my pension because of the power of returns on investment. It meant I was late owning a home because I focussed on my pension savings before everything else.

If a pp understood compound interest they wouldn't have thought that the person who had the impressive pot at 37 after 14 years saving had to put in £17,000 a year. The early contributions would have been earning interest and then that interest would have been earning interest and so on. I think Einstein once described compound interest as the 8th wonder of the world.

@HermioneWeasley.

The rule of thumb now is that you need roughly £350k of capital to generate £10k a year of income in retirement.

That’s interesting I have been on a couple of (I thought) reputable online calculators with a different (more generous) algorithm and am now concerned I have a false sense of security. Do you mind sharing your source.

I started at 26 and have like £16 k in my private Virgin one 🙈 I’m now 36 but haven’t put much in per month as I don’t have huge wage. Started with 10per month and built up. I’m currently 50£ per month but need to increase in new year. It’s been £100 in past. Have childcare fees to pay just now and thought I was doing ok to put that in on top of my work pension. I have a really good work pension (nhs) and have 20k in it already but only been in job a couple of years. That amount is what I’ve paid in, not what I’ll get though. Will work til 68 most likely so got a few decades to turn it around. No one else my age has a personal pension on top of a work based one so you are doing well.

Sorry Cixi - didnt see your great explanation before I posted.

The rule of thumb now is that you need roughly £350k of capital to generate £10k a year of income in retirement.

That seems incredibly conservative to me - the calculator on standard life is certainly predicting much higher.

Oh wow, this thread has made me realise that I actually have zero idea what’s in my pension pot. I’m 35, I should probably get a grip on that.

OP, have you been in the same job for a while, have you kept track of any workplace pensions from previous jobs? Worth checking if you haven’t already.

@EmpressCixi

I hit £250k at 37. Had started at 23. So I sort of agree with your parents. But it all depends on your income to begin with and how good the returns are. You can’t save what you don’t have.

I don't think I will earn enough to get that....that must be a combo of high earnings and excellent contributions from employer?

Sorry, Empress, I just saw your answer to that.

I’d say 55k was a good start keep it up. Pensions are not everything, if you own a house and have equity in that, life insurance or other investments.
Everything depends on your employment modest wages outside the public sector means modest pension, if you are earning say £30k and have been working 10yrs and paying a mortgage you’ve been saving £5k a year keep it up

@Rangoon

Sorry Cixi - didnt see your great explanation before I posted.

I think we cross posted. It took me quite a bit of hard thinking/remembering!

@butterflyfox sorry, I don’t have a link, it’s from chatting to people in the industry (which I used to work in). It was £100k capital for £10k income when I started out over 20 years ago!

What have you seen?

Doesn't it totally depend on how much income you want to have in retirement? Assuming you retire at 65 and want an RPI indexed-linked income (prudent unless you intend to die soon after retiring) then you need to save £500k to get an income of £13k pa according to this:
www.hl.co.uk/retirement/annuities/best-buy-rates

But annuity rates are currently very low, and who knows where we'll be in 30 years.

They are right

( Retired pension specialist)

One thing to make sure, that I haven't seen anyone mention yet, is that you're taking advantage of any employer matching that's offered above & beyond your current level. Otherwise you're turning down free money!

[quote butterflyfox]@HermioneWeasley.

The rule of thumb now is that you need roughly £350k of capital to generate £10k a year of income in retirement.

That’s interesting I have been on a couple of (I thought) reputable online calculators with a different (more generous) algorithm and am now concerned I have a false sense of security. Do you mind sharing your source.[/quote]
Here's the link that I was looking at
www.hl.co.uk/retirement/annuities/best-buy-rates

Really you need it index linked, otherwise over the course of perhaps 30 years retirement you'll end up on a pittance. In which case you're looking at about 2.7% annuity rate at 65.

What percentage of your income do you save? As one of the older Mumsnetters, I do think your parents are right about the absolute fucking magic of compounding interest. You can sock away your ten, fifteen, or twenty percent for years and years and it looks as if it is doing absolutely nothing, and then, somewhere way down the line, holy crap, it does some crazy thing and it somehow turns into a decent amount of money. But you have to start feeding that money beast early and be consistent. Yes, have adventures. But don't stop feeding that money beast. Because old people like adventures, too. And you'll be one someday!

Meh. You can only do so much and you might not even get to retirement age. Within that time you might emigrate. Or win the lottery. Or receive a big inheritance etc etc. Just do what you can do in life and don't spend too much time planning and regretting choices etc as so much can change.

And OP I'm 35 with around £80k total in pensions. I'm not concerned as I know I've done my best. I've also already started my daughters pension when she was born (not many people seem to know you can start a pension from age zero) and will do for my next child too so even if I don't have much in retirement I'm hoping they will. I also set up protection policies when they both hit 18 as its the cheapest time to buy a policy and they'll have that in place for life then.

Yabu, you’re doing well

They should not be putting their anxiety on you

Your parents are right. A lot of older people regret not prioritising pensions & many have to survive on just a state pension. Put away as much as you can. No one wants a retirement in poverty!

You’ll probably never retire, so don’t worry.