Pensions…. Am I going to struggle in retirement?

[PocketRocket12]

I suppose I’d never given it much thought in my twenties. I started paying into an employee/employee pension at the age of 24 but at the minimum contribution level. This stands at a couple of thousand pound.

Now at age 33, I still pay into employer pension (diff company) at a fixed rate of 4% and they contribute the same. You can’t change this and pay in any more. I’ve a mortgage which will be paid of (hopefully!) by the time we are 56.

Money is so tight every month with the cost of living but we get by. However with my mum just retired, I’m starting to think about my own retirement and whether I need to reassess where my money is going.

Is there an ideal amount of money people like to have saved depending on certain circumstances? Do people tend to have private and employer contribution pensions?

According to what I read iseally you should be putting 50% of your age so in your case 16.5% so you’re putting half of what you should. But I guess this is if you can afford it. It doesn’t make sense to put thousands if you have to live eating rice everyday

So helpful thank you @EasterIssland! you’re right, we can only do what we can do but good to have a bit more of an understanding

It's 50% of the age you start contributing not your current age so 12% for the OP, not 16%.

I wouldn't beat yourself up about it, you started far earlier than a lot of people so slow and steady is fine. You'll be mortgage free too!

I was in almost exactly the same situation as you. Minimum contributions from mid-twenties, I'm now early 30's. I ran all the numbers through a retirement calculator and my projected pension income was pittance. I took on a few more hours of work and put my pension up so that I'm contributing 12% (employer still contributing minimum of 3%).

I am keeping an eye out for any suitable jobs in my industry that have better pension contributions.

It really depends what your income expectations and retirement age expectation are. The old rule of thumb is to save half of your age as a percentage (including employer contribution) from when you start contributing until retirement. In your case this isn't straightforward to apply as you started at 24 but have been putting in less than 12% over all the years since. I suspect your number would be closer to 15% from now until retirement. This however is a rule of thumb for an adequate retirement income from state pension age. If you want an earlier, or more comfortable retirement then you need to save more. My husband and I are the same age as you and are each saving around 28%, but we are hoping to retire earlier than state pension age.

Have you worked out what your annual income in retirement is likely to be? That’s the important bit. 4% may be ample if you’re on a big wage, less so the less you earn.

www.hsbc.co.uk/retirement/how-much-do-you-need-to-retire/

This is a good pension calculator. www.legalandgeneral.com/retirement/pensions/pensions-explained/

Thanks everyone. Have completed the very helpful pension calculator and understand the shortfall (it looks a lot - urgh! But plenty of time to fix I suppose).

On a side note…. we didn’t get any financial advice, education or guidance around retirement planning, mortgages, investments etc at school, college or university… I hope things have changed in the last 10/15 years as I think it should be a mandatory part of education.

Does your pension provider do any awareness sessions at your employer? I remember going to quite a few at mine when I was mid 20s that encouraged people to up their contributions to the level where they were getting the max employer contribution. There were lots at ours losing out on employer contribution.

4% is on the lower side and seems odd if that is the max they will let you put in. You could look at SIPPs or a Lisa if you wanted to up it.

I found out that Lifetime ISAs can also be used for your retirement, you need to apply before you're 40 but whatever you put in the government will top it up by 25%. You can get your money out before retirement if you really need to but you lose the top up. I'm looking to set one up for me and DH.

Have you asked your employer about increasing your contributions? With something like Nest workplace pensions you can pay extra by direct debit rather than going via your employer (although via employer is better if employer will match contributions or your a higher tax payer).

You can also open a private pension and pay into it.

LISA may be worth looking into. You could so a stocks and shares one which in theory should be more lucrative.

Awful to mention, but something my financial advisor reminds me is to consider inheritance

Not that it's ever guaranteed, or will apply to all - but there is no ignoring that for many, their parents will die before they retire and any inheritance absolutely will have an effect on how much you need from your pension

People also tend to travel less in say their eighties than their sixties - so your requirements to live the lifestyle you want may not be the same over all your retirement years

Yes, definitely open a LISA before you are 40, good advice for everyone.

The only thing to be wary about re LISA is that it counts as savings for means tested benefits in a way that a pension wouldn’t be. But, a positive is the bonus and it being tax free when you take it out so useful to think about before you’re 40.

You also say your mortgage will be paid off by the time you are 56 - are you sure you will stay in the same house for the next 25 years? Something to consider. We have always had a cash sum too, ready for emergencies. We try to keep 6 months salary in hand. As always with these things, its a balancing act, and you never know what's in the future. We stopped paying for a few years when we had small DC's and a large mortgage, but now in our mid 50's pay the maximum in, because we can, and it's the best thing to do now. So, you can always do some catching up later, when you have fewer other commitments.