If you are over 40…How big is your retirement pot?

[AnIndianWoman]

Just that really. If you’re over 40 how much have you earmarked for retirement? My pensions are approx 200k and I have another 200k in stocks and shares ISAs. Even then I won’t come close to the £50-60k a year income we will need in retirement and so can’t think of stopping working before 70.

I was thinking of investing more but not sure what size pot I should be aiming for. I’m 40.

For all those saying 60k pa is a high estimate, have you calculated your current outgoings minus mortgage and applied inflation X years left to retirement?

Our current outgoings minus our mortgage x inflation at 2.5% x 30 years (when I'll reach state retirement age), comes out at £50k pa.

This takes into account deductions for no longer paying into pensions or travelling to work expenses and reduced food shopping when the kids leave home. This will be for two people. We live a comfortable but no way flash lifestyle.

My car is 18 years old. We buy clothes (infrequently) on the high street, supermarket or vinted. I don't have beauty treatments or have my hair coloured.

We have 1 holiday a year.

Granted, those retiring sooner than the OP might need a smaller amount. But the OP is 40 and like me, has a long way to go. Inflation is a fact. Costs increase yearly. Those of us with a long way to retirement will see our outgoings double without adding anything to them!

I agree most people can't afford this however and that this is an unachievable goal for a lot of people. Including myself.

But the OP isn't being massively unrealistic.

I'm in my 50's and my pension pot is a big fat ZERO.... children and a husband who had shift work job stopped me earning enough to pay into a pot, then he died (no insurance) and I've worked from one crap wage to another. It's just how it is and I'll be working till I drop, but I realised that in my 30's when I was widowed, I've had a lot of time to get used to the idea and don't think I could cope with being at home all the time.

Inflation is clearly a very important factor and your absolutely right that it's important to be clear how you are accounting for it. That includes inflation during retirement (which might last decades!).

The usual way I have seen of doing this is to work in today's terms when setting the goal but to account for inflation in planning. E.g. if the OP wants £50k pa in today's money then she sets that as her goal and updates it each year as inflation increases. She then ensures that she's increasing contributions by inflation and that the assumptions that she has about growth are post inflation growth. If she has a DB pension with inflation protection built in then that is obviously easier to plan for. I think that's an easier way of doing it than inflating the amount aimed for from the start.

You don't have a pot in the LGPS. That's probably where your calculations are going wrong.

The LGPS is a defined benefit scheme, which works in a completely different way. The amounts you and your employer pay in are irrelevant to the size of pension you get - it is calculated on length of service and salary.

And that 'stupidly small amount' is paid for the rest of your life - it's not a 'piggy bank' style pot of money that can run out like the OP's pension. That's why it looks small if you compare it with a defined contribution pot.

The amount you put in depends on your salary, so the calculation below is just an example and you may need to adjust the input percentage. But let's assume your salary is £40,000.

You pay in 6.5% = £2,600 a year.

You accrue 1/49 salary a year = £816.32.

That does look a lot less than you paid in.

But if you work there for 20 years that's an annual pension of £16,326.

The amount you've paid in over 20 years is £52,000.

Still a lot more than you're getting back? Remember it is paid every year.

So after 3.2 years of drawing your pension you have got back as much as you paid in. And they keep paying. You have a life expectancy of around 12 years after retirement, so another 9 years or so of pension.

My pension pot is ring fencing enough to get to Switzerland when I can’t work any longer.

£150k. Was putting in £2.5k pcm but reduced it to £1.5k pcm to pay for tummy tuck

Once its £200k ill relax. So hopefully when Im 52.

DH is 39 too and has same, plus accuring additional 1 day pcm army final salary pension.

Aiming for £500k between us, the 1 day a week army final salary and also have some btl (60% LtV need to pay down) which bring in £1.5k pcm (mortgages around £500 but high tax atm)

I'm 45 and have about £200k between work and SIPP. I also have around £30k in my pension back in my home country. I save a substantial amount per month between my work pension/SIPP/ISAs pre-tax and after-tax because I feel a bit behind for my age.

That being said, every time I put my numbers into an investment calculator, with 7% returns (average return of US stocks over decades and including inflation), it looks ok by 65. There is no way I'll be retiring in the UK, I'll be going back to my home country which has more favourable tax laws for retirees, but a higher cost of living.

I don’t have a ‘pot’. I pay into the NHS scheme and have for nearly twenty years.
Not sure how much longer I want to work in the NHS so whatever I’ve earned and what I receive come 68 after all the calculations etc.

Hoping to also have some long term savings too. But I’m going to be working so late how long will my retirement actually be. Planning on being very part time for the last few years though!

If you're genuinely asking then it would be best to post somewhere like the Money saving expert pensions forum as people there are used to those with decent size pension pots.
But the real question is why do you need such a high income in retirement? Have you actually gone through your numbers and worked out what you will REALLY need?

It does seem high to me. We are mortgage free and live on around £27k a year between us, with healthy savings for house maintenance etc. We are pretty comfortable. No flash holidays (not possible these days due to disability) but no money worries either.

Oh sorry, I realise you are referring to future figures accounting for inflation, so you might be right there!

It is the investments board!

It depends what kind of lifestyle you want in retirement though. I want more money in retirement to eat out, go on holidays, go to the theatre, go skiing, do my hobbies. I don’t really want to live a ‘simple life’ at home. I’d find that depressing.

45 next month.

£145k in current pension (hardly moved in 3 years!)
£57k in a LISA to access at 60
£50k in work share schemes
Plus a final salary pension from old employer.

We certainly aren't aiming for £50k per year in retirement and will probably work to some degree but plan to wind down from 55 and work 3 days per week.

£12k. Hope that makes you feel better about your pension pot, OP.

We do all those things except the skiing! Not every week, admittedly. But we couldn't go abroad to some parts of the world because many aren't disability friendly. That is what I meant by "flash" holidays.

But I would advise that you pray that you don't become disabled if you would find leading a "simple life at home" depressing. Some people have no choice but to do so.

Hey dumbass, get off the investment board.

Surely 60k a year is extremely excessive ? Why so much OP?

Im in Australia and have $200k at 40 and dh has $600k at 50. So our money is about half yours. We are both planning to retire when dh reaches 60. I think I will have about 300k by then and he should have close to 1 mill. I’m not too worried as we will own our home by then and we can always sell and downsize. Also I am a teacher so I can do relief teaching to top up income if need be.

Hi OP,

Have you spoken to a professional about this?

£200k sum in 2023 in a SSI could achieve a pot of £611k in 28 years at a £24k pa draw down after that, depending on performance. I've estimated that based on a conservative 4% annual return with no further contributions from yourself. The stock markets average at about a 6-7% return over the long haul.

A £200k pension pot in 2023 attracting a 2.5% growth with no further contributions from you would total £400k in 28years. Or £16k pa at a 4% draw down.

The idea with a 4% draw down is that your lump sum replenishes in the year by gaining interest. So it technically never runs down.

So that could take you to £40kpa without you making a single further contribution. Then factoring state pension and subject to making your full NI contributions, you're likely already at £50k pa

Or if you chose to purchase an annuity at roughly £4kpa in today's money to each £100k over drawing down 4%, that's £32k pa plus a state pension. That is not factoring in making contributions for the next 28 years.

These are crude and not guaranteed figures and based on functional interest rates, but hopefully you get the idea.

In the same way inflation will work in a compound nature against you, your savings/pension are also growing in a compounding way!

Some professional advice or at least dabbling with some savings projection tools may quickly put your mind at ease.

I think you've provoked some angry responses here. But it's naive to not recognise you are in a better position than the majority of people.

@BinturongsSmellOfPopcorn And @Figgybanana
Thank you for ex0laining it! I think i finally get it. I hadnt understood it was 1/49 for each year. I thought it was 1/49 in total.

I live on the similar. My point being that by the time I retire, due to inflation, my current outgoings double. Your £27k outgoings in 30 years with inflation applied at 2.5% is £57k.

And that's if inflation is 2.5% annually. Which right now it is way more.

It's not about what living costs you now. Pensions are supposed to cover what living will cost when we retire.

Things where cheaper 30 years ago after all. Your £27k would seem luxury back then.

Everything always goes up.

I'm 53 and have £420k across a number of pension pots, plus around £60k in ISAs. House will be paid off in 5 years, current value around £500k. I plan to downsize and buy an investment property with the surplus to boost my retirement income. Retiring at 60.

I'm a teacher so also don't have a 'pot' as such.

If I retire at 60 (in 5 years time) I'll get about £19k a year pension with a £55k lump sum (I will have been teaching full time for 31 years then ) so it's not a massive amount as many people seem to think teachers get. I want to retire earlier than this however so may have to settle for a smaller pension.

I do have another small LGP that will give me a £1k pension and a £3k lump sum.

I'm going to sell my house and release equity of about £80-100k to tide me over to reaching 67 and then (hopefully) I'll get my state pension which will top my pension up to £30k.

My pension is index linked to will increase with inflation.