Pension of £170,000 aged 50. Is that good or not?

[helpmebefree]

I am 40 now, and if I pay the max into my workplace pension and the max into my LISA I will have a pension of £170,000 aged 50. Absolute best case scenario.

Is that any good do you think?

Also what would that be a year to live off?

I'll aim to still work age 50-60, but my earning potential isn't guaranteed so might go down.

I just wanted to know what I'm aiming for really and how realistic it is?

As a very rough rule of thumb, if your pension pays out as a lump sum, assume that you can withdraw 4% of the lump sum annually if it's invested properly. So 6,800 quid per year in this case.

If it's going to pay out a monthly benefit until you die your pension administrator can tell you what that will be.

I would say it's not enough to retire on at all. Even if you have your home paid off it's not enough to live on.

I think that's roughly where mine will be at 50. I know I've not paid in anywhere near enough (self employed/pt worker for the last 15 year)
(although I do have a large house which we'll downsize and other savings, which I use to assuage the panic ;-)

I've read elsewhere your pension pot should be around $1million when you retire. And that very few people manage it!

Oh, and I plan to work until I collapse - definitely mid 60s plus!

Buying an annuity at age 60 wouldn't amount to much. So if you bought an annuity for 200k at 60, monthly payments going up with inflation every year, you'd be looking at 500-600 a month if you wanted to guarantee the money for 20 years (so money going to your estate if you pass away sooner). Obviously, if you lived to 110, you'd still carry on getting the payment.

Instead, you could do a drawdown - keep your pot but just take money out gradually to live off. That way you could take more out to start off with when you're still able to do stuff and go on holidays etc. And then not take out much once your state pension kicks in + you're less sprightly. By that point, you might just need a little top up. Your pot would get gradually eroded so you'd risk running out of the money completely but if invested well, then you'd be better off than buying an annuity. Until state pension age, you could withdraw 12-15k a year, and then just 2-3k when you get your state pension.

Generally speaking, though, the more you save the better.

OP your username makes me think of me!

if it's £6800 per year, there are certainly situations where it would be liveable for a very frugal person. I am guessing that you have other savings though.

Oh, or you could mix and match, e.g. get a small annuity and keep the rest of the pot for withdrawals or buy the annuity later etc Working an extra year or 2 or 5 would also make a massive difference. But you could always discuss that with an IFA closer to retirement.

For everyone except very well off people, a pension is taken when you are at state retirement age and is to top up your state pension. 50 is very young to take a pension unless you are very well off. You are not from the sounds of it.

of course you have your state pension on top of it at 67 state pension is currently £168 per week or £8.736 per year this assumes you have full contributions of NI (35 years)
but the interest on 170000 is not really enough to live on, if you can find somewhere paying 4% interest it is £6800 per year if you tie your money up or invest in unit trusts stock market you might get more than 4% but if you just stick in a savings account you might only get 2% which is £3400 a year
it might however be enough for you to drop to 3-4 days at work and get a better life work balance

Well, I've already hit 50 and have about a third of that.

I am quietly panicking while stuffing as much as I can into mine. Until the past couple of years there hasn't been much spare to throw at it. So, good for you that you are thinking about it hard at 40.

What do you mean by 'pay the max into your pension'? Is that the max that your employer will match? Can you still add more yourself?

No for many people state pension is not that much. You have to have paid the maximum NI and not opted out via serps at any time to be entitled to this. Most people get less.

I have a compensatory amount built into an old workplace pension for having opted out of SERPS, Claire - worth checking on this.

calculates down at approx £500 a month over 30 years (retiring 50 to age 80) only you can decide if that's enough for you (I was told to assume I'll take my pension from retirement age to 80 years old and base calcs on that) Mine will be similarish when I retire, but I intend to retire at 60, so splitting over 20 years rather than 30 (for calc purposes)

Hi there I'm a 56 year old female I'm self employed and i haven't got a private pension and this really worries me I was wondering do any of you know of a good private pension scheme where I could put money away monthly it would be most appreciated thanks

Q, I’d be careful with planning your pension only till 80 as life expectancy is longer these days.

JoJo, it was more as a basic aim/idea. I'm only 32 so gives me something to work towards and helps with generic calculations.

calculates down at approx £500 a month over 30 years (retiring 50 to age 80)

It's not quite as grim as that as the balance (if invested) will continue to earn interest and dividends as you draw down from it. This will give you a better set of figures:

www.which.co.uk/money/pensions-and-retirement/pensions-retirement-calculators/income-drawdown-calculator-a5pj57u5134k

Assuming you don’t take a lump sum, and buy a decent annuity, that’s about £7k a year.

If you add in the £9k at today’s rates that you’ll get at UK state pension age, you’ll have an income after aged 68 of £16k ish per year. I’ve assumed you will have 35 qualifying years of NI. Which is surviveable.

So your issue is between aged 60 and 68. I think you might have to work part time.

Thanks for the excellent responses everyone!
Yes I wasn't planning to actually retire at age 50, just I know I can push it hard from 40-50, but not sure how hard I'd need to work age 50plus.

As not sure if I can rely on all my job opportunities still being open to me. Although I fully intend to keep working.

Just got divorced which is why all these calculations are fresh in my mind.

My employer pays 5% into my pension and I have recently upped my contribution from a measly 1% (£20 per month!) to 8% which is £160 per month.

I've also just opened a LISA and the max you can pay in is £4000 per year, and gov adds 25%. I'd need to pay £300 per month into that to make the most of it.

I don't really have any personal savings, so I'm just trying to sense check how much I should be putting into a pension vs putting into savings.

Thanks for the Which link, that sounds good so I'll take a look at that.

I

I meant to say I don't really know what buying an annuity means. Do I need to make those decisions or will they just start paying me when I start claiming my pension?

Buying annuity: you pay a company your pension pot and they pay you a monthly pension in return. With some pensions that's what you get anyway but with others you can choose whether to do that or just pay money out as and when.

In terms of savings, it's good to have some set aside for emergencies e.g. the boiler or car breaking or perhaps being out of work for a while. The amout will depend on your situation e.g. Very stable employment and a new car vs a freelancing job that can be unreliable + an old car etc. The latter person would definitely need a lot more in accessible savings.

Thanks @JoJoSM2 that's really helpful.

Yes I've got £10,000 in savings so it might make sense to max out on the pension for the time being at least

Thanks for the help!

One other thing about the annuity option, the fees vary widely and high fee annuities can really reduce your payout, so shop carefully before you buy one.

www.moneyadviceservice.org.uk/en/tools/annuities

The financial soundness of the issuer matters a lot too. I've seen advice that you should buy a few smaller annuities from several companies to hedge this, but there's the fee issue again. As the article above notes, if your existing pension company offers an annuity option that is often your best choice.

And do max out your pension contributions now. We have for the last 20 years (we're late 50's now) and are in pretty good shape for retirement as a result.

You can also buy an annuity with some of the money and keep some invested- again, hedging your bets.
I think getting to 170k by 50, with the assumption that you will keep working until 67 anyway, just with potentially less ability to save, sounds pretty good!

I think the difficulty is working out how much you need yearly when retired as difficult to estimate costs due to rpi and different lifestyle. E.g maybe your mortgage has gone but will utilities be higher due to being in the home more frequentely.

Does anyone know of calculators for this?