If you retired early on defined contribution pension

[Horseandgoat]

How much was in the pot when you retired and what age was that?

I mean DC pensions, not final salary / defined benefit civil service type pensions that guarantee an income of X when you retire.

I haven't yet so please ignore me if this isn't the information you are after but I have an IFA and have given him my anticipated outgoings and he models my projected pot versus early retirement. Hoping to retire early but that depends on how things grow in the next 5+ years.

I think it really depends on how much you want to drawdown (assuming you go for drawdown and not any other option) and how much money the rest is expected to grow. So someone's pot could see them through to beyond their 90s but the same pot might not last for others.

I did try and find something free to model that online but couldn't but then decided to approach an IFA who gets paid to do that instead.

This is a question very close to my heart at the moment ... how much do I need in order to retire. We had a preparation for retirement seminar a while back which tried to get to grips with the topic

They suggested that spending in retirement tends to be 'u' shaped, an initial high level for the holiday of a lifetime or work on the house, then costs dropping back to normal only to rise in much later life with costs for card etc.

The Provision that is required for whatever is thus divided into

the basic costs of living ( utilities, insurance, car etc)

Treats such as holidays, family events and whatever else you choose.

It's less easy to make provision for later years.

The post will need to finance these. Some form of annuity (or other, defined benefit pension ) is probably required for the basic costs and the rest can be financed by drawn down of capital.

A spreadsheet makes it very easy to Model out what these might cost over a range of number of years. You can also adjust what counts as basic costs (Netflix, Amazon prime etc) and what would be you 'budget' for variable costs such as travel.

Hope that helps somewhat. It's seems lovely to have an IFA to just tell you what you need, they will only be guessing....

The first people to retire on fully DC pensions
who are not very high earners
have not happened yet.

The oldest are in their early 60's and in for a nasty shock.

Autoenrollment pensions are a tiny tiny sticking plaster for a HUGE problem.,

Hope that helps somewhat. It's seems lovely to have an IFA to just tell you what you need, they will only be guessing....

I know what I want to live on as I did a very thorough plan for essential bills, nice to have bills, plus house maintenance, holidays and a buffer for emergencies.

What my IFA does is factor that amount in with an average inflation (really shocking to see what the same amount now will need to be in 30 years time to give me the same spending) against my current funds, ongoing investments, their returns and different retirement dates.

I have already upped my pension contributions and swopped my investments based on my appetite for risk because otherwise my retirement plans did not match up to how much I expected to drawdown each year. I also have 6 monthly reviews and will continue to do so as things may change now and in the future. Whilst yes an IFA can only give me advice and model their predictions it does give me the information I need to make an informed decision on when I could potentially retire and how much extra I need to get to my goal. Without that I found it quite hard to predict when I might have enough to retire.

Thanks JamSarnie, that is helpful. I'm a bit stubborn about approaching IFAs but seeing this is what they do I could build my own financial model starting with putting in the minimum needed e.g. 20k p.a. as a couple and work backwards with inflation, investment growth etc to find the possible answers.

All I know is start early with DC pension and put in the maximum you can afford. My DSIS was permanently and totally disabled in a car accident and so was forced to retire at age 39. Her DC pot plus disability benefits is all she has, and disability benefits are abysmally low. She’s not in U.K., but I think this is true in U.K. as well as ESA is lower than UC.

Im obsessed with this, just really dreading it

Also living long is quite an issue, having seen my grandmother go well past 90 despite being a prolific smoker/drinker... with dementia and mobility loss in the last decade, and my parents starting to follow her path...

I accept that I will never "retire"
I will work at least some of the time until I drop.

Dementia is the one thing that petrifies me
so I am staying as fit as I can and keeping my BMI and inflammation levels down to try to avoid it.

I have a pension that I pay into
and I'll get the State pension
but know that I'll never get what my parents' generation has had.

Agree listening, I do want to retrain (something non corporate or stressful) and work for as long I can physically manage. Ageism is a real issue though, especially for women

My DM only had the state pension and ended up with an terminal illness soon after retiring so this is close to my heart that I want to hopefully retire when my health is still good. I won't have a lavish lifestyle and am envious of those big DB pensioners but as long as I have enough to live a bit after the bills then I will be happy.

I am a bit obsessed about checking my investments against the predicted models to see if we are doing better or worse. It's been an interesting year having 'lost' 30% on paper when covid hit but watching everything bounce back has been reassuring and really cements the fact that pensions are a long term investment.

If you want to retrain, consider something with a defined benefit pension. The more you look at defined benefit vs defined contribution, the more you realise the huge benefits of defined benefit in terms of certainty of payment, being inflation proofed etc.

wombat
If you want to retrain, consider something with a defined benefit pension
Such as ?
Remembering that the whole public sector has moved across to career average now
and pretty much the whole Private Sector moved across to DC decades ago.

Career Average is a defined benefit pension. It’s not quite as good as final salary, but it is still extremely good. It is still index-linked and you will know exactly what you will get and it isn’t determined by the stock market.

Most things in Local Government, Civil Service or other government related organisations that are part of Civil Service pension, teaching, NHS, emergency services. All of these are still defined benefits pensions which have the employer paying in around 20% of pay and have the worker paying in between 5% and 15% depending on their salary. Career average pensions accrue at a rate such as 1/43 of earnings per year. So, if you earn £43k your pension grows by £1k per year plus something for inflation. If you did that job for 20 years and never had a pay rise, your final pension would be £20k plus all the allowances for inflation. To get a £20k pension from drawndownor annuity would require a vast pension pot in an defined contribution pension.

Even if you’re far into your working life, doing 10 years in a defined benefits pension on reasonable earnings could get you £10k per year from state retirement age. And do t forget, if you’ve built 35 years of full NI contributions, state pension is about £9k now. Especially if there are 2 of you on levels like this, you’d be in for a comfortable retirement with £38k retirement income.

Career average sounds pretty good still? Is this the case for even lower level public sector jobs?

I was gobsmacked when I found out state pensions and most uk public sector pensions are unfunded. I.e. retirees are being paid out of current tax receipts / borrowings (in a deficit like in 2020). While it's crucial to pay teachers, policemen, firemen etc decent pensions, how is this sustainable, why doesnt the government invest for UK citizen's pensions professionally, the way many developed countries or we do in a DC pot?

Horseandgoat
Local Government pensions are funded
its all the central government ones that are not
in part because that would be a lot of "dead money" being taken out of general circulation

Governments are not like households
Governments can run up debts that will be inflated away over generations
people cannot

I do not know of ANY Government that properly funds its pensions
other than Norway who are rather an unusual case

That is worth a lot. Continuing the 1/43 career average example on £43k for 20 years, to get £1k DB income is actually worth over £40k employer contribution in an equivalent DC pot in that first year alone (assuming inflation 2.5% to generate a 4% annuity at age 65). So you could compare that to an £83k private sector job purely from a pensions equivalent point of view.

I thought there are lots of Asian sovereign wealth funds, and us federal like New York police, California teachers that invest public pensions

I agree a career average is so much better than my DC will ever be. I don't think most people with one realise how good they really are (jealous )

And thanks Listening for clarifying. What are local govt pensions like then? Also db career average?

Following

@Horseandgoat
I was gobsmacked when I found out state pensions and most uk public sector pensions are unfunded. I.e. retirees are being paid out of current tax receipts / borrowings (in a deficit like in 2020).

The Universities' scheme (like the Local Government Scheme) IS funded (though arguably barely so) with many millions invested in shares/bonds etc.. The Teachers' scheme is unfunded.

Actually I retract that shoddy maths, DC pot would have investment growth which is variable but I assume 4%p.a. so that 1k is worth more like £19k..

HorseandGoat
Local Government pensions are run according to the scheme rules
and each county invests its contributions and processes payments.

US State and sector Pension funds theoretically invest to cover obligations but not a single one is anywhere near 100% covered - some are under 60% !!

Sovereign wealth funds do much more than state pensions
and very few have enough to meat full obligations
Singapore's has recently admitted to being on its uppers

BUT
It is very much worth bearing in mind that there are two sides to every investment
the saver
and the spender

If Governments put away huge amounts of money for the never never
it stops them doing stuff for today
so its a balancing act.

Norway has a huge Sovereign Wealth fund
but it also has sky high taxes

The problem in countries like the UK and the US
is that we want low taxes and contributions
but high services
and the only way to square that circle is with a shit tonne of Government Debt

Horse and goat also interested in this. I contracted f or many years but currently paying £2k in per month and main work pension plus old one are now £86,000. Sounds a lot but I'm 37 I don't think it is?

If I earn same salary until 50 I'd have around £398k which sounds a fortune. But like you all the women in the family make 95 in good health, men 90.

I don't think id be able to avoid sexism and ageism and being managed out workplace. I just don't think it will last 30-40yrs with inflation??

In real life people don't talk about this so no idea how I compare or what other people age 40ish have

silver
In my field (accountancy) nobody actually retires.
They retire from a full time job
get bored
go back to a part time job / a consulting job
the jammiest ones work a couple of months a year
and then act like retirees the other months

a former boss who is now in his 80's still helps out in his old firm's tax department in January

many other former bosses do a few weeks on, a month off
or pick up seasonal clients
(these guys are not poor, they just get bored)

You have to remember that the retirement age was set at 65
when life expectancy was also 65
ie around half of all adults were not expected to live long enough to retire

If the retirement age had risen with life expectancy it would now be around 79 .....
But I in my mid 50's am infinitely fitter than my granny was at the same age

THe idea of a job for life vanished in the 70's and 80's
The idea of full on retirement at age 65 will be considered an anachronism by the time I get there