Pension - how much

[dumbdumbdumb]

If I want to retire age 60 how much do I need in my pension?
Or age 65?

How much do you want as an annual income?

I'd personally like about £25k, if you assume a return of 3% this means I'd need c£800k. That's without considering drawdown.

It's a really complex area, but there are online calculators you can use.

A simple rule is to contribute into your pension at 50% of your age, as a percentage of salary into pension.

Eg if you are 30 years old, attempt to put in 15% of your salary into your pension.

You first need to work out how much money you need to live on per year

I have taken early retirement from teaching from this August from that pension I shall have roughly £7400 per annum. In addition I have a stakeholder of £56k I plan to draw down £8.6k each year for 7 years while still adding to pot to gain tax advantage. So whilst I am still working as foster carer and get tax free allowance I will also get £16k each year. That will take me to 67 years. Then state pension kicks in and It looks like I will get in region of £9k each year on today's calculations but it should be slightly higher by then as inflation increases, so will replace the 8.6k. In addition I get £26k each year from 6 btl rental properties, 3 I share with DH but 3 I own myself, but apart from fostering allowance the rest is before tax so will get less after tax. DH has to work another 11 years to get to 67 but will likely retire at 63-4ish or go part time then. He will get a far better pension than me. I aim to give my son a chunk of my lump son for deposit in August. I might also sell one btl and split equity between 3 DC.

This site should help www.retirementlivingstandards.org.uk/

in addition I have a stakeholder of £56k I plan to draw down £8.6k each year for 7 years while still adding to pot to gain tax advantage.

You're not allowed to recycle pension. So, you are capped at £2,880 if you have no relevant earnings, or £4k if you have earnings over £4k (once you start draw down of a stakeholder or money purchase this cap applies).

A lot more than you'd expect.

@1940s

A simple rule is to contribute into your pension at 50% of your age, as a percentage of salary into pension.

Eg if you are 30 years old, attempt to put in 15% of your salary into your pension.

The 50% of your salary is the rule of thumb for when you first start pension contributions. It's not forever.

Also, it's not a fast rule. If you earn £100k but are happy to retire on £10k you don't need to put 50% in for life, and the opposite, if you earn £40k and want to retire on £30k then you'll need to do a lot more.

The key is to work out how much you want to live on, decide what return to think you'll get (3-4% is the usual figure used) and how much you will draw down, then work that backwards from the age you want to start drawing and see what your gap is, work out how you'll get there!

£500k is a pretty good figure to aim for.

Sorry but what does 'draw down' mean?

Draw down means taking money out of your pension whilst leaving it invested.

People need different amounts. Will you have paid off your mortgage? You need to work out what your bills will be & add in any extras e.g. holidays, meals out, hobbies.

We‘ve worked out we’ll need 40k a year between us, but we want quite a lot of holidays!

It really is going to vary with every single person.

I sat down and looked at all my current bills and listed those that would still need to pay in retirement. I then worked out how much I pay out for food. Added a significant amount for home incidentals, added on a few thousand for holidays and then rounded up to give me a buffer.

This is what I need in 'today's money'. I have an IFA who tells me what that will equate to when I am 80 etc with inflation.

Then I looked at my pensions to work out what they might give me and then addressed any shortfalls between that and my expected living amount.

Do you have any defined benefit ones which will pay out an amount each year and are usually linked to some kind of inflation type index. What is your predicted state pension (you can go on to a government website which will tell you how much NI you have paid and your predicted pension amount). Then do you have any defined contribution pensions. I will use mine for drawdown so will take out a percentage every year leaving some of it keep growing.

I will admit I use my IFA to give me all the details and predictions but I believe there are tools online to help you.

@VanGoghsDog, I thought a person can continue to contribute until they reach 67 provided they put in to pension no more than they earn in that tax year. 3 years ago I drew down £10k to give my dd for deposit. I was still able to continue to contribute to stakeholder as they work out how much you have drawn tax free from whole pot then rest of the amount you can draw but pay tax on in separate Stakeholder. New deposits are kept within same stakeholder but new deposit account as in time you can still claim this 25 percent tax free. That is what pension advisor told me and I contribute about £6k each year. I was told the cap apply when I reach 67 as state pension age but up until then I could continue to pay into it no more than I earned each year. Obviously I earn more.

@Caringcarer

I am not a pension expert but my understanding is same as VanGoghsDog.

You can drawdown on the 25% tax free lump sum of a pension and still pay into a pension without limit, but if you start drawing on remaining capital, then you are limited on how much you can put in. It is specifically to stop pension money being recycled and I don’t think age comes into it.

The text below is from the Hargreaves Lansdown website, a Stakeholder pension is counted as money purchase I think, not sure how different deposit accounts work within a Stakeholder, hopefully a pensions advisor can help.

Once you take your first taxable income payment from drawdown, the amount you can pay into money purchase (e.g. personal, self-invested) pensions will be limited to £4,000 each tax year. This is called the Money Purchase Annual Allowance. Taking tax-free cash alone won’t have an effect. If you’re already in capped drawdown you won’t be affected either, unless you flexibly access pension benefits later on or elsewhere.

www.hl.co.uk/retirement/drawdown/faqs

Hopefully your advisor knows what they are doing, but I wouldn’t expect to still pay in at max level when withdrawing taxable cash.

[quote caringcarer]@VanGoghsDog, I thought a person can continue to contribute until they reach 67 provided they put in to pension no more than they earn in that tax year. 3 years ago I drew down £10k to give my dd for deposit. I was still able to continue to contribute to stakeholder as they work out how much you have drawn tax free from whole pot then rest of the amount you can draw but pay tax on in separate Stakeholder. New deposits are kept within same stakeholder but new deposit account as in time you can still claim this 25 percent tax free. That is what pension advisor told me and I contribute about £6k each year. I was told the cap apply when I reach 67 as state pension age but up until then I could continue to pay into it no more than I earned each year. Obviously I earn more.[/quote]
Hmmm....

It does depend on the type of pension, defined benefit are not affected by this, but I thought stakeholders were.

www.youinvest.co.uk/pensions-and-retirement/pensions-explained/money-purchase-allowance

Financial advisors are not always right by the way.

And no, age is of no relevance. Other than you can't draw any until age 55 (soon to be 57).

You're OK for now having only taken the 25% tax free lump sum. It's your later plan to draw an income and still contribute "for the tax advantage" which isn't possible.

What people need does vary, but various sites suggest a couple needs £18k for a basic retirement, £28k for a comfortable one and over £35k for a luxurious one.

Lots of sites where the newly retired post, suggest needing £1.5k after tax per month as long as there is no mortgage, child support or debts. Don’t forget, pension income over the tax free allowance (currently £12.5k) is taxed....so most people will pay some tax on their pension.

I’m looking to stop work around 57 but not claim by pension until 60. I will fund those 3 years by living on DHs salary (he is very happy to keep working - loves it. Frequently I’ve earned more than him and we just see any money we have as both of ours and no need to each be working equally or adding equally into the pot) and then can take the part of my final salary pension which has a payout age if 60. I think it will pay about £13k. I will have to wait until 67 or 68 for my state pension (currently £9k) and the last part of my career average defined benefit pension (about £4K) but by then all my pensions will be paying over £25k. DH will keep working longer and drop down to part time before getting similar pensions.

In terms of funding a gap before 67, if there is one, I will get a lump sum of about £40k at 60, and balready being mortgage free, can use it to plug a gap if there is one.

Essentially it all shows how having defined benefit pensions (final salary or career average....mostly just found in the public sector now) gives you so much more than being in defined contribution system. I have had to pay in decent percentages all of my career (around 10%) but my employer is now paying in over 20%, so it’s not achieved cheaply. But knowing what you will receive, rather than being at the whim of the stock market, plus having it index linked for inflation is worth its weight in gold.

I mentioned on another thread, that quite a lot of very well paid workers move to the public sector for the last 10 years of their working lives. If they earn £45k for 10 years in a scheme that accrues at 1/43 like the Civil Service scheme does, 10 years will give them more than £10k in a defined benefit pension. You’d need an awful lot in a defined contribution scheme to buy an annuity paying that (and even more if you wanted it index linked) and far more than most very well paying jobs will allow you to generate over 10 years.

If they earn £45k for 10 years in a scheme that accrues at 1/43 like the Civil Service scheme does

I don't think that scheme is open to new entrants is it?

Noone buys annuities any more, not really, unless they have limited life expectancy.

For a £10k annual income, ignoring inflation but taking only income, not drawing from capital, you'd need c£350k.

The scheme is open to new entrants.
The Civil Service scheme is called Alpha and is Career Average not Final Salary, but is still a defined benefit scheme. It accrues at 1/43 of each year's earnings,neither people paying in on average around 6% of salary, but it is determined by salary.

Teachers, fire fighters, NHS, civil service, local government etc....they all still have defined benefit pensions for new entrants. They are all career average (so pension for each year worked accrues based on what WA seared in that year, rather than all the years being based on the final salary) now, but they are open to new entrants.

And yes, most people won't accrue £350k in a pension pot in 10 years, which shows just how good defined benefit pensions are in comparison.

Lots of people really wouldn't like to work for the public sector. However, lots of people decide they will do it for a stretch of around 10 years as part of their retirement planning. They realise that the pay might not be so good, but there are lots of benefits which are worth a lot, such as good holidays, death in service, decent sick pay etc. And to be honest, if you're in a fairly basic role or admin type role, you really might as well do it in the public sector as anywhere and get the other benefits.

It's a nightmare. There are so many variables and unknowns - how long will you live for, what annual income will you need, how well will your pension/investments perform, will the rules change etc. I've long since concluded that any modelling or forecasting I do is at best guesswork so I've opted for simply putting away as much as I can reasonably afford. If my pension overperforms I'll get the chance to retire early and if it underperforms I'll just have to work a bit longer.

There is a Pensions/Retirement talk forum on Money Saving Expert - there are some experts on there who are good at explaining pensions simply. You can also post on there and get opinions.

Agree that a defined benefit pension is invaluable. At mid forties I’ve already accumulated an annual pension of 14k at retirement. If I keep working until 67 (I won’t) the pension is forecast to be 39k.

Your plans sound similar to mine @WombatChocolate - I have just given notice to finish in the spring, just after my 58th birthday, but DH (a year younger) will carry on for at least another year.

I will effectively live on his earnings whilst he is still working, but between us we have significant savings in ISAs, SIPPs and shares, some of which came from my inheritance and a work share payout a few years ago, so I won’t feel guilty not earning whilst he does!

I have a small DB pension that pays out at 60, another which will pay out without reduction at 60, due to that being the retirement age when I paid into it but grows at about 8% if left. I will aim to take that by 62/63, depending on when DH finishes.

I also have a frozen DB pension from my current employer, which will be reduced if I take before 65, but recent advise I took was that the reduction would be relatively small compared to the advantage of having that money for an extra 2 or 3 yrs, so maybe also take that at 62/63.

I also have a DC pension from current employer.

DH has no DB pensions as has been primarily self employed but has a couple of DC pensions and, as mentioned earlier, money in ISA, shares and SIPP.

Once I am taking all my DB pensions and we both get the state pension, I think we will be getting around 25k income, which we will easily live on day to day then use the savings and drawdown to fund holidays, cars etc.

We are mortgage free and have young adult children, who (whilst not yet fully independent) have got inheritances of their own which are invested and will significantly help them onto the housing ladder.

Im 40 and have just 20k, how the hell do I reach £800k??
I'm self employed so no workplace pension.
I can at absolute stretch put £400 or £500 away a month if I really cut back on my spending.