Project Pension

[everyonebutme]

I am ten years from retirement and have a private pension but not sure if it's good or bad. What is the amount of your projected pension? I paid into mine when I was a lot younger and then just left it but have started contributing again (with my employer) over the last few years. I have had the Pension Wise telephone chat so I know what options I have, my partner says what I have is quite good but I still think that sum of money could easily go depending on how long you live for.

I'd really recommend speaking to an independent advisor. What is a good sum for one person (owns house, lives in an inexpensive part of the country) can be completely insufficient for another (rents, high living costs). They will also be able to help you assess if your pension is invested efficiently. Annual fees for example can really eat into your pension, sometimes to the tune of tens or hundreds of thousands of pounds over the course of several decades. You'll also want to look at the risk profile you're happy with, and that provides you with the right balance of risk and return for you as an individual. Working out how much you think you'll need to live on fairly comfortably per year would be a good preparation for this conversation.

Will you have rent / mortgage to pay, and will you receive a full state pension? Both of which have a huge bearing on how “good” your private pension is.

Also, do you have defined contribution pension only, a pot of money to invest, not a pot of money?

Assuming no mortgage/rent, and a full state pension, I think the minimum I would want coming in would be £1500 a month after tax, which means £20K gross (assuming you’re not taking about early retirement, so you have state pension and no NI to pay.

That means I’d need £11K. Assuming a safe drawdown rate of 4%, a pot of £275K would provide for life, without touching the capital. In reality, I wouldn’t want to leave £275K so I would be happy to deplete. Tricky as of course you don’t know how long you’ll live! Or if you’ll need special care.

Of course, you may have a partner which reduces outgoings, but I would personally do my calculations assuming that I’m on my own for my full retirement.

If I had equity in my home, and downsizing was a realistic option, I’d be happier to drawdown more than 4%, knowing that I had an asset to call upon if needed. So that’s another impact on pot size needed - other assets.

Assuming growth of pot only keeps level with inflation, and selling my home only realistic if going into care, I think I’d want 25 years (to age 92) of £11K - which is also £275K. That’s my worst case scenario of zero investment growth.

Thank you @cocomarine. I think I would probably downsize at some point so would be able to have some equity from my house to add to my pension. I wouldn't have a mortgage or rent to pay. I think I'll need to live a little frugally in my old age!