How much to put in pension?

[120secondruleforchoconfloor]

I'm self employed and earn £28000 per year. How much should I be putting away in my pension? I'm 36 years old. For plannings sake I plan to semi retire at 60 and work part-time for a few years after that.

I've been self employed for 5 years. Before that I was employed for 10years so paid pension through that but I was on £20000 per year then.

There are websites where you can put in all your figures (age, how much you want to end up with etc) and they'll tell you how much you need to put in monthly. Even if you're not able to put in that much, start with what you can afford and build up from there.

Yeah, there's no set rule to follow I'm afraid. Just have to work out your retirement target/income & dates, & use an online calculator to work backwards.

Be prepared for the result to shock you - that's quite normal.

As much as you can possibly afford. The more you put in at a young age the longer is had to grow meaning you don't have put in very high contributions when you're older to reach the same end amount.

The pension age could well go up to 69 or even 70 for people currently under 40 so you have to have private provision if you want to stop work before you're 70.

As others have said, start with your end figure and work backwards.

Keeping things simple to not have to worry about tax; let’s assume you want £1000/month to live off in retirement.

To safely draw down £12000/year you’ll want between £300K-£360K in your pot.

Have a play around with some compound interest calculators to see what you’d need. I tend to assume a 5% on average growth. For example with you if you started with nothing from now you’d need about £600/month going in to get a figure of £330K by the time you’re 60; and that £600 would be made up of the top up from HMRC as well as your own (so you’d only miss £480ish from your own pocket). Obviously once you find out what your pension pots currently stand at you can add that in as well to tweak.

Of course then you can get fancy and assume you’ll need to draw down less from your own pension from age ~70 due to getting the state pension; which then reduces the size of pot you need (personally I don’t plan around the state pension, to offset the risk around the assumptions I’m making with regards to growth plus any potential need for care etc).

Might be worth having a one off chat with a financial advisor.

15% is worth aspiring too

@Dyrne do you need to take inflation into account? So today £300k might be enough to generate £12k pa income but in 25 years time you'd need to generate probably double to have a reasonable standard of living so would need a pot worth £600k?

I'm no expert though so could have got that completely wrong.

I'm slightly obsessed with pensions at the moment as we're hoping to retire in 10 years and wish we'd properly looked at all the figures many years ago.

You get tax relief on your contributions so it is worth doing, and you won't have to put as much in. Deffo get advice. The government have a free pensions advisory service so you could start there. A decent accountant will be able to tell you the relief you can get.

You can account for inflation a couple of different ways. One way for example if an investment fund can be relied on to return 7% in an average year; then you could assume 5% for the purposes of your calculations to account for inflation.

Put in as much as you can and as early as possible - even if the return is only 3% pa (which is a very prudent figure), your pot will double within 25 years. Also the 20% tax relief is very beneficial to start with.

You need to put away more than you think. As self-employed, you won't be enjoying any employer matching contributions. A lot of employed people who put in say, 5% are having that amount matched by an employer, so the pension pot is growing by 10% each year.

If you are 36, I'd say 18% is a good target amount to put aside. Seems horrific ... because it is. Barely anyone saves enough for a wealthy retirement.

start With anything you can and build up! Something is better than nothing. I started at 40 with just £50/m because it’s all I could afford. a few months later I increased my contributions a bit and try to bump it up a bit more every few months. I’m self employed too and wish I’d known about saving in a private pension sooner. I just assumed the state pension would look after me! I feel so stupid not realising sooner!
I’ve found a podcast really useful- Meaningful money.