How much pension do I need

[Bluesky999]

I am 50 and have around 60k in pension fund; want to retire when I am 60k with a pensión of around 30k per year. How much do I need to save now? I think probably realistically I won’t get to 30k per year retirement and we may ending having to downsize move somewhere cheaper.

thanks in advance

Questions to think about / discuss with your husband:

How much do you spend now and on what? Which of this expenditure will stop when you give up work, move to where you would like to retire etc?

Are you and your husband doing your financial planning for retirement together? If he has an FA, large pension etc and you share finances then his position is as important as yours. What kind of retirement do you each foresee?

Once you know what you are aiming for in terms of spending you can work out what you need to do to get there.

£50k pa between two sounds like a bloody great retirement. But spending that much for 25 years is 25 x £50k = £1.25m. Pension funds grow (and some years can lose money) and state pension kicks in in later years but over time inflation erodes what £50k can buy. It's a guessing game as to how much of a pension pot is enough.

Do most pension pots last? I always presumed you kept the principal invested draw down 4% and then leave what you had when you die. In reality does the pension pot actually run out?

I have a final salary pension so I have no idea.

Up to 75 your SIPP goes to your heirs tax free. After you hit 75 they get taxed on what they take out

Also i don't understand this.

So people are talking about 4% - does raft mean they expect their pension to last 25 years ? e.g. if you retire at 60 you're presuming you will live to 85? Surely it's all just a guessing game ? What happens if you drastically under or over estimate how long you will live? what happens to the money? also what happens if you die at 50- does your spouse get your pension ?

The principle remains invested. Some years are good, some years not so good, a few might be terrible. All the risk of how much it grows is with the individual. Drawing down 4% of the initial capital each year is estimated by experts to be enough for a 30 year retirement as the remaining capital will over those 30 years grow to fund the last few years of retirement. But market crashes might mean it doesn't last long enough and you will either run out or have to draw less than 4% in later years (which might not be a problem if you are now elderly and not travelling, eating out as much and have a state pension now added into the mix)

With a final salary pension your former employer guarantees how much they will pay you each year and increases it for inflation. They take all the risk of having to find more money if the value of their pension fund is hit by poor returns / crashes etc.

Lots of good clear information here:

www.moneysavingexpert.com/savings/discount-pensions/#need-9

£30k a year to live off? Do you have an expensive lifestyle?

Thanks Choux I’ve never really grasped that I just thought the big pot lasted forever which it could if investments boomed I suppose but this is not the norm.

Not great advice - a pension is just a (very) tax efficient wrapper. Within a pension you can diversify into different funds etc, the same way you do with ISAs. You can even have your own self invested pension with whichever provider you choose and this will look fairly identical to an ISA (but more valuable due to tax efficiency)
Definitely prioritise pension over ISA.

edit: reading again I thought you were advising against pension, but I think you mean to look at different investments within a pension wrapper. In which case I apologise and agree with you!

You can choose to transfer all your pensions to one place, I would get financial advice before doing so as some pensions will be better than others (eg DB) and you will lose this if transferring out. But will help you to keep track of them better. There is no harm keeping them separate either though.

but if OP and her DH wants 60K per year from 60 her share is 30K per year so from 60-67 she needs 7x 30K = 210,000 then say from 67-87 ( as now 10K state pension) she needs 20 x 20K = 400,000 total £610,000, her DH would need a similar pot.
she has 60K in pot, so needs 550,000 more in 10 years, but of course there is compound interest as well

also if looking for 60K between them and husband is on track for more than 30K it may not be necessary for OP to save as much

60K especially if from 2 people so no higher rate tax and no NI is quite a bit a month about £2200 each or £4400 between them
you can go to the governement site to check how many years NI you have, so OP needs 35 by the time she is 67 so at 50 you would need 18 years already you definitely have 10 from working, were you a SAHM getting child benefit before that as you get NI for those years too. it only takes a 10-15 minutes to check on government website as you may need to set up account first with your NI number

Go on to MSE but yes you need to put a lot more in if you want to retire with £30k. The latest pension living standards reckons around £55k for a couple. We have £60k so £30k each but have DB pensions which are not common now unless you are public sector. State pension is about £11k so you would need a pot to cover the other £20k you need and if you want to retire at 60 you would need to cover about 8 years at £30k some £240k then presumably about 20 years at £20k so additional £400k so £640k in total. The 4% rule is if you want to keep the pot relatively intact rather than draw down to 0.

Any chance you can get a job with a good defined benefit scheme? Mainly found in the public sector.

I'm mid 50s and have various pension pots adding up to about £250k from previous private sector jobs. Would only get me about £10k per annum pension and with state pension wouldn't be great income.

I've now been working in higher education now for three years with 10 more to retirement. My USS pension scheme gives me £850 per annum annual income for each year of contributions plus a lump sum payment of the same amount. So by retirement the scheme will have got me annual pension of nearly £10k, the same amount it took me 30 years to accrue in my private schemes.

I do like working in the sector but the pension is a major factor in my decision to stay in it until retirement.

Maybe I need to change sectors; haven’t thought of that

That’s what I am thinking and just discussed with DH that we need around 50k for both of us.

I think I need a job in the Public Sector

We are both from different continents to Europe so I guess we are factoring travelling

I think realistically I am going to have to work to 65; maybe go part time after 60.

Bear in mind you only get a decent pension in the public sector if you are on a good salary and have worked there for years as they are based on length of service. That £55k was a comfortable level of retirement btw. Of course you need to factor in growth and inflation. You get the tax uplift too so if you put £2k in your pension each month you can assess annually to see how the fund is doing. You could also take flexible retirement where you work part time while taking a pension.

It's worth checking your NI contributions and making up any part or missing years first. Speak to the advice service first as some years can cost less. The return you get is good as long as you don't keel over before or within a couple of years of State Pension Age.

The latest funding estimates for standard of living when retired allow for giving money to adult offspring and mortgage/housing costs in retirement. I think the better estimate is a 4% return on investment. Have a look here for the latest standards: https://www.retirementlivingstandards.org.uk/

Yes but with broadly the same salary and employee contribution I am building up over 2.5x the pension entitlement each year I am in the defined benefit scheme compared to what I was building up per year in the private sector schemes.

And let's face it you aren't going to build up a large pension in any scheme if you are in a low paid job.

Public sector pensions are good, but don't forget they tend to be payable at state retirement age. Your pension will be considerably reduced if you take it early

It sounds like you've realised you need to save more towards your pension. Realistically you'll probably need to work until you are 67 before taking your pension. Remember you might be entitled to some state pension. You can check this on the HMRC website. Check your NIC's and how many years you have. You can probably manage on less than £30k per annum if you've paid off your mortgage so don't have that big payment going out every month.

The first thing to do is to go onto HMRC website to check out your NIC's. It is possible to buy some incomplete years but don't leave it too late. I think you need to do it quickly. I think your priority is to try to ensure you get a full state pension. You could get a promotion. You might need to work until 67. Can you find a side hustle?

Yes that's true but doesn't really look like OP will really be in a position to retire at 60 as she would like given her pension savings to date. Same for me sadly so plod on to 67 it is!

Rather a disingenuous post (and a misunderstanding of how pensions work).

That £250000 pot can be accessed from 55 and give £10k a year or left for another 10+ years to grow to around £500k+ with £20k per year with no further contributions.

The USS pension defined benefit element was capped at around £40k and gave 1/85 accrual for the last 2 years so the max PP gained was £470 in defined benefits (almost half the claim made above). From April 2024 it goes back up to 1/75, with a higher cap. So for £850 pa, PP is earning £63500. However, PP has not accrued £850 pa for the last 3 years. That’s just misleading (and downright lies).