Pension savings for n

[Hypercatalectic]

I'm doing some New Year number crunching and did a rough online calculator estimate for how much annual income I could get with my pension savings. I am 51 and have estimated that my total private pension pot at state retirement age will be around £500k. I was pretty pleased with that, until I found out that it will give me an annual income of around £32k.

I have been saving consistently into a private pension since I was 24. I've always taken my employer's pension offer, and put portions of bonuses in. I'm not a top top earner but I earn ok.

I'm actually shocked at how modest the income from a half a million £ pot will yield. So many people people I know won't have have even this, they started later, opted out of employer schemes etc. I guess I thought I had built up a pretty healthy pot, putting money away every month etc., but feeling a bit deflated about it now...

A £1m pension pot will apparently give an income around £45k!

32k sounds great to me. Add in state pension and you have 43k to live on. If you own a home outright that is plenty, but you would still have enough to rent somewhere.

It yields less than the UK average salary... I know the state pension boosts it, but £500k saved over so many years just feels like it should provide a better income... It makes me wish I'd put a bit more in early on, but I didn't appreciate it then. Also had the financial crash and Liz Truss not helping.

I fully appreciate this is a first-world privilage moan.

Yes but lots don’t have mortgages or rent to pay when retired so that income will go about further. You also don’t pay NI.

I'm not to up on buying an annuity anymore as everywhere you look is plugging pension freedom and drawdown. But I guess it all depends on what age you plan to retire and how long you "plan" to live!!

It’s much cheaper to live post retirement without the daily commute, clothing, lunch and all the extras. If you’ve paid off your mortgage even better. Also remember that you are taxed on your pension but you don’t pay NI.

You can always get a part time job to top it up. It gets you out of the house and meeting people.

I recently retired at 59, but still work one day a week ( admittedly in a high payed job), added together my income is now considerably more than when I was working 3 days a week. I chose to wind down at 55 which meant I have adjusted to a lower income one.

Having the time is far more important than the money. And being paid to do nothing is great.

Planning for retirement is more than pension planning but also involves planning your lifestyle to match your potential income. No pension will pay as much as your current income. Just keep doing the lottery and if you have chosen to take a tax free lump sum invest in premium bonds.
Savings are great but any interest earned is taxed, so maximise your ISA allowance each year.

DH has a draw down pension designed to draw down on his pension until he is state pension age. With our combined pensions we are very comfortable. When we both hit 67 we’ll have a joint income of around 70k which is pretty comfortable. We haven’t had to downsize because we didn’t upsize. We’ve invested money in the house recently to improve energy use and cut fuel bills, new windows and better insulation. Our bills are down by over 25%. New energy efficient appliances will also help along with a car that is cheaper to run.

We haven't had to reign in spending significantly because we’ve always chosen to live according to our income. Currently DS is in his first year at uni so this is a pretty significant cost but he was privately education so we are used to a chunk of our income going to him. In fact uni costs us less than half of the school fees we were paying. And it’s only for another couple of years. He also works during the holidays to support himself. When he becomes independent I suspect we will have another 10-15k disposable income.

Also, remember that many pensioners only have the state pension to survive on.

We have been retired 6 years now. 2 of us, not as much as that in a pension pot, but with our isa savings, a similar amount. Mortgage is paid up. We don't live a wild life, but aim to have a few weeks away every year, theatre shows and gigs when we feel like it. From the experience of caring for our own parents, we expect to spend more in the earlier years, and then less as we slow down, then more if we need to pay for care. The thing we have found is the difficulty of switching from a lifetime of saving to now having a pot to spend, and spending it, in fact with interest and growth, our pots are worth more now than when we retired. Things that stop us blowing it all? Health. I am at the dentist next week and think I may need an implant, could be £4k. We thought we would be out for lunch several times a week, but it piles the weight on, so we go out to eat less frequently than we anticipated. And the biggy, future care costs. Just a point, the bond market is worse for pensions now, than it was after Liz Truss buggered it up. If you are fortunate to have a public sector pension, you are OK, but if you have built up a pot, as we have, it feels like the gov have it in their sights to fund whatever they want to do in the future. Hopefully, they will leave us with enough to live a comfortable life, but time will tell. My advice is not to worry about it, don't stop living now too much to save for the future, after all, you might not make it, and when you leave work for the last time, breathe a big sigh of relief, and look forward to a relaxed, enjoyable future.

Hate to say it but I wouldn’t count on drawing down £32k from a £500k pot. The safe withdrawal rate would be significantly lower. How did you calculate £32k?

as others have said you have less expenses, you’re not paying NI. But also you’re not paying pension contributions 🤷‍♀️

This, I thought broadly a pot of 1 million = £30k

I agree. 32k a year from a 500k pot is very generous. I doubt you’d get this much.

I was thinking the same!

I’m thinking more safely a £20k income from a 500k pot.. your million estimate is probably not a mile away.

That's assuming you never draw down any capital of course. There's no reason you have to due with the £500k intact you know. You can take the £32k income, and draw down £20k if you want.

Of course, this means that the following year the income will be reduced as it's from a lower amount, but you'll find as you get older you'll need less anyway.

£32k is decent (I work on a 3% return estimate personally and so my £500k is only expected to provide £15k), and age 67/8 you can add £11k state pension.

£32k per year from a £500k pot will only last you around 15 years (assuming no growth in the pot for simplicity). As others have said, £32k seems too high.

Life expectancy for a female at age 65 is 22 years, so for 32k a year you’d need c £700k and even then you’d run out of money if you lived longer & would lose value to inflation over those years (again, assuming no investment growth for simplicity).

We need serious financial education around pensions, as a £500k pot is higher than most people with DC pensions. The average pension pot for a woman in her 60s is apparently £152,000!

I've always used the '100k pot gets you 5k pension' rule of thumb - is that too optimistic now?

Use this calculatir to crunch your numbers
https://guiide.co.uk/

Imho the figure of 32k is after tax

"We need serious financial education around pensions, as a £500k pot is higher than most people with DC pensions. The average pension pot for a woman in her 60s is apparently £152,000!"

Agree with this - I was doing all the right stuff from the age of 24 on not a bad salary, and looks like I won't even get £30k a year from it ... I know my living costs will go down etc., but I've worked hard and saved, and thought I was well set up. I guess I am, relative to the average woman's pot size, but it all feels a bit less that it ought to somehow

I made the decision to use my two work related pensions, one with British Gas for 8 years work, and a final salary Teachers Pension Scheme based on 20 years service, for a monthly income at age 60, boosted by the SP at age 66. The additional pensions I had from buying AVC from the Prudential as a teacher and a £50k lump sum on my divorce to compensate for 10 years as a SAHP were amalgamated about 5 years before my retirement and left to grow into a £310,000 lump sum ( just had my Dec 2024 statement) which I will use for drawdown when I need to.

So far, 7 years after retirement, I still have a small sum in savings which I am using to supplement my pensions, to do things such as a new kitchen last year, a new car three years ago and some other house type expenses. My plan to have foreign holidays has been curtailed for a few years following various health issues so I don’t need to drawdown my pension pot at the moment. I am mortgage free as I downsized 14 years ago ( best thing I did!) and enjoy a good life without worrying about my budget. I am in the position of being able to be generous to my three adult children as well, giving the £2k each birthday and Christmas.

I feel that I have a decent lifestyle, far better than I expected after struggling to pay the mortgage during the horrendous mortgage interest rates in the 1980s when I was not working and honestly don’t think about what I spend day to day. It’s surprising how much less I spend now I am retired!

But I had work related pensions as well as a defined lump sum pension so with the help of a fantastic financial advisor, I was able to build up some additional savings pots ( ISAs, bonds, share funds etc) and can live off my work pensions for day to day expenses, using my savings and pension pot for one off expenses. If I only had a pension pot of £500k I don’t think I would have such a comfortable life style.

My recent annual statement with a pot of £310,000 gives a projected annual pension of £27,000 - but I will use this fund as drawdown to boost my other pensions.

OP, have you run yiur numbers through that calculator I pasted above? I am sure there's a lot to unpick i planning your retirement. As I said earlier your 32k will be in today's monry and after tax. On to of that you'll get SP. You will be nearing 40% tax with that income. In today's money, not in 16 years time.

Thank you @LeftWhisker , that tool is amazing - really straightforward. My numbers are actually a lot better than my original calculations and it looks like a 'modest' income after retirement is definitely achievable (£47.5k including the State Pension and after a 25% tax-free lump sum). I also, obviously, still have another 15 years to boost it further.

So, less depressed, still quite amazed at just how much money you need to put away over a working life to get a modest income in retirement, and also very glad I kicked off my daughter's pension when she was 4!!!

You just need to keep your drawdown less than your interest so roughly about 6-8% and that is if you are trying to keep your pot stable. You might be better transferring your pot to the investment market.

Well - better than NOT getting £30k a year from it, and living on the state pension alone.

You have 17 years to grow that pot - so plenty of time to make changes!

Thanks for posting that @LeftWhisker

I also didn't think I was doing that well but it looks like I'm doing better than I think. May even be able to retire earlier than I thought based on those numbers (I'm 52).

I guess it depends.
Dh self employed his whole life. Minimal savings.
We have guaranteed income of £17k from when I'm 62. Our aim is to save £250k before retirement. Currently we have £130k. If I cashed in my final salary pension, it would be about £300k ish.
I'm quite happy tbh. If/when we get to pension age, we will have about £40k guaranteed, including state pension and £250k fun/contingency. House paid for. How much money do you need? No point in leaving it behind anymore.

You can't "cash in" a final salary pension - what do you mean by that?