Discussion
Dreadfully dull topic I know but its something I'm beginning to get concerned about....
I'm working for a company that doesn't ave a final salary pension scheme. I'm mid 30's and have about £50k in a SIPP pension which I've invested across a wide range of ETFs. From now on I want to put aside £20k a year into some sort of retirement provision - any thoughts on what to do? To be honest I am filled with dread look at the prospect of either myself or some IFA picking an asset allocation that is guaranteed to give a good return over the next 30 years. Should I just get an overpriced BTL? Is there any way of joining some other companies final salary scheme?
I reckon I would need about £30k in todays money to live worry free - ideally from age 55. Can that be done with an annual £20k investment?
I'm working for a company that doesn't ave a final salary pension scheme. I'm mid 30's and have about £50k in a SIPP pension which I've invested across a wide range of ETFs. From now on I want to put aside £20k a year into some sort of retirement provision - any thoughts on what to do? To be honest I am filled with dread look at the prospect of either myself or some IFA picking an asset allocation that is guaranteed to give a good return over the next 30 years. Should I just get an overpriced BTL? Is there any way of joining some other companies final salary scheme?
I reckon I would need about £30k in todays money to live worry free - ideally from age 55. Can that be done with an annual £20k investment?
If you're company has a defined benefits scheme then its probably best to join that if they pay into it. Otherwise your SIPP is a good vehicle because you can pay into it from gross salary. You're doing the right thing by spreading wide on ETFs. Make sure its really wide though, UK tracker, UK managed, EU, emerging markets, and being sure to cover all market sectors, also bonds, property and commodoties.
If you invested 20k per annum and make 3% above inflation starting with your 50 already in, you'd end up with a fund of about £650k which at 5% annuity would buy you a pension of £32k.
If you invested 20k per annum and make 3% above inflation starting with your 50 already in, you'd end up with a fund of about £650k which at 5% annuity would buy you a pension of £32k.
OP you asked are you saving enough????
Calculate the dividend yield/ income from you portfolio.
If you're 35 and are targenting retirement at 55, then you've got 20 years to go.
Using a pad of paper ( or better excel ) starting with todays balance, for each year multiply the starting balance by the 1 + the yield e.g. 1.07 and add on this years £20k contribution, take that value as next years starting balance and do the same, keep going until you get to 20.
At the end of 20 years you'll have an idea of what you fund will have grown to, you can then take your best guess of the yield then......say 7%? And multiply that + 1 by the end balance. That's your retirement income.
If you want to know what that is in todays terms you need to estimate inflation between now and them say 4%? So multiply the income by 1/1.04^20.
Hang on I'll do it for you.....
Year 1 £50,000 * 1.07 = 53,500 + 20,000 = 73500
Year 2 £73,500 * 1.07 = 78,645 + 20,000 = 98,645
................
................
Year 20 £928,405 * 1.07 + 20,000 = 1,013,394
Giving you an income of £70,937
In todays money that is 1/1.04^20 ( 0.456387 ) * £70,937 = £32,374.
So assuming you save £20k a year, and assuming a return rate of 7% you will be okay. Note those 2 assumptions.
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly f
ked unless they are in a final salary scheme already or work in the public sector.
Calculate the dividend yield/ income from you portfolio.
If you're 35 and are targenting retirement at 55, then you've got 20 years to go.
Using a pad of paper ( or better excel ) starting with todays balance, for each year multiply the starting balance by the 1 + the yield e.g. 1.07 and add on this years £20k contribution, take that value as next years starting balance and do the same, keep going until you get to 20.
At the end of 20 years you'll have an idea of what you fund will have grown to, you can then take your best guess of the yield then......say 7%? And multiply that + 1 by the end balance. That's your retirement income.
If you want to know what that is in todays terms you need to estimate inflation between now and them say 4%? So multiply the income by 1/1.04^20.
Hang on I'll do it for you.....
Year 1 £50,000 * 1.07 = 53,500 + 20,000 = 73500
Year 2 £73,500 * 1.07 = 78,645 + 20,000 = 98,645
................
................
Year 20 £928,405 * 1.07 + 20,000 = 1,013,394
Giving you an income of £70,937
In todays money that is 1/1.04^20 ( 0.456387 ) * £70,937 = £32,374.
So assuming you save £20k a year, and assuming a return rate of 7% you will be okay. Note those 2 assumptions.
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly f
ked unless they are in a final salary scheme already or work in the public sector. Edited by Timmy35 on Monday 23 August 11:39
Timmy35 - a very valid & helpful illustration
I think the biggest & most important thing is to start early. I started @18y.o. (forced by my dad at the time), some private pensions & luckily long periods within a veriety of final salary pensions.
So start early and I'd say be prepared to pay in 7% from the age of 18/first proper job.
I think the biggest & most important thing is to start early. I started @18y.o. (forced by my dad at the time), some private pensions & luckily long periods within a veriety of final salary pensions.
So start early and I'd say be prepared to pay in 7% from the age of 18/first proper job.
Timmy35 said:
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly fked unless they are in a final salary scheme already or work in the public sector.
ked unless they are in a final salary scheme already or work in the public sector. 
I earn a decent wage, have an 18% pension contribution into my company DC scheme and have had similar with all companies I've worked for since leaving Uni at 23 (34 now). Even then I'm not paying in anywhere near 20k a year and thats with 6% company contribution and 6% company matching, god only knows how someone who has to entirely fund their own pension is going to cope.It's also the reason I'm busy saving my 5yr company SAYEs in order to have a couple of BTLs before I retire in order to help top up my pension.
Timmy35 said:
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly fked unless they are in a final salary scheme already or work in the public sector.
This ain't true - but a lot of people are using it as an excuse not to save, then they will be fked unless they are in a final salary scheme already or work in the public sector. ked.andrewh said:
Why on earth would you need a pension of 30K+ per annum, presumably by then your main residence would be fully paid for, some inheritence due and you'd hardly need the latest 5 series for retirement mileage.
Few cleints I've dealt with have 80k + max GAD and still scream they want more!andrewh said:
Why on earth would you need a pension of 30K+ per annum, presumably by then your main residence would be fully paid for, some inheritence due and you'd hardly need the latest 5 series for retirement mileage.
£30k even debt free isnt a lot. Add in holidays, clothes, gifts to your kids + any grand kids + normally some help towards weddingMy parents at retirement age have just got a new state of the art Kitchen, next is new replacement double glazing & conservatory, new boiler is going to be fitted at the same time of the kitchen, I know they are planning on rewiring the house before next year and then new underlay & new carpets throughout + new loft insulation. - basically they are doing all this and then nothing will need doing on the house again so its quite a hit adding all that lot together.
Think about final salary pensions & Maternity leave.... I know a lady who has had 4 kids back to back with barely working 4 months in between each maternity leave.
She has a snr mgt level Comp Car, Comp Mobile, Comp Laptop - and I know that once she has finished popping them out she is intending to retire.... her Final salary pension has had so little input by her.
Good for her I say although each and every time she came back she stated no more planned. However opps happened again and again.
Note I believe the intention is to make her redundant when she returns so yet further kick back.
She has a snr mgt level Comp Car, Comp Mobile, Comp Laptop - and I know that once she has finished popping them out she is intending to retire.... her Final salary pension has had so little input by her.
Good for her I say although each and every time she came back she stated no more planned. However opps happened again and again.
Note I believe the intention is to make her redundant when she returns so yet further kick back.
Edited by Welshbeef on Tuesday 24th August 11:25
Welshbeef said:
Think about final salary pensions & Maternity leave.... I know a lady who has had 4 kids back to back with barely working 4 months in between each maternity leave.
She has a snr mgt level Comp Car, Comp Mobile, Comp Laptop - and I know that once she has finished popping them out she is intending to retire.... her Final salary pension has had so little input by her.
Good for her I say although each and every time she came back she stated no more planned. However opps happened again and again.
Note I believe the intention is to make her redundant when she returns so yet further kick back.
Good for her but that's the kind of situation which sadly makes employers discriminate against hiring other women...She has a snr mgt level Comp Car, Comp Mobile, Comp Laptop - and I know that once she has finished popping them out she is intending to retire.... her Final salary pension has had so little input by her.
Good for her I say although each and every time she came back she stated no more planned. However opps happened again and again.
Note I believe the intention is to make her redundant when she returns so yet further kick back.
Edited by Welshbeef on Tuesday 24th August 11:25
Timmy35, super illustration and does summarise very well my thinking.
The thing which is freaking me out about the pension is the fact that I would need to get that 7% annual return. Now I spread the money across a very broad range of ETFs and last year my pension grew by 14%. What is not so great is that if I get the broad asset allocation wrong the av annual return could actually be quite small.
I guess the best thing to do is be very diversified and not look at the account statement too often!
The thing which is freaking me out about the pension is the fact that I would need to get that 7% annual return. Now I spread the money across a very broad range of ETFs and last year my pension grew by 14%. What is not so great is that if I get the broad asset allocation wrong the av annual return could actually be quite small.
I guess the best thing to do is be very diversified and not look at the account statement too often!
The other thing is as you approach your retirement age you pull out of the higher return/higher risk funds so your return is safer but clearly at a lower rate.
So that means "On Average" you need a 7% return therefore in the earlier years you need a huge return to counter the later reduced return. i.e. maybe 15%+ on a smaller balance vs a 2% return on a vastly higher balance (numbers plucked from the air but you get my reasoning).
So that means "On Average" you need a 7% return therefore in the earlier years you need a huge return to counter the later reduced return. i.e. maybe 15%+ on a smaller balance vs a 2% return on a vastly higher balance (numbers plucked from the air but you get my reasoning).
I almost hate to suggest this, but at 20k conttributions per year, could you not both invest in stocks etc in your pension/ISA wrapper, and invest in some sort of BTL property.
I realise the property market is unlikely to get great returns in the short term, but I don't know anyone that realistically expects property to be worth less in 20 years than it is today. Plus you'll have rent coming in from it.
Let's say you save the £20k for 3 years will give about £40k after tax and buy a BTL for £100k with a mortgage for the remaining £60k. You then invest the £20k into stocks every year after.
Some time around your planned retirement date the BTL will have been paid off in full and you'll have either a capital asset you can sell, or an income stream in the form of rent minus running costs. You'll also have your traditional pension.
Don't forget your basic state pension should be roughly £7k in todays terms, which would cost about £200k to buy as an annuity.
I realise the property market is unlikely to get great returns in the short term, but I don't know anyone that realistically expects property to be worth less in 20 years than it is today. Plus you'll have rent coming in from it.
Let's say you save the £20k for 3 years will give about £40k after tax and buy a BTL for £100k with a mortgage for the remaining £60k. You then invest the £20k into stocks every year after.
Some time around your planned retirement date the BTL will have been paid off in full and you'll have either a capital asset you can sell, or an income stream in the form of rent minus running costs. You'll also have your traditional pension.
Don't forget your basic state pension should be roughly £7k in todays terms, which would cost about £200k to buy as an annuity.
otherman said:
Timmy35 said:
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly fked unless they are in a final salary scheme already or work in the public sector.
This ain't true - but a lot of people are using it as an excuse not to save, then they will be fked unless they are in a final salary scheme already or work in the public sector. ked.Or that Public sector pension provision is funded by the taxpayer at levels unheard of in most private sector schemes at present.....because once again....I can assure you that they are.
Timmy35 said:
otherman said:
Timmy35 said:
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly fked unless they are in a final salary scheme already or work in the public sector.
This ain't true - but a lot of people are using it as an excuse not to save, then they will be fked unless they are in a final salary scheme already or work in the public sector. ked.Or that Public sector pension provision is funded by the taxpayer at levels unheard of in most private sector schemes at present.....because once again....I can assure you that they are.
However clearly anything which is accrued to date is a fixed/banked amount and if career average came in it would be forward looking not whole career average. So for those in the scheme great new entrants who will progress through the job grades not so good.
My current Final salary is planned to change to career average from next fiscal year however what is earned to date is banked, new entrants only have the defined contribution option.
Welshbeef said:
Timmy35 said:
otherman said:
Timmy35 said:
As an aside the above is a neat illustration why the vast majority of the UK population are totally utterly fked unless they are in a final salary scheme already or work in the public sector.
This ain't true - but a lot of people are using it as an excuse not to save, then they will be fked unless they are in a final salary scheme already or work in the public sector. ked.Or that Public sector pension provision is funded by the taxpayer at levels unheard of in most private sector schemes at present.....because once again....I can assure you that they are.
However clearly anything which is accrued to date is a fixed/banked amount and if career average came in it would be forward looking not whole career average. So for those in the scheme great new entrants who will progress through the job grades not so good.
My current Final salary is planned to change to career average from next fiscal year however what is earned to date is banked, new entrants only have the defined contribution option.
I hate to be a dismal actuary but I've been working on a review of a very very very large penion fund recently........you know what would sort out the pensions crises? Everyone needs to die at 67.
A bit like Loguns Run.
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