£50k at 65?

[Phooey]

I'm trying to get a few opinions on this - so i thought i would ask on here

Assuming a 35yr old started saving today for retirement at age 65. How much would/should he/she need to contribute monthly to a savings plan of some sort (ISA/SIPP) to aim for a (at today's money) £50k year pension?

Ta

[OneDs]

Sorry I misread it; you'd need an investment fund of near enough as it makes no difference £1,000,000 to currently achieve an annuity that will pay £50k pa (about £500-£600 for every £10k). Obviously some annuities will suit you much better than others.

At a constant 3% investment return you'd need to put in:- approx £1,600 per month
At a constant 6% investment return you'd need to put in:- approx £960 per month
At a constant 9% investment return you'd need to put in:- approx £550 per month
At a constant 12% investment return you'd need to put in:- approx £315 per month

Edited by OneDs on Friday 5th November 11:25

[Phooey]

Thanks for taking the time to reply Peter

I should of said - self employed. I'll admit, i have never really took much notice of pensions - have had one for probably 7 or 8 years but only pay a verrrrry small amount into it. For the last few years i have paid more attention to my ISA - which is currently invested in a 'cautious' fund, and my very small pension is held within the same financial advisers company - but in a 'balanced' fund.

[OneDs]

I think as we previously discussed you are in need of a good IFA and a more balanced portfolio, pensions are only good as they are tax efficient, there are other more and possibly better options for non-paye'rs out there. Especially as your income and opportunity to invest could fluctuate wildly in comparison to how pensions are geared to operate.

Edited by OneDs on Friday 5th November 11:49

[BoRED S2upid]

£50k a year pension? fair play that would be a LOT! most people would be happy to have a third of that per year.

Better buying a lottery ticket? or Property?

[OneDs]

BoRED S2upid said:

£50k a year pension? fair play that would be a LOT! most people would be happy to have a third of that per year.

Better buying a lottery ticket? or Property?

I don't think it is a lot, I just think it's an eye opener when you do the maths and understand what it means from an investment requirement for a pension. As mentioned there are better vehicles and his business it probably the best but it comes with a lot of risk.

[Phooey]

BoRED S2upid said:

£50k a year pension? fair play that would be a LOT! most people would be happy to have a third of that per year.

Better buying a lottery ticket? or Property?

Agree, it is a nice amount considering at 65 i would hope to be still 100% debt free, but just used this figure for example purposes.

Property certainly has not and will not be ruled out. My limited understanding and gut feeling of 'investing' is telling me to keep maxing the ISA each year before anything else though.

OneDs said:

interesting and helpfull stuff

Thanks

[satans worm]

But how much would 50k a year be really worth in todays figs? (ie after 20 years inflation)

[OneDs]

Depends what inflation rate you use but in this example after 30 years of say 3% your looking at just over 40% of current value, so £20k.

Ideally you'd be increasing your contribution by at least inflation to match it's offset and hope the investment returns would also do better than inflation.

Edited by OneDs on Friday 5th November 12:59

[Phooey]

OneDs said:

Ideally you'd be increasing your contribution by at least inflation to match it's offset

Yes, i would certainly do this. I would want the equivalent value of today's £50k.

[OneDs]

Phooey said:

OneDs said:

Ideally you'd be increasing your contribution by at least inflation to match it's offset

Yes, i would certainly do this. I would want the equivalent value of today's £50k.

I thought as much, it is helpful to have a today's value comparison as it actually means something.

As you can see, regular pay increases in line or even beating inflation, plus reasonable investment returns, are ideal for the long term nature of a reasonably tax free investment vehicle like a pensions.

Getting a decent pension fund is only half the game, your still at the mercy of the annuity market, that is where most people get screwed. You'd have to be at deaths door and have a medical file bigger than war & peace and then miraculously live into your 90's as a fit and healthy as a 20 year old in order to win on that front.

Edited by OneDs on Friday 5th November 13:32

[voicey]

Shouldn't he be also looking at income drawdown in place of an annuity?

OneDs - do you work in pensions? (hope you don't mind me asking)

ETA: My post looks a bit arsey - it wasn't meant to be. I'm asking as I'm in a similar situation and might ask you a question or two.

Edited by voicey on Friday 5th November 13:43

[OneDs]

voicey said:

Shouldn't he be also looking at income drawdown in place of an annuity?

OneDs - do you work in pensions? (hope you don't mind me asking)

ETA: My post looks a bit arsey - it wasn't meant to be. I'm asking as I'm in a similar situation and might ask you a question or two.

Edited by voicey on Friday 5th November 13:43

Depends on his risk profile and what guarantee of earnings he wants, but hey he's got 30 years to think about that one.

No I don't work in pensions, just work with them closely. I look after pay & benefits for a medium sized business and previously the same but small parts of some huge companies.

Fire away.

Edited by OneDs on Friday 5th November 13:51

[voicey]

I recently ramped up my contributions into my (money purchase) employers scheme. My current pot is worth circa £80k and my employer and I are putting in a shade over £18k a year. I'm 34. I anticipate that my pay will rise annually at least in line with inflation and the contributions are a fixed percentage of pay.

The trouble is, I've got no idea what this might be worth when I come to retire! Also, I'd quite like to stop working really hard in my fifties so I doubt I'd be able to keep this level of contributions up (especially if I left my profession and didn't have an employer to help with the contirbutions).

Any advice?

[OneDs]

voicey said:

I recently ramped up my contributions into my (money purchase) employers scheme. My current pot is worth circa £80k and my employer and I are putting in a shade over £18k a year. I'm 34. I anticipate that my pay will rise annually at least in line with inflation and the contributions are a fixed percentage of pay.

The trouble is, I've got no idea what this might be worth when I come to retire! Also, I'd quite like to stop working really hard in my fifties so I doubt I'd be able to keep this level of contributions up (especially if I left my profession and didn't have an employer to help with the contirbutions).

Any advice?

OK Maths first.

You have £80k now and between you and your employer you are putting in £18,000k a year. Theoretically lets call this 20% of your current income.

Say you start to phase down at 50 to 55 at 15% and 55 to 60 at 10%. You retire at 60 not 65. So that gives you 26 years more years. Your pay increases by the same rate as inflation so it has no effect so your % stays the same but contributions go up to cancel the effect of inflation.

Based on a £500 per £10k annuity (if you take a the drawdown route it's a max I believe 120% of this)

At 3% return = Fund of £674,760 = £34k pension equivalent to todays money
At 6% return = Fund of £1,241,165 = £62k pension equivalent to todays money
At 9% return = Fund of £2,284,864 = £114k pension equivalent to todays money
At 12% return = Fund of £4,200,155 = £210k pension equivalent to todays money

Shouldn't really give any advice. However my thoughts are I hope you have investments elsewhere because this is an awful lot of income to bank on one retirement source. Especially if you don't see yourself with the same employment status, rate of pay, disposable income, etc... for the next 26 years. However as a paye and as a higher rate tax payer your making the most of the tax free status of the contributions at the moment, just keep your options open re the future.

Plenty of DC schemes have the ability to mix & match investments funds and risk profiles, have you looked at this?

Edited by OneDs on Friday 5th November 15:14

[voicey]

Thanks for that - you have certainly given me something to think about, in particular about spreading the investment choices (I need to look into what I'm in - there are choices).

Two years ago I also made the decision to max out both mine and the other half's ISAs every year and not touch them until retirement. We'll see how long that lasts! I do have a good amount of cash in the bank but that's likely to go onto the proceeds of a flat sale to make up a big deposit for a dream house.

From not really doing much saving in my youth, I'm now not sure if I'm doing enough and if I'll be stuck to this desk for the next 40 years!

[OneDs]

voicey said:

Thanks for that - you have certainly given me something to think about, in particular about spreading the investment choices (I need to look into what I'm in - there are choices).

Two years ago I also made the decision to max out both mine and the other half's ISAs every year and not touch them until retirement. We'll see how long that lasts! I do have a good amount of cash in the bank but that's likely to go onto the proceeds of a flat sale to make up a big deposit for a dream house.

From not really doing much saving in my youth, I'm now not sure if I'm doing enough and if I'll be stuck to this desk for the next 40 years!

You must have been doing something good over the last 10 years to get to £80k, long way to go and at least your not 50 having these thoughts. Anyway your in a very good position and taking the right action now which is all positive.

[cailean]

You are doing MUCH better than most 34 year olds. By buying a good house you will also be obtaining another asset class which should help your retirement pot when you retire. By max'ing your ISAs and paying into the pension you are doing well. You also need to monitor where they are invested and be an active "investor", don't just leave it in a boring fund with high charges. At your age you should not be in cautious funds, do some research on more sexy stuff as well to diversify (emerging markets, tech, natural resources etc.) and over the years you should achieve much better returns.

[allgonepetetong]

satans worm said:

But how much would 50k a year be really worth in todays figs? (ie after 20 years inflation)

Doesn't matter. The OP asked a question and specifically stated "in today's money"

[OneDs]

allgonepetetong said:

satans worm said:

But how much would 50k a year be really worth in todays figs? (ie after 20 years inflation)

Doesn't matter. The OP asked a question and specifically stated "in today's money"

Yes but only as an indicator of a starting point.

Phooey said:

OneDs said:

Ideally you'd be increasing your contribution by at least inflation to match it's offset

Yes, i would certainly do this. I would want the equivalent value of today's £50k.