What is the average amount to retire on?
Discussion
One of the problems with opinions on here is that people who understand finance and their retirement needs tend to be higher earners in the private sector, so their expectations will be higher than ordinary folk. They may think they're middle income, but most of us don't take our family skiing twice a year, drive round in A8's or even Range Rovers, we don't own expensive watches and we don't have a BTL empire.
I'm in the process of planning my retirement, I could retire in around 5 years with very little income, or work another 20 years and hope I live long enough to enjoy all the money I'd have. My dad worked in the public sector and retired early with a great pension, but didn’t live long enough to enjoy it. I’ve worked in the private sector, and was self-employed for some of that time with virtually no pension contributions, so I was a late starter.
In the money purchase scheme, you, and hopefully your employer, put money tax-free into investments which will grow at a rate similar to the world's stock markets. The more you put in, the more pension pot you'll have, but unlike defined benefit schemes you won't know how much until you get closer to retirement. And you’ll have to make choices about where the money’s invested, if you want to get the most out of your pension.
Until recently pension funds had to be used to buy an annuity, an insurance policy which pays an income while you’re alive. It used to be maybe 10% or so, but now maybe 4% and once your dead there’s nothing left for your children to inherit. The new drawdown rules give you much more choice (and risk of blowing the money by making a poor choices) and the ridiculously low interest rates of recent years mean BTL property is a good way of ensuring future income. Share ISA's are good if you want to gamble a bit, but the money ISA's and most savings accounts are currently rubbish. But pension laws and interest rates can, and do change, so like anything try not to put all your eggs in one basket.
Of course if you don’t start a pension until you’re in your 40’s, you’ll have a lot less. Much less than half, because early contributions have more years to grow. But even if you’ve left it late, start now.
Then factor in property, mortgages and other debts, possible inheritance (but don’t count on it) and whether and when you’d be willing to downsize your house to free up some money. And children, if you have any, and do you want to leave an inheritance for them. And then it’s useful if you know how long you & your partner are going to be alive
For those who are hoping the state will provide for you, you will probably survive, but it’ll be horrible. The state pension is less than £500 per month, and that’s assuming you paid enough NI contributions.
If all that sounds really depressing, sorry. But the fact that you’ve asked the question means you, unlike the majority of people, are actually interested enough to do something about it.
This is quite a useful site, in my opinion
https://www.moneyadviceservice.org.uk/en/categorie...
and try their pension calculator
https://www.moneyadviceservice.org.uk/en/tools/pen... which gives you an idea of what you need to do
All in my middle-income opinion, of course, but it might help you...
I'm in the process of planning my retirement, I could retire in around 5 years with very little income, or work another 20 years and hope I live long enough to enjoy all the money I'd have. My dad worked in the public sector and retired early with a great pension, but didn’t live long enough to enjoy it. I’ve worked in the private sector, and was self-employed for some of that time with virtually no pension contributions, so I was a late starter.
e8_pack said:
on average, what can Mr and Mrs middle-class expect to retire on and live out their days comfortably?
When I started in work, final salary (defined benefit) pension schemes were the norm and generally operated on 'up to 40/60ths', so if you worked for a company for 40 years you'd get 2/3rds your final salary in retirement. These became unsustainable as people lived longer, so some were reduced to up to 40/60ths of your average salary, but most (like mine) in the private sector were closed and replaced by money purchase schemes.In the money purchase scheme, you, and hopefully your employer, put money tax-free into investments which will grow at a rate similar to the world's stock markets. The more you put in, the more pension pot you'll have, but unlike defined benefit schemes you won't know how much until you get closer to retirement. And you’ll have to make choices about where the money’s invested, if you want to get the most out of your pension.
Until recently pension funds had to be used to buy an annuity, an insurance policy which pays an income while you’re alive. It used to be maybe 10% or so, but now maybe 4% and once your dead there’s nothing left for your children to inherit. The new drawdown rules give you much more choice (and risk of blowing the money by making a poor choices) and the ridiculously low interest rates of recent years mean BTL property is a good way of ensuring future income. Share ISA's are good if you want to gamble a bit, but the money ISA's and most savings accounts are currently rubbish. But pension laws and interest rates can, and do change, so like anything try not to put all your eggs in one basket.
e8_pack said:
Say I work till 60 odd, mortgage paid, savings, company pension etc. What should we be striving for?
That's not enough information, but I'd say you need start paying as much as you can, as young as you can. If you’re in your early twenties and you and your employer combined are putting 10% of your annual salary in, it’s better than nothing but you’ll be uncomfortable in retirement. If it’s 15% you’ll be ok, but you’re going to have to work until your state pension kicks in. If it’s >20% then you’ll be able to retire young with quite a good lifestyle. If you can get a final salary pension, probably in the public sector, you’ll be happy too.Of course if you don’t start a pension until you’re in your 40’s, you’ll have a lot less. Much less than half, because early contributions have more years to grow. But even if you’ve left it late, start now.
Then factor in property, mortgages and other debts, possible inheritance (but don’t count on it) and whether and when you’d be willing to downsize your house to free up some money. And children, if you have any, and do you want to leave an inheritance for them. And then it’s useful if you know how long you & your partner are going to be alive
For those who are hoping the state will provide for you, you will probably survive, but it’ll be horrible. The state pension is less than £500 per month, and that’s assuming you paid enough NI contributions.
If all that sounds really depressing, sorry. But the fact that you’ve asked the question means you, unlike the majority of people, are actually interested enough to do something about it.
This is quite a useful site, in my opinion
https://www.moneyadviceservice.org.uk/en/categorie...
and try their pension calculator
https://www.moneyadviceservice.org.uk/en/tools/pen... which gives you an idea of what you need to do
All in my middle-income opinion, of course, but it might help you...
Claudia Skies said:
My arithmetic says that at £1m maximum he's effectively killed pension tax relief for higher earners.
Salary, say, £50,000 a year
Pension contributions, say, 15% a year - that's £7,500
Do that through a 45 year career and you've paid in £337,500
Compound investment returns over 45 years should blow that well through the £1m limit many, many years before you retire.
Going to shove an awful lot of investment cash into the residential property market isn't it? Salary, say, £50,000 a year
Pension contributions, say, 15% a year - that's £7,500
Do that through a 45 year career and you've paid in £337,500
Compound investment returns over 45 years should blow that well through the £1m limit many, many years before you retire.
Enough to keep the bubble from popping when rates start rising and squeeze out the hundreds of thousands living on the limit?
The under 40s in the UK are so totally f
ked and futureless. 
Figure I might as well stick to plan A and buy some properties to rent, building them up to retirement. Im 38 so need to think about my long term retirement strategy. I work overseas so maybe earn a bit more than average but I was just wondering how people do it who work 9-5, 2 kids, usual mortgage and moderate income. Maybe get some tips on the basics and modify my approach accordingly.
Edited by e8_pack on Friday 20th March 18:53
DonkeyApple said:
Going to shove an awful lot of investment cash into the residential property market isn't it?
Enough to keep the bubble from popping when rates start rising and squeeze out the hundreds of thousands living on the limit?
The under 40s in the UK are so totally fked and futureless.
Most likely, yes. BTL is very annuity like, but without the drawbacks.Enough to keep the bubble from popping when rates start rising and squeeze out the hundreds of thousands living on the limit?
The under 40s in the UK are so totally f
ked and futureless. I'm 40 *sob*... I have about 230k put aside in pensions, but my problem is the retirement age keeps rising. It was 50 for private pensions when I started and is now about 57 for me. That is likely to hit 60 before I get to retire.
For numerous reasons, that's leaving it too late, and due to lifetime limits of one bar, I'm likely to hit the threshold.
The only debate I'm having is to try and decide when to stop contributions and move that money into property.
As a Gen Xer, I've been screwed by the boomers and will likely be shafted by Gen Y when they take over the block vote..... So, while I feel sorry for the kids, I have to look after my family, and make sure we're alright.
How many in the Uk have 1 million in a pension pot?
Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
Edited by gvij on Friday 20th March 20:48
gvij said:
How many in the Uk have 1 million in a pension pot?
Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
How many in the Uk have 1 million in a pension pot?Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
Edited by gvij on Friday 20th March 20:48
More than you think.
And so will you if the figures you gave are correct.
I am currently contemplating giving you 20K per annum so I can come over to the UK and you can provide me with a Middle Class lifestyle.
jeff m2 said:
gvij said:
How many in the Uk have 1 million in a pension pot?
Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
How many in the Uk have 1 million in a pension pot?Middle class is anything from 20k to 200k a year. The reality is a couple who have their mortgage paid drive /own old depreciation free cars are only going to have the cost of council tax, light and heat, food ,small petrol bill, mot/repair costs, house and car insurance so say 1200+2000+2500+1000+1000+1000=7700 per annum. What's the state pension? Surely that should cover it.
Many retirement pass times or at least the good ones are free or nearly free. One can join a golf club, gym, garden, read newspapers and books in the library, even join a cheap sailing club all for another say 2k a year. Even adding 1.5k a year for eating out as a treat it not alot more than 10k.
Which means a pot of less than 100k to buy an annuity for 4k to add to the state pension.
Sure your not going to be buying new Rolexes, Mercs, have a black book of hookers and coke dealers numbers in it but I would class that as a good middle class life. Laughable isn't it 3.5k the difference between lower and middle classes imo!
Ps I'm on 100k+ a year the above is my honest opinion on costs. I save 15k a year in my pension at 37 .I started late and have 50 now but hope to carry on deducting at the high rate and possibly emigrate when it comes to drawing it to a lower tax country. However this level of contribution is totally unnecessary.
Edited by gvij on Friday 20th March 20:48
More than you think.
And so will you if the figures you gave are correct.
I am currently contemplating giving you 20K per annum so I can come over to the UK and you can provide me with a Middle Class lifestyle.
Ive converted figures from euro to stg for convenience. I did live in the Uk for 10years though. I'm well paid but I'm under no illusions of the law of diminishing returns and the need to be thrifty for long term happiness. If you think your poor your poor if you think your rich your rich. All those activities I mentioned can be had for 2k, the only thing I like doing is flying which of course at 120 an hour can't be done on the cheap but even 20hours of light aircraft rental a year that's every other weekend an hour is only 2.5k-3k so that's another few quid needed or can just eat into capital as no one lives forever anyway. I hopefully will have 1m stg in a pot when retired but I'm not going to need it. Its more to reduce tax bill on unneeded money now. The only thing that can go wrong and no one has mentioned this is care if disabled, stroke etc then the money will get eaten very quickly. However I may be unique in thinking suicide an option if quality of life is poor and deteriorating with no chance of improvement as the way forward..
Claudia Skies said:
My arithmetic says that at £1m maximum he's effectively killed pension tax relief for higher earners.
Salary, say, £50,000 a year
Pension contributions, say, 15% a year - that's £7,500
Do that through a 45 year career and you've paid in £337,500
Compound investment returns over 45 years should blow that well through the £1m limit many, many years before you retire.
That is a rather strange earnings profile though.Salary, say, £50,000 a year
Pension contributions, say, 15% a year - that's £7,500
Do that through a 45 year career and you've paid in £337,500
Compound investment returns over 45 years should blow that well through the £1m limit many, many years before you retire.
I've a number of final salary (and career average) how do I know what those "pots" are? Or is it the case that its what you as an individual have paid into a pension?
Say at least 10 years of final salary and career average (wife would be similar length but final salary all the way).
Now I'm sadly defined contribution so its pretty easy to calculate the value invested (not what the fund has grown by).
In addition to the max £1m total pot isn't the total annual contribution now £30k? In which case top earning directors football players etc would need to pay in over 34 years to fill the pot.
Say at least 10 years of final salary and career average (wife would be similar length but final salary all the way).
Now I'm sadly defined contribution so its pretty easy to calculate the value invested (not what the fund has grown by).
In addition to the max £1m total pot isn't the total annual contribution now £30k? In which case top earning directors football players etc would need to pay in over 34 years to fill the pot.
Welshbeef said:
I've a number of final salary (and career average) how do I know what those "pots" are? Or is it the case that its what you as an individual have paid into a pension?
Say at least 10 years of final salary and career average (wife would be similar length but final salary all the way).
Now I'm sadly defined contribution so its pretty easy to calculate the value invested (not what the fund has grown by).
In addition to the max £1m total pot isn't the total annual contribution now £30k? In which case top earning directors football players etc would need to pay in over 34 years to fill the pot.
I've been contributing to a personal pension for about 25 years and I take a daily look at the pot value, not necessarily a good habit BTW. My layman's understanding is this;Say at least 10 years of final salary and career average (wife would be similar length but final salary all the way).
Now I'm sadly defined contribution so its pretty easy to calculate the value invested (not what the fund has grown by).
In addition to the max £1m total pot isn't the total annual contribution now £30k? In which case top earning directors football players etc would need to pay in over 34 years to fill the pot.
The pot/s is/are the total value of your pension to date, this includes your net contributions, tax relief, any opted out state 2nd pension (S2P or serps as were) contributions made (we've all been opted back in now
), any bonus payments the pension co. makes, and investment growth. Once the pot goes over the lifetime allowance (now at £1m), which it can still do, withdrawals are heavily taxed (55% ?).
I stand to be corrected.
But how so you know what an employer has paid into the final salary? If could have overall been in defecit so made higher % payments those may be totally irrelevant to a newish joiner but totally to a long term member.
I think clarity on this is important as currently I've no sure understanding in what the clear guidelines in how you calculate lifetime pension contributions to date.
I think clarity on this is important as currently I've no sure understanding in what the clear guidelines in how you calculate lifetime pension contributions to date.
Welshbeef said:
In addition to the max £1m total pot isn't the total annual contribution now £30k? In which case top earning directors football players etc would need to pay in over 34 years to fill the pot.
If investment returns continue at, say, 7 or 8% compound the pot will fill quite quickly.In this changed environment anyone with cash is likely to be doing £15k of ISAs as well as £30k of pension. And then there's the spouse's pension, and the spouse's ISA. That's a total tax shelter for about £65,000 a year and over time it could add up very nicely.
Essentially what Boy George has done is cut pension tax relief for "the higher paid" from 40% to 0% instead of cutting it from 40% to 20% which various people had been calling for, probably including the LibDems.
Claudia Skies said:
.....
...Essentially what Boy George has done is cut pension tax relief for "the higher paid" from 40% to 0% instead of cutting it from 40% to 20% which various people had been calling for, probably including the LibDems.
Wow I'd missed that! Is that right? Do higher rate tax payers now get NO tax relief on their contributions? I'd heard talk of removing the additional 20%, which had to be claimed....Essentially what Boy George has done is cut pension tax relief for "the higher paid" from 40% to 0% instead of cutting it from 40% to 20% which various people had been calling for, probably including the LibDems.
Claudia Skies said:
If investment returns continue at, say, 7 or 8% compound the pot will fill quite quickly.
In this changed environment anyone with cash is likely to be doing £15k of ISAs as well as £30k of pension. And then there's the spouse's pension, and the spouse's ISA. That's a total tax shelter for about £65,000 a year and over time it could add up very nicely.
Essentially what Boy George has done is cut pension tax relief for "the higher paid" from 40% to 0% instead of cutting it from 40% to 20% which various people had been calling for, probably including the LibDems.
Ok so let's be silly here say an individual invested only £1k in total for their working life but due to unbelievable returns let's say by the age of 50 that £1k is worth >£1m does that mean anything above that gets taxed at 55%?In this changed environment anyone with cash is likely to be doing £15k of ISAs as well as £30k of pension. And then there's the spouse's pension, and the spouse's ISA. That's a total tax shelter for about £65,000 a year and over time it could add up very nicely.
Essentially what Boy George has done is cut pension tax relief for "the higher paid" from 40% to 0% instead of cutting it from 40% to 20% which various people had been calling for, probably including the LibDems.
£1m pot in 10 years time will be drastically less than it is today too.
So BTL is frankly a no brainer
Lastly how do you inderstand the final salary pension fund values - where do you get that info? Especially if its public sector.
Guys inflation is 2%. Safe yields like bonds are negative in real terms. The superlow interest rates currently cause poor investment decisions to be made and moral hazard to take place. Its likely that stock market /property returns are not sustainable and look set for a big correct possibly greater than 30-40%. Its unlikely that any pension is going to grow by more than 1-2% long term in real inflation adjusted terms accounting for the inevitable ups and downs of the market. The only way 1m will be accumulated is if 20k a year is put in for 30-35years which is more than many people earn . No one needs a pot more than this in my opinion. When people retire their needs and wants decrease versus young people anyway as do their desires.
Seems fair.. What is unfair is the high rate of tax and Ni on high earners. Tax them enough and they wont want to work hard and generate jobs and capital as well as innovation.
Seems fair.. What is unfair is the high rate of tax and Ni on high earners. Tax them enough and they wont want to work hard and generate jobs and capital as well as innovation.
gvij said:
Guys inflation is 2%.
Tending to zero, no? http://www.telegraph.co.uk/finance/economics/11486...
Simpo Two said:
gvij said:
Guys inflation is 2%.
Tending to zero, no? http://www.telegraph.co.uk/finance/economics/11486...
It states that inflation is expected to be close to zero for this year and then increase, tending towards 2%.
Simpo Two said:
gvij said:
Guys inflation is 2%.
Tending to zero, no? http://www.telegraph.co.uk/finance/economics/11486...
http://www.tradingeconomics.com/euro-area/inflatio...
gvij said:
Guys inflation is 2%. Safe yields like bonds are negative in real terms. The superlow interest rates currently cause poor investment decisions to be made and moral hazard to take place. Its likely that stock market /property returns are not sustainable and look set for a big correct possibly greater than 30-40%.
Are you always so positive & optimistic? Gassing Station | Finance | Top of Page | What's New | My Stuff