36 year pension - is this too good to be true?
Discussion
We had a pensions meeting at work today as our company have just finished the transfer from final salary to more sustainable pension pot and how to maximise our returns. I'm at a young age (24), average salary but a very good pension scheme. The figures below seem ludicrous and absurdly high. It's not a thread to try and say look at my money, blah blah blah, I just genuinely think I'm missing something stupid as some of the amounts are mind boggling to me, especially based on what amount I physically save myself below. Is it purely just to the money being invested for so many years?
As is stands, assuming I kept the same salary for the next 36 years assuming retiring at 60 (and I'd obviously hope for salary to keep growing and thus contriubtion), between the company, my contribution and tax relief I put £713 a month into my pot which works out at £8,556 a year, £308k in 36 year period of which only £108k is my own contribution). In addition the current pot is £30k.
The particular fund my pension is invested into is Blackrock US Equity Index Class 1, which since launch has an average yearly return of 16%. I find this staggeringly good. Whilst past performance is not an indication for future performance, I'd still hope to expect a good investment and will spread the fund into different portfolio's to minimise risk.
But based on the below % returns from the compound interest and additional to contributions each month, it turns into a ridiculous amount of money after 36 years. Over the last 20 years the FTSE has gone up on average 5.4% a year, and 5% below is beyond good to me, and the returns above that a beyond dream land amounts. Is this right?
3%- £643,413
5% - £1,024,195
7% - £1,676,017
9% - £2,800,487
11% - £4,748,900
13% - £8,130,930
15% - £13,999,638
17% - £24,164,282
As is stands, assuming I kept the same salary for the next 36 years assuming retiring at 60 (and I'd obviously hope for salary to keep growing and thus contriubtion), between the company, my contribution and tax relief I put £713 a month into my pot which works out at £8,556 a year, £308k in 36 year period of which only £108k is my own contribution). In addition the current pot is £30k.
The particular fund my pension is invested into is Blackrock US Equity Index Class 1, which since launch has an average yearly return of 16%. I find this staggeringly good. Whilst past performance is not an indication for future performance, I'd still hope to expect a good investment and will spread the fund into different portfolio's to minimise risk.
But based on the below % returns from the compound interest and additional to contributions each month, it turns into a ridiculous amount of money after 36 years. Over the last 20 years the FTSE has gone up on average 5.4% a year, and 5% below is beyond good to me, and the returns above that a beyond dream land amounts. Is this right?
3%- £643,413
5% - £1,024,195
7% - £1,676,017
9% - £2,800,487
11% - £4,748,900
13% - £8,130,930
15% - £13,999,638
17% - £24,164,282
Edited by PHlL on Wednesday 15th November 19:25
It always looks like a big number until you account for inflation.....but yes, its amazing how much your pot could be worth if you really do save from your 20's and increase it over the years......shame I didnt wake up to the fact until late 30s, still playing catch up.
The longer you leave it, the more you will have to pay in to get the same out, so dont delay. Also you may not wish to keep working until 67 - try reducing that to 60 or 55 and see how much the available pot falls. You really need to get in as early as you can, with as much % as you can, but in your younger years, life tends to get in the way when houses, wives, kids etc come along.......
The longer you leave it, the more you will have to pay in to get the same out, so dont delay. Also you may not wish to keep working until 67 - try reducing that to 60 or 55 and see how much the available pot falls. You really need to get in as early as you can, with as much % as you can, but in your younger years, life tends to get in the way when houses, wives, kids etc come along.......
PHlL said:
The particular fund my pension is invested into is Blackrock US Equity Index Class 1, which since launch has an average yearly return of 16%. I find this staggeringly good. Whilst past performance is not an indication for future performance, I'd still hope to expect a good investment and will spread the fund into different portfolio's to minimise risk.
It's only slightly ahead of the benchmark - one of my US funds was up 25% last year, but is flat this year. I find it a bit scary - US stocks have had a fantastic run.
Budflicker said:
Those numbers look good as long as
You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
and they don't come back in 5 years with another tale of woe to slash your pension yet again.You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
PHlL said:
The particular fund my pension is invested into is Blackrock US Equity Index Class 1, which since launch has an average yearly return of 16%. I find this staggeringly good. Whilst past performance is not an indication for future performance, I'd still hope to expect a good investment and will spread the fund into different portfolio's to minimise risk.
But based on the below % returns from the compound interest and additional to contributions each month, it turns into a ridiculous amount of money after 36 years. Over the last 20 years the FTSE has gone up on average 5.4% a year, and 5% below is beyond good to me, and the returns above that a beyond dream land amounts. Is this right?
3%- £643,413
5% - £1,024,195
7% - £1,676,017
9% - £2,800,487
11% - £4,748,900
13% - £8,130,930
15% - £13,999,638
17% - £24,164,282
But based on the below % returns from the compound interest and additional to contributions each month, it turns into a ridiculous amount of money after 36 years. Over the last 20 years the FTSE has gone up on average 5.4% a year, and 5% below is beyond good to me, and the returns above that a beyond dream land amounts. Is this right?
3%- £643,413
5% - £1,024,195
7% - £1,676,017
9% - £2,800,487
11% - £4,748,900
13% - £8,130,930
15% - £13,999,638
17% - £24,164,282
Equity investment can produce spectacular returns, but never any guarantees of course. It all depends upon the businesses selected.
As already mentioned by others, the continual reduction in the value of money, makes compounding figures quite misleading.
Employer pensions with an employer contributing are a good deal, but it is also wise to maximise any employer share option scheme opportunities, and consider using equity ISAs. With pensions you get tax relief going in, but tax on the way out. ISAs are the other way round, so useful before or during retirement, if needing extra income or tax free withdrawals.
The 16% you have mentioned can be achieved, but when talking long-term, if going back say 30 years, there were some high inflation periods, so it was easier then to reach higher investment returns.
When talking about 36 years into the future, take a look back 36 years to see the prices of basic items in 1981. That will put the numbers into perspective for you.
Time invested can certainly make compounding gather momentum.
This slide is not up to date, but gives an idea of an actual long-term growth rate achieved. It does include income from annual dividends.
Coincidentally, during the first year, there was a 17% annual return.
( click on the slide to view the obscured figures )
Jon39 said:
Equity investment can produce spectacular returns,
Absolutely right. Especially if you do it with a big chunk of free money from the government and with compound tax free returns through several decades - despite the negative vibes from people looking for excuses not to provide for themselves, pension investment can deliver very good returns indeed.Someone above quoted FTSE increase averaging around 5.4% a year - but don't forget that ignores annual dividends or around 3% p.a. which can be reinvested along the way.
8% compound tax free return is not to be sneezed at!
Add any employer contribution (if you are fortunate enough to have one) and that is free money also.
My employer contributes 11% of which 4% is basic and 7% is matched. I am contributing 11% also for a total of 22%. So firstly you’ve doubled your money right there. Then I pay via salary sacrifice so that 11% is actually 6.5% or thereabouts of real money.
Only thing that concerns me is that the stock market has been pretty bull fora very long time. Is it really realistic to thinkthis will keep going? But there is a limited amount I can do about that.
My employer contributes 11% of which 4% is basic and 7% is matched. I am contributing 11% also for a total of 22%. So firstly you’ve doubled your money right there. Then I pay via salary sacrifice so that 11% is actually 6.5% or thereabouts of real money.
Only thing that concerns me is that the stock market has been pretty bull fora very long time. Is it really realistic to thinkthis will keep going? But there is a limited amount I can do about that.
The numbers certainly look about right. You can do a quick & dirty sense check on say the 3% number like so....
30,000(1.03^36) + 8556(((1.03^36)-1)/.03)
.... which comes out in the right ball park.
3% would be a reasonable return to be thinking of btw as a very long term inflation adjusted equity return. Assuming any more would be foolish.
So, yes. Carry on as you are and you would have £600k in today's money when you reach 60. Nowhere near enough to retire on imo but, as you say, salary and savings should continue to increase. You seem to be off to a good start.
30,000(1.03^36) + 8556(((1.03^36)-1)/.03)
.... which comes out in the right ball park.
3% would be a reasonable return to be thinking of btw as a very long term inflation adjusted equity return. Assuming any more would be foolish.
So, yes. Carry on as you are and you would have £600k in today's money when you reach 60. Nowhere near enough to retire on imo but, as you say, salary and savings should continue to increase. You seem to be off to a good start.
Edited by anonymous-user on Thursday 16th November 00:09
Blaster72 said:
Budflicker said:
Those numbers look good as long as
You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
and they don't come back in 5 years with another tale of woe to slash your pension yet again.You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
superlightr said:
Blaster72 said:
Budflicker said:
Those numbers look good as long as
You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
and they don't come back in 5 years with another tale of woe to slash your pension yet again.You live long enough to get it all.
You stay in the same job and pension scheme
You don't lose half of it in a divorce settlement at some point
Pension returns and tax benefits are diminishing all the time every year, so don't assume the past is a guide to the future.
Calculate what you think you will get, and then cut it by half, or even three-quarters, to get a realistic number for 2053.
Not only does the government want to dip into your pension pot, but the banks, inflation, and future wife(s) will also want their cut. Your pension is not all yours.
Calculate what you think you will get, and then cut it by half, or even three-quarters, to get a realistic number for 2053.
Not only does the government want to dip into your pension pot, but the banks, inflation, and future wife(s) will also want their cut. Your pension is not all yours.
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