Is there such a thing as putting too much into a pension?
Discussion
In the day job I have to make selections on pension contributions. At the age of 40 I am putting in 41% (including employers contribution). I don't have any real debt (ok, 4.5K owning for a car and my mortgage payments are my only debt).
I get the more you put in the more you get out but as it standards, im going to go past predicted worst case scenario income of just short of £500,000 according to the IFA I spoke to.
I get its all tax free but I am sure I could find something to spend the money on (Shell VMAX ?
) and people can and do die before pensions age. I get it is a balancing act but I think I am a bit to far in the wrong way?
Thoughts?
I get the more you put in the more you get out but as it standards, im going to go past predicted worst case scenario income of just short of £500,000 according to the IFA I spoke to.
I get its all tax free but I am sure I could find something to spend the money on (Shell VMAX ?
) and people can and do die before pensions age. I get it is a balancing act but I think I am a bit to far in the wrong way?Thoughts?
ChocyLint1 said:
Sorry, to be clear, that is the value of the pension. Yep. Checked the values with both internal system and IFA.
You mean your pension fund is currently sitting at £500k, or is predicted to be?It's entirely possible you could be better putting more in, or less.
A few more details might help... particularly around what you hope to achieve and if you are missing out on anything with your contributions... and I assume you are putting in less than £40k between you and your employer?
How much do you put in personally and what tax bracket are those contributions in... and if you don't contribute does your employer still do so?
Edited by UpTheIron on Friday 15th March 14:00
ChocyLint1 said:
In the day job I have to make selections on pension contributions. At the age of 40 I am putting in 41% (including employers contribution). I don't have any real debt (ok, 4.5K owning for a car and my mortgage payments are my only debt).
I get the more you put in the more you get out but as it standards, im going to go past predicted worst case scenario income of just short of £500,000 according to the IFA I spoke to.
I get its all tax free but I am sure I could find something to spend the money on (Shell VMAX ? ) and people can and do die before pensions age. I get it is a balancing act but I think I am a bit to far in the wrong way?
Thoughts?
Who knows what your pot will equate to in terms of an income by the time you retire.I get the more you put in the more you get out but as it standards, im going to go past predicted worst case scenario income of just short of £500,000 according to the IFA I spoke to.
I get its all tax free but I am sure I could find something to spend the money on (Shell VMAX ?
) and people can and do die before pensions age. I get it is a balancing act but I think I am a bit to far in the wrong way?Thoughts?
But if you assume £5,000 per annum income per £100,000 saved (which could well be optimistic), then a £500k pot would give you around a £25k income. Many would say that isn't a huge amount.
So if you can afford to invest 41% of your current income, and you are comfortable with the standard of living your remaining income is available to give you now, I wouldn't be cutting back on your saving.
Muzzer79 said:
I know two pensions directors for large schemes in the UK.
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
Are these figures from starting a new pot? Or increasing your contributions as you get older?They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
Muzzer79 said:
LordHaveMurci said:
41%?
If that's correct then
I know two pensions directors for large schemes in the UK.If that's correct then
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
Ridiculous.
Muzzer79 said:
I know two pensions directors for large schemes in the UK.
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
That has long been a decent rule of thumb based on when you start contributing. It basically emphasises the benefits of compound interest i.e if you start at age 20, a 20% investment thereafter should achieve a decent pension outcome. However, if you wait until you’re 30 to start, then you need a much higher contribution etc.They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
OP, I think you need to decide a few things.
When do you want to retire? If you are planning to retire at PP age then pensions are a great idea. However if you would like to retire even a few years sooner then ISAs are also worth considering. I do a mix of ISA and SIPP and intend to retire mid 40s.
The next is how much will you need. Sit down and draw up a table of all outgoings and include as much as possible. As a rule of thumb some people use 75% of their current income to allow a ball park calculation if they are still a long way away from retirement age.
Then basically multiply that number by 25 and it will *roughly* get you to how much you need in a pension to cover that level of expenditure. Some people go on the safe side and multiply by 30... or even 50 (personally I think 30 is more than enough).
So assuming the x 25 rule:
"John" needs £25k PA to retire. He is 25. He would like to retire at 55.
He will need a pot of around £625k. He needs to add (total incl any credits) around £12k a year to his pension as a flat line over 30 years, assuming say 3% growth.
"James" wants the same £25k but he is 40.
He will need to add about £33k a year to his pension!
So its half the time but almost 3 times the contribution at the same 3%.
Don't forget state pension, that kicks in late 60s depending on your age etc. That's not to be sniffed at as a married couple can get around £16k PA with 35yrs full NI credits.
When do you want to retire? If you are planning to retire at PP age then pensions are a great idea. However if you would like to retire even a few years sooner then ISAs are also worth considering. I do a mix of ISA and SIPP and intend to retire mid 40s.
The next is how much will you need. Sit down and draw up a table of all outgoings and include as much as possible. As a rule of thumb some people use 75% of their current income to allow a ball park calculation if they are still a long way away from retirement age.
Then basically multiply that number by 25 and it will *roughly* get you to how much you need in a pension to cover that level of expenditure. Some people go on the safe side and multiply by 30... or even 50 (personally I think 30 is more than enough).
So assuming the x 25 rule:
"John" needs £25k PA to retire. He is 25. He would like to retire at 55.
He will need a pot of around £625k. He needs to add (total incl any credits) around £12k a year to his pension as a flat line over 30 years, assuming say 3% growth.
"James" wants the same £25k but he is 40.
He will need to add about £33k a year to his pension!
So its half the time but almost 3 times the contribution at the same 3%.
Don't forget state pension, that kicks in late 60s depending on your age etc. That's not to be sniffed at as a married couple can get around £16k PA with 35yrs full NI credits.
ChocyLint1 said:
To answer some of the questions... I have put in at least 30% for the last 6 years. Prior to that, at my old job I put in 22%!
The percentage you put is is not particularly useful since you haven't said what that is in cash terms. You could be a bin man, in which case you probably can't save too much, or you might be a hedge fund manager, in which case you can throttle back a bit. You also haven't when you want to retire: 50/60/67?If the £500,000 if the expected fund value at (say) 60 then it will be worth about £336k in today's money (@ 2% annual inflation rate). If you take 4% of that a year (I can hear all the professionals screaming now) that's equivalent to about £13.4k a year now. Do you think that's enough to live on?
For a more reasoned answer you need to supply a lot more information but you can see a pension pot of £500k is probably not going to result in a life of luxury.
Muzzer79 said:
LordHaveMurci said:
41%?
If that's correct then
I know two pensions directors for large schemes in the UK.If that's correct then
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
The rule of thumb is to put your age divided by two as a percentage into your pension pot.
As others have already said, without further information there is not a lot we can add.
Do you have kids, is an important one (as pensions can be very IHT efficient)?
For many people the situation in life is thus:
Do you have kids, is an important one (as pensions can be very IHT efficient)?
For many people the situation in life is thus:
- Stage 1 Dependency - Your childhood, where you do not have to worry about money as you have parents doing this for you.
- Stage 2 Dependency - Your working life whereby you are dependent upon your ability to earn enough to buy a house, make pension provision, pay for your kids and every other cost involved.
- Independence - You have paid of the mortgage, have no debts and also have sufficient assets to provide you with an income to fund the rest of your life.
anonymous said:
[redacted]
I realise you're an obnoxious cocktard who has just found the Finance forum but nowhere does the post say that's the level these two directors are investing. It's what they recommend others to invest.If you're going to post with the adults at least learn to read accurately.
coetzeeh said:
Muzzer79 said:
LordHaveMurci said:
41%?
If that's correct then
I know two pensions directors for large schemes in the UK.If that's correct then
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
The rule of thumb is to put your age divided by two as a percentage into your pension pot.
Although I tend to have ignored it and put in 20-25% (inc employer contributions) since I was 18, in the hope that front loading will pay off over the following 40yrs.
Henners said:
I thought that was the general rule too.
Although I tend to have ignored it and put in 20-25% (inc employer contributions) since I was 18, in the hope that front loading will pay off over the following 40yrs.
These rules of thumb are all a bit simplistic and normally don’t elaborate further in terms of planned/hoped retirement age, other pension provisions etc. Although I tend to have ignored it and put in 20-25% (inc employer contributions) since I was 18, in the hope that front loading will pay off over the following 40yrs.
Like you, as soon as I was able to afford it, I started to take saving seriously. In my case I was 26. For me, my main driver is early retirement, but I’m also cognisant of the fact that I work in a historically insecure industry - albeit for one of the most secure companies in it. I also have zero other strings to my bow, and can easily lose my medical certificate.
As such, a seemingly disproportionate percentage of my earnings go into my retirement saving.
Henners said:
coetzeeh said:
Muzzer79 said:
LordHaveMurci said:
41%?
If that's correct then
I know two pensions directors for large schemes in the UK.If that's correct then
They both recommend putting the same percentage of salary into your pension as your age in years.
So, if you're 25 years old, 25%.
If you're 55, 55%.......
The rule of thumb is to put your age divided by two as a percentage into your pension pot.
Although I tend to have ignored it and put in 20-25% (inc employer contributions) since I was 18, in the hope that front loading will pay off over the following 40yrs.
As already said this is when you start...so start early.
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