Half-Way To Retirement - Is my pension doing ok?
Discussion
bricks said:
The gist of my question is to understand how much needs to be paid in...
Ok - rough calcs..Existing pot £44500
Age 34
Monthly contrib £690
Annual contrib £8280
At age 64 pot value: £627k - assuming average 4% growth but not assuming any increase in monthly contrib, and not index linked.
Go here and play:https://milfordanddormorfp.co.uk/savings-calculator/
Then you can play with this to help with your drawdown strategy: https://milfordanddormorfp.co.uk/pension-drawdown-...
Paywalled, but you should be able to find a way round it:
https://www.telegraph.co.uk/investing/isas/how-bec...
https://www.telegraph.co.uk/investing/isas/how-bec...
Mr Pointy said:
Paywalled, but you should be able to find a way round it:
https://www.telegraph.co.uk/investing/isas/how-bec...
Click on link then very quickly click to airplane mode, works 99% of the time to defeat the paywall. daft but true.https://www.telegraph.co.uk/investing/isas/how-bec...
Mr Pointy said:
If that's the Telgraph article you need to delete your post before the mods see it.
What post? The upshot of the article.
Invest early in the tax year, invest a lot, invest in stocks and shares, be mindful of costs.
If you have a wife or someone else then you can get to £1m using their calculator in 14 years by maxing out the 40k allowance and investing in stocks and shares (at the higher end of the risk scale).
The investing early in the year was interesting, I've got the allowance for both my wife and I ready to go, and actually I wasn't considering dumping it all in day one, but perhaps it does make most sense.
ukwill said:
bricks said:
The gist of my question is to understand how much needs to be paid in...
Ok - rough calcs..Existing pot £44500
Age 34
Monthly contrib £690
Annual contrib £8280
At age 64 pot value: £627k - assuming average 4% growth but not assuming any increase in monthly contrib, and not index linked.
Go here and play:https://milfordanddormorfp.co.uk/savings-calculator/
Then you can play with this to help with your drawdown strategy: https://milfordanddormorfp.co.uk/pension-drawdown-...
This year is an anomaly but your 4% growth would in real terms be a 6.x% decline,.
Mr Pointy said:
If you asked me if I wanted £1m in a pension or £1m in an ISA I'd go ISA, but that's just me in my position.
Money in an ISA is effectively worth more than money in a pension as it won't be taxed when you access it, but the lack of tax relief on the way in means it almost certainly cost more to get it in there. The only reason I can think of to prefer the sum in a pension is the potential IHT benefit.
ukwill said:
bricks said:
The gist of my question is to understand how much needs to be paid in...
Ok - rough calcs..Existing pot £44500
Age 34
Monthly contrib £690
Annual contrib £8280
At age 64 pot value: £627k - assuming average 4% growth but not assuming any increase in monthly contrib, and not index linked.
Go here and play:https://milfordanddormorfp.co.uk/savings-calculator/
Then you can play with this to help with your drawdown strategy: https://milfordanddormorfp.co.uk/pension-drawdown-...
okgo said:
Mr Pointy said:
If that's the Telgraph article you need to delete your post before the mods see it.
What post? The upshot of the article.
Invest early in the tax year, invest a lot, invest in stocks and shares, be mindful of costs.
If you have a wife or someone else then you can get to £1m using their calculator in 14 years by maxing out the 40k allowance and investing in stocks and shares (at the higher end of the risk scale).
The investing early in the year was interesting, I've got the allowance for both my wife and I ready to go, and actually I wasn't considering dumping it all in day one, but perhaps it does make most sense.
Similar figures for me. As others have said diversification is key.
I'm 31, with a similar income with respect to salary and additional earnings. Clearly everyone has differing financial commitments, so you don't want to leave yourself short/live like a total pauper.
Also remember it is likely your % contribution is from your basic salary only.
Just to allow comparison, I was contributing 3.5% for years, along with a company contribution of 4%. I then realised I was being retarded, when the firm would contribute up to 8%. Its free money, I would double check if your employer has a set figure or if it is on a sliding scale. I now contribute 15% of my salary, and the employer contribution is maxed at 8% (therefore 23% total). I was fortunate enough to start paying into the pension at 17 as an apprentice, so my pot is currently worth just over 100k. But who knows when I'll be able to access that when I near retirement.
I am reluctant to put any more in as a percentage of my salary, so designate £400/month into a S&S isa, which although has had pretty stagnant returns, is currently worth the best part of 20k, so is growing nicely with those monthly contributions. As well as investing in the company shares scheme via salary sacrifice at £150/month.
These hopefully may help to aid a quicker exit off the hamster wheel in years to come, or atleast give me a rainy day fund if it there are issues out of the blue.
I'm 31, with a similar income with respect to salary and additional earnings. Clearly everyone has differing financial commitments, so you don't want to leave yourself short/live like a total pauper.
Also remember it is likely your % contribution is from your basic salary only.
Just to allow comparison, I was contributing 3.5% for years, along with a company contribution of 4%. I then realised I was being retarded, when the firm would contribute up to 8%. Its free money, I would double check if your employer has a set figure or if it is on a sliding scale. I now contribute 15% of my salary, and the employer contribution is maxed at 8% (therefore 23% total). I was fortunate enough to start paying into the pension at 17 as an apprentice, so my pot is currently worth just over 100k. But who knows when I'll be able to access that when I near retirement.
I am reluctant to put any more in as a percentage of my salary, so designate £400/month into a S&S isa, which although has had pretty stagnant returns, is currently worth the best part of 20k, so is growing nicely with those monthly contributions. As well as investing in the company shares scheme via salary sacrifice at £150/month.
These hopefully may help to aid a quicker exit off the hamster wheel in years to come, or atleast give me a rainy day fund if it there are issues out of the blue.
xeny said:
Mr Pointy said:
If you asked me if I wanted £1m in a pension or £1m in an ISA I'd go ISA, but that's just me in my position.
Money in an ISA is effectively worth more than money in a pension as it won't be taxed when you access it, but the lack of tax relief on the way in means it almost certainly cost more to get it in there. The only reason I can think of to prefer the sum in a pension is the potential IHT benefit.Few other benefits of pension (as it stands and I know it could change)
1. Off set the pension payments to remain out of high rate tax bracket
2. 40% tax relief on way in and manage pension to only pay basic tax
3. 25% tax relief on full pension fund value (up to LTI)
4. Whilst not being available before 55-57 it is for some a good way of ensuring it can’t be spent early in life.
xeny said:
Money in an ISA is effectively worth more than money in a pension as it won't be taxed when you access it, but the lack of tax relief on the way in means it almost certainly cost more to get it in there. The only reason I can think of to prefer the sum in a pension is the potential IHT benefit.
But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.SpunkyGlory said:
But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.
Yes, you're far more likely to be a higher tax payer on the way into a pension than the way out, so pension is arguably 20% better for a 40% tax payer or 25% better for a 45% tax payer than an ISA. Then if you have children the more you put into your pension the more tax credit you get so another incentive to put into a pension pot. Plus obviously the 25% you can take out tax free, saving 20/40/45% tax vs an ISA. The only benefit of an ISA is the flexibility.
Condi said:
SpunkyGlory said:
But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.
Yes, you're far more likely to be a higher tax payer on the way into a pension than the way out, so pension is arguably 20% better for a 40% tax payer or 25% better for a 45% tax payer than an ISA. Then if you have children the more you put into your pension the more tax credit you get so another incentive to put into a pension pot. Plus obviously the 25% you can take out tax free, saving 20/40/45% tax vs an ISA. The only benefit of an ISA is the flexibility.
Mr Pointy said:
Condi said:
SpunkyGlory said:
But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.
Yes, you're far more likely to be a higher tax payer on the way into a pension than the way out, so pension is arguably 20% better for a 40% tax payer or 25% better for a 45% tax payer than an ISA. Then if you have children the more you put into your pension the more tax credit you get so another incentive to put into a pension pot. Plus obviously the 25% you can take out tax free, saving 20/40/45% tax vs an ISA. The only benefit of an ISA is the flexibility.
ukwill said:
Mr Pointy said:
Condi said:
SpunkyGlory said:
But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.
Yes, you're far more likely to be a higher tax payer on the way into a pension than the way out, so pension is arguably 20% better for a 40% tax payer or 25% better for a 45% tax payer than an ISA. Then if you have children the more you put into your pension the more tax credit you get so another incentive to put into a pension pot. Plus obviously the 25% you can take out tax free, saving 20/40/45% tax vs an ISA. The only benefit of an ISA is the flexibility.
ukwill said:
Yes, but it would seem the only benefit (over investing in a pension) is your ability to access it before 55. For the same amount of money invested (given the same market conditions), you'd have considerably more than £1m in your pension pot, over the same period. I think it's fair to say that both have their place in an investment portfolio.
This ^^They both have a place in a balanced portfolio, so do both.
If you only have say £20k to invest, then it would be a harder choice I think. Pension always has the advantage of locking it away from temptation, whereas an ISA piggy bank could be smashed open and squandered early on a deemed essential such as moving house or a new car.
Temptation aside, an ISA is nice after several years of snowballed compound tax free interest. Especially now when you can fairly easily get >4% again. Anyone who's been maxing out their ISA since introduction should have over £200k in one by now, more come 6th April. Thats a decent chunk of tax free drawdown whatever way you look at it.
Pension, yes its tax free on input but the tax restrictions on withdrawl take away a fair chunk of what was gained on input, so its by no means as black and white as some would like to make out. Best of both worlds is to put £60k p/a into your pension and £20k into a top tier ISA of course, but not everyone will have that level of spare cash each year.
But pension is basically a political hot potato, you've got f
k all control over any of it. While an ISA may 'only' offer flexibility, it is a massive pro to ISA over pensions, not to the point of outweighing the tax relief leverage for growth, but not miles away IMO.
This could happen with ISA's but given so few people make much use of it I can't see that it'll be an issue. Also ISA as a concept is too much for your average man on the street to even know enough about to feel upset about it if they increased the limit for example, so can't see it being attacked as readily (as proved these last few weeks) as a pension.
And lastly, people maximising ISA/Pension benefits probably aren't the people who would give in to temptations anyway, and the ability to get at the cash for an opportunity/emergency over a pension which obviously you cannot without hefty penalty is also a huge plus.
k all control over any of it. While an ISA may 'only' offer flexibility, it is a massive pro to ISA over pensions, not to the point of outweighing the tax relief leverage for growth, but not miles away IMO.This could happen with ISA's but given so few people make much use of it I can't see that it'll be an issue. Also ISA as a concept is too much for your average man on the street to even know enough about to feel upset about it if they increased the limit for example, so can't see it being attacked as readily (as proved these last few weeks) as a pension.
And lastly, people maximising ISA/Pension benefits probably aren't the people who would give in to temptations anyway, and the ability to get at the cash for an opportunity/emergency over a pension which obviously you cannot without hefty penalty is also a huge plus.
Edited by okgo on Thursday 30th March 11:55
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