I’m lucky enough to have a dad who is on it when it comes to finance. Granted, this hasn’t stopped me from getting into debt but 1) my debt is manageable and 2) I’m not a child so it’s out of his hands. But in this essay, I’m not here to talk about my debt, for once. I’m here to talk about my pension.
Ever since I got my first job as an intern, paid £10,000 a year, my dad has drilled into me the importance of paying more into my pension than I’m automatically enrolled on. He and my mum also started a pension for me when I was a child. So at this point, I have what I would consider a pretty healthy pot.
Obviously, there are all sorts of factors that affect how much a person will need after they retire: What age they plan to retire; how much they think they will need per month to lead the lifestyle they want; where they live; how long they reckon they’ll live; whether they’re still renting, have a mortgage or own a house outright; whether they are single or married to a trustworthy billionaire; whether they opt for drawdown or annuity; what the economy is like when they retire.
Some of these factors are controllable, others aren’t. And the list is exhaustive, so I’ll stop there.
Let’s say for the sake of argument that I’ll retire, or at least semi-retire, at the age of 68, I want a comfortable retirement (and therefore, according to research by Which?, will need about £28,000 a year if I’m in a couple), I’ll be living in Bristol or the surrounding area, I’ll live until the age of 100 (I have good genes), I’ll have a mortgage, I’ll be married, but not to a trustworthy billionaire, I’ll opt for drawdown, and the economy will be similar to what it is today.
My pension contribution is currently 12% of my salary, which is what a lot of organisations want the next government to make the minimum contribution for auto-enrolment.
Most pension providers nowadays have an app that allows you to calculate the size of your pot by the time you retire and work out whether you’ll have enough. So I checked mine out.
Including the state pension, because I trust that it will still exist when I retire, my pot is currently projected to be £336,568 if my contributions remain the same throughout my career. That sounds like a lot to me. But is it enough?
If I made all the assumptions I laid out above, it would last until I was 92. If I don’t include the state pension, I’ll run out by the time I’m 81. But I guess I’ll want more income when I’m a younger retiree and can decrease it as I get older? So I’ll probably be fine, right?
“Probably” is not exactly a relaxing thought.
I get sent a lot of press releases and read a lot of articles with estimations for how much one might need to have saved by the time one retires. And it doesn’t help that they all have widely varying suggestions.
For example, Which? suggests a single person will need £20,000 a year for a “comfortable” retirement. This means building up a private pension pot of £173,000 if you opt for drawdown or £182,000 if you opt for an annuity. In which case, I would probably be fine.
But the PLSA estimates a single person will need £31,300 a year for a “moderate” retirement, and £43,100 for a “comfortable” retirement. Well, if that’s the case, I have no chance.
And then, how do I know whether I should opt for drawdown or an annuity? It all gets so confusing, there are so many factors to consider and it’s so far in the future, that it makes my head hurt. And it’s unlikely that my dad will be around when I retire. If he is, he’ll be 102, which would be pretty impressive. So he won’t be able to come to the rescue, as he often does when it comes to matters of financial “guidance”. Advisers: help. For free though, please.
I’m not very good at thinking about the future, but even I would like slightly more assurance that I won’t run out of money in retirement. And this is me, painstakingly trying to analyse whether I have enough. Imagine what it’s like for the thousands of people who don’t even think to check their pension before they’re approaching retirement. Or assume they can rely on the state pension alone because “the government will look after us, right?” To be honest, I can’t say I blame them.
Don’t worry about me though, I have a watertight back-up plan, and it involves that aforementioned trustworthy, preferably-30-years-older-than-me, billionaire.
Failing that, I just hope that the zombie apocalypse will have happened by then. At least I know how that will pan out for me.
