How much should I be putting asside for a pension?

Z

Zumba

Registered User
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Hi Everyone,

Is there some way I could figure out how much I should put aside for a pension? I'm 45 and on temporary contracts. I've 14 years of a public service pension but that won't amount to much by the time I get it.
 
The rule of thumb was (at one stage anyway!) that you should put aside half your age in percentage terms of your salary from the age you start contributing (so 10% per annum from the age of 20, 20% at the age of 40 etc)*.

However, that ignores the unique position that each of us is in: what we have (in savings, investments, borrowings and commitments) right now; other more immediate priorities (a home/family/legacy debt); what we expect to get/achieve/earn between now and retirement and when we expect, or at least hope, to retire. On top of that would be the risk appetite and stomach for volatility over that period and all manner of variables that could be considered individually.


*If, on the other hand, you wanted to work off such an unscientific basis as this, I would estimate that your contribution rate should be of the order of 45 years MINUS 14 years DIVIDED by 2, or around 15% of your salary going towards your pension each and every year.
 
Hi Rob

I've heard the 15% of salary rule of thumb before but I've never heard your other formulation before. I like it!

I guess the other variable is how much (if anything) an employer contributes to the pot.
 
Thanks for the advice. Like you said there are other considerations too. Thanks for the formula though. It gives me something to think about.
 
How much will you need to live on in retirement. Spend some time working that out. Maybe start with what you spend now, then adjust for expected changes, e.g. maybe your mortgage will be finished.

From this subtract the state pension and your expected PS pension.

For example maybe you will need €30k to live on, state pension €12k, PS pension €5k that means you need a further €13k. Now multiply that by about 25 to give €325k. The 25 is based on a 4% annuity rate which is approximately what is available at present. Of course this varies with personal factors, you can contact some insurance companies with your details for a more accurate figure. We don't know if rates will be the same when you retire, but they are unlikely to be worse, (I hope).

To have a pot of any given size in 20 years you probably need to contribute the size of the pot divided by the number of years multiplied by 0.625. That is based on a real return of 4% on your investment.
 
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