Value of Pension at retirement

W

WGT

Registered User
Messages
201
Hi,
I'm in the process of reviewing my pension contributions. I'm an IT contractor and I make the contributions 60% through my limited company (300 euro) and 40% personal (200 euro) per month.
However, I believe that this will be worth approx 450K on retirment (60 years of age). I think this insufficent.
My question is does anyone know, how I can calculate my pension so that I can be guaranteed an annual pension of 40-50K (in today's terms) when I retire?

Thanks.
 
Don't forget that any pension projection will depend on assumptions abour various issues (e.g. fund performance, inflation, indexation of contributions, continuous contribution until retirement etc.) so they are merely guidelines and not any indicator of actualy or likely maturity value. I'm not sure what you mean by your second question. Do you mean how can you estimate the maturity value of a pension (you can't) or how much you need to contribute to reach the target maturity value or how much you will actually need to retire on (which will depend on one's lifestyle and plans etc.)?
 
I suppose what I've really asking is ...
Is there a way to calculate what 40K in today's terms will be equal to in 2033? I read in the Sunday Business Post, that if you divide the pension value at maturity by 10, this will give you the annual pension.
So allowing for this, if I want an annual pension of 40K per annum (in today's terms) when I retire, my pension value at maturity will have to be 400K (in today's terms).
So I guess the real question is what will 400K (in today's terms) be in 2033?
 
Future Value FV
Present Value PV
r = expected avg rate of inflation (or interest) say 0.05 for 5% inflation.
t = number of years

PV = FV / (1+r)power t

In you're case if you're looking at 27 years the present value is 107k.

The Sunday Times gives a list of what the current cost of buying an annuity would be, (from memory) I think it said at the moment 150k buys an one of around 8k at 65, gets you less if you're 60.

If you want something to pay in total the equivalent of 40k now, so you could make that up of 30k your pension plus 10k from the state. Somebody retiring now at 65 would want about 562k to do that (assuming 150k pays out 8k) so your target would need to be 2 million = 562k * (1.05 pow 27).

It's not as gloomy if the 5% is unduly pessimistic (you'd only need 1 million if it's 2%) but assume the worst, mainly since the unions either don't understand or care about what wage inflation does to private sector pensions.
 
You must log in or register to reply here.
Menu
Log in
Register