Why are people obsessed with getting a pension

bilbot79

GreeBo wrote: »

I'm 43, current pot is 328K and I'm putting in 3.2K total a month.
My estimated pot is 1.2M in present value if I retire at 60....so it seems like one of our numbers are off?

(if I just lash it into a compound interest calculator I get 2.8M @ 9% though, I'd have to drop the rate to 2.5% to get what my pension company are estimating...)

I wonder do you need to go agressive to get the 10%.

They were saying here before that pension calculators are working in real terms i.e. equivalent purchasing power

Nermal

GreeBo wrote: »

I'm 43, current pot is 328K and I'm putting in 3.2K total a month.
My estimated pot is 1.2M in present value if I retire at 60....so it seems like one of our numbers are off?

(if I just lash it into a compound interest calculator I get 2.8M @ 9% though, I'd have to drop the rate to 2.5% to get what my pension company are estimating...)

The latter is much more realistic.

It's funny to hear 10% rates bandied about, based on one country that was spared two world wars, had massive population growth and was the epicentre of the information technology revolution.

GreeBo

bilbot79 wrote: »

I wonder do you need to go agressive to get the 10%.

They were saying here before that pension calculators are working in real terms i.e. equivalent purchasing power

I'm in pretty aggressive, risk embracing funds so would certainly expect a better return that 2.5%, also I'd expect my salary to rise and hence also my total contributions.

S.M.B.

Saying earlier I use 5% which consists of ~7% return on average minus ~2% for inflation and fees. Wouldn't be expecting an average of 12/13% over 20, years based on looking at a few good recent years.

Adding 3k a month is going to put you in a comfortable position no matter the return.

GreeBo

GreeBo wrote: »

I'm 43, current pot is 328K and I'm putting in 3.2K total a month.
My estimated pot is 1.2M in present value if I retire at 60....so it seems like one of our numbers are off?

(if I just lash it into a compound interest calculator I get 2.8M @ 9% though, I'd have to drop the rate to 2.5% to get what my pension company are estimating...)

9% over 17 years net of pension fund charges etc is quite ambitious.
Especially if you are on a strategy that will direct significant percentages of your fund away from equities for the 5 to 7 years leading up to retirement.

That accepted (or not) your calculations are including you continuing to add 3.2K/month. That sums up to 2.8M as you say.

Your pension company are estimating what €328k will grow to over 17 years without anymore contributions.......... I'm surprised they are using 9%. Are you arriving at that working back from a 1.3m figure after 17 years?
I'd doubt their calculation is that simple to be honest......

bilbot79 wrote: »

......
They were saying here before that pension calculators are working in real terms i.e. equivalent purchasing power

Indeed, I imagine that's the case here.

If you are in high risk stuff Covid 19 must have taken a decent chunk out of it, S&P, FTSE etc are all down even after the recent bounce back.
High risk aiming for 9% a year over 17 years is an unrealistic expectation IMO.

cizolin

Have a pension in 100% in low risk bonds, looking to move 100% into high risk equities, 25/30 years off retirement so is it the right move for the next few years or so with the current climate?

Have only 10k in the pension at present and looking to start putting 1k a month going forward to try catch up as such.

If by high risk equities you mean a diversified lot like S&P500, FTSE 100 etc then I'd happily thrown the wad in there for the next 20 years ....... bringing you to 5 or 10 years from retirement. Longterm these always outperform other asset classes.

There are some funds that are high risk and they focus on oil production and mining etc in various emerging economies that I'd not touch though.

So it depends what you mean by high risk equities.

Jim2007

cizolin wrote: »

Have a pension in 100% in low risk bonds, looking to move 100% into high risk equities, 25/30 years off retirement so is it the right move for the next few years or so with the current climate?

Have only 10k in the pension at present and looking to start putting 1k a month going forward to try catch up as such.

Bonds simply have a different risk profile, they are not low risk, you just don't appreciate the risk.

In terms of pension planning you are in a very high risk category. For someone some only 25 years out, that amount you have saved is very and on top of which you have it in low yield instruments with little chance of growth!

What is your objective, a small supplementary pension of a few hundred Euros a year?

Jim2007

Jim2007 wrote: »

...........

What is your objective, a small supplementary pension of a few hundred Euros a year?

To be fair they do intend making €300/360k of contributions over the next 25/30 years......... time is on their side to an extent.

cizolin wrote: »

..........

Have only 10k in the pension at present and looking to start putting 1k a month going forward to try catch up as such.

GreeBo

Augeo wrote: »

9% over 17 years net of pension fund charges etc is quite ambitious.
Especially if you are on a strategy that will direct significant percentages of your fund away from equities for the 5 to 7 years leading up to retirement.

Im not expecting 9%, I was just using that to compare to the figure the other poster was quoting. His pot estimate with the same as mine with significantly lower current value and monthly inputs.

Your pension company are estimating what €328k will grow to over 17 years without anymore contributions..........

From what I can see they are including existing contributions continuing.

I'm surprised they are using 9%. Are you arriving at that working back from a 1.3m figure after 17 years?
I'd doubt their calculation is that simple to be honest......

I'm simply using their portal and calculators, they dont expose a growth rate option, just contributions and retirement date.
I'm using a standalone compound interest calculator to figure out how they are arriving at 1.3M, which works out at 2.5%, which I would consider pretty low.

If you are in high risk stuff Covid 19 must have taken a decent chunk out of it, S&P, FTSE etc are all down even after the recent bounce back.
High risk aiming for 9% a year over 17 years is an unrealistic expectation IMO.

Its not crazy high risk stocks, just higher risk pension options (Growth Funds etc)
They dropped by ~30% in March, but are now "only" 10-15% down. I just look at it as more cheap units.

A couple of bumper years can outweigh any lean times though.

cizolin

Augeo wrote: »

If by high risk equities you mean a diversified lot like S&P500, FTSE 100 etc then I'd happily thrown the wad in there for the next 20 years ....... bringing you to 5 or 10 years from retirement. Longterm these always outperform other asset classes.

There are some funds that are high risk and they focus on oil production and mining etc in various emerging economies that I'd not touch though.

So it depends what you mean by high risk equities.

With Aon....Indexed Global Equity Fund (High Volitality Option), passively managed equity fund investment strategy in a portfolio of equities replicatingba a recognized global index

GreeBo

Augeo wrote: »

To be fair they do intend making €300/360k of contributions over the next 25/30 years......... time is on their side to an extent.

Very much depends on their expectations though.

They are ~40 with a pension pot of 10K, its never too late to start, but they have missed out on significant growth opportunities.

(Within a year they will have more than doubled their total from all the previous years, excluding any growth)

cizolin

Jim2007 wrote: »

Bonds simply have a different risk profile, they are not low risk, you just don't appreciate the risk.

In terms of pension planning you are in a very high risk category. For someone some only 25 years out, that amount you have saved is very and on top of which you have it in low yield instruments with little chance of growth!

What is your objective, a small supplementary pension of a few hundred Euros a year?

Objective is to have a pot of 300 to 400k. Currently 37, late to the pension show unfortunately as I wasn’t in a financial position to invest in one.

GreeBo

GreeBo wrote: »

............, but they have missed out on significant growth opportunities............

I think that's more than obvious.

GreeBo

cizolin wrote: »

Objective is to have a pot of 300 to 400k. Currently 37, late to the pension show unfortunately as I wasn’t in a financial position to invest in one.

You should either aim higher or lower your contributions.
You will meet your target without any growth based on 1K a month until you retire.

GreeBo

Augeo wrote: »

I think that's more than obvious.

I think from reading this thread, its clearly not "more than obvious" to many, many people.

GreeBo

GreeBo wrote: »

I think from reading this thread, its clearly not "more than obvious" to many, many people.

Could you provide one post to back up that thought?

GreeBo

Augeo wrote: »

Could you provide one post to back up that thought?

How about the thread title or the Opening Post?

S.M.B.

I would think that in general people are unaware of the significance of investing in a pension early to fully realise the benefits of compounding over 40+ years.

GreeBo

How does some folk who reckon they shall rely on the state pension support your claim that........... it's not obvious that starting a pension late means they've lost significant growth opportunities?

GreeBo wrote: »

Very much depends on their expectations though.

They are ~40 with a pension pot of 10K, its never too late to start, but they have missed out on significant growth opportunities.

(Within a year they will have more than doubled their total from all the previous years, excluding any growth)

This is what the OP feels about pensions.......

Midlife crisis man wrote: »

What's the point having one.

About myself: I don't have a pension. I came from a poor background and was never thought about the importance of financial awareness.

I struggled throughout the recession eventually going back to college. I'm in my mid 30s now recently started working in the public sector. I'm only on 25k per year. I'm not entitled to the public sector pension because I'm on a fixed term "trainee" contract in my field.

Also if I happen to stay in the public sector for the rest of my career I won't be long enough to get the cushty 40 year pension anyway.

So, in the next 30 years the retirement age will probably be closer to 70. Why save the bollox off myself just so I have a bit of cash when I'm an auld fella with (best case scenario) 10 years of life left. Who needs that much money at that age. Am I missing something here? You can't take it with you when you die.

I'm sure I'll have a good bit of regular savings by then but what's with the obsession of pumping as much money as you can into a pension (that'll end up getting raided by the government in subsequent recessions anyway)

I'm going to enjoy my money while I have health and vigour and the government can look after me when I'm an auld boy.

GreeBo

Augeo wrote: »

How does some folk who reckon they shall rely on the state pension support your claim that........... it's not obvious that starting a pension late means they've lost significant growth opportunities?






This is what the OP feels about pensions.......

I dont think they consider that they are relying on the government pension (even though in reality thats what it is)
To me they are simply saying "its someone elses problem to look after me", be that social welfare, government pension, whatever.

The are certainly not thinking about compounding interest or the benefits of starting early. There are plenty of posters who have advocated direct savings over a pension "so its not locked away". Other than in very, very nice circumstances, this attitude clearly demonstrates (at least to me!) a complete lack of understanding about how pensions work, the benefits to them and why you should start one as early as you can, even if its only a tiny amount you are putting in.
I have had more than a handful of conversations with otherwise intelligent people who are not even putting in enough to get the employer contribution "sure whats the point, I cant get at it if I want it".

PHG

cizolin wrote: »

Have a pension in 100% in low risk bonds, looking to move 100% into high risk equities, 25/30 years off retirement so is it the right move for the next few years or so with the current climate?

Have only 10k in the pension at present and looking to start putting 1k a month going forward to try catch up as such.

Who recommended100% low risk bonds at your age? Whoever they are get rid!!

snoopboggybog

S.M.B. wrote: »

I would think that in general people are unaware of the significance of investing in a pension early to fully realise the benefits of compounding over 40+ years.

I understand that but don't get why do some people put so much money into it and put significant proportions of their wages into it?

I do put money in 6% which my employer matches but like why would I want to increase it. No point dying with millions in the bank.

Rather have the money in my pocket now and can go to more concerts, premier league matches, sun holidays etc.

I don't need a huge wage on retirement. I find it pointless. Your basically into the final quarter of your life at 60.

what is your projected retirement income, do you know?

GreeBo

snoopboggybog wrote: »

I understand that but don't get why do some people put so much money into it and put significant proportions of their wages into it?

I do put money in 6% which my employer matches but like why would I want to increase it. No point dying with millions in the bank.

Rather have the money in my pocket now and can go to more concerts, premier league matches, sun holidays etc.

I don't need a huge wage on retirement. I find it pointless. Your basically into the final quarter of your life at 60.

I think you need to spend some time on a pensions calculator. It's very difficult to end up with millions when you retire, never mind when you die.

Have you looked at what your own fund will be worth when you retire and how much of an annual salary it will give you? Can you live off that? Will you own a house outright by then or will you be still paying rent or a mortgage?
Will you have kids in college still?

Remember that your pension is all you are going to have to live off, no more money coming in. If you are banking on the state looking after you then you are going to have to get used to a very different, frugal lifestyle.

In your 60s you have more free time than at any other point in your life, you also have means to do things.
You could also, easily, live another 25 years. That's a long time to be counting the pennies...

bilbot79

I guess some people see it as just saving to look after a decrepit auld fella that's good for nothing but for me it's literally about retiring early and having a few years where I'm relatively healthy and not dragged down by the grindstone. That's why I'm enthusiastic to max it out, if it was to save enough to pay for a nursing home I wouldn't have the motivation.

I'm conscious also mind you that if you are investing for that time in your pension pot you need to invest in your own health at the same time. I've a few bad habits to break as the ultimate goal is that come retirement I'm fighting fit with loads of cash

S.M.B.

snoopboggybog wrote: »

I understand that but don't get why do some people put so much money into it and put significant proportions of their wages into it?

I do put money in 6% which my employer matches but like why would I want to increase it. No point dying with millions in the bank.

Rather have the money in my pocket now and can go to more concerts, premier league matches, sun holidays etc.

I don't need a huge wage on retirement. I find it pointless. Your basically into the final quarter of your life at 60.

There's a very basic guideline of when you start contributing to a pension, put half your age in and you'll have a decent amount in. So in your case if you started with those contributions at 24 I'm sure you are on track for a decent pot.

Other people start later and realise they are playing catch up. Others want to go to more concerts, sun holidays and premier league games when they are older and retired and the added saving through out their life allows this.

Just like the "half your age" rule there are some well known strategies for how much money should go on essentials, luxuries and savings throughout your life to help with a continuous standard of living beyond retirement.

donkey balls

I've had people over the years even back in the 90s lads that I worked with saying I am mad putting so much into the pension at such a young age.
My logic behind it was better in my pocket than the revenue we use to joke saying ah sure you be dead before you can claim it,My reply was well at least there is money for the piss up.
I also wouldn't be relying on the state pension in the next few years, I've a feeling they will means test it and anyone that was prudent with their money as in savings/pensions will not be entitled to the state pension.

Yellow_Fern

GreeBo wrote: »

There are plenty of posters who have advocated direct savings over a pension "so its not locked away". Other than in very, very nice circumstances, this attitude clearly demonstrates (at least to me!) a complete lack of understanding about how pensions work, the benefits to them and why you should start one as early as you can, even if its only a tiny amount you are putting in.

It is quite uncommon view here but yea outside this forum yes many people are anti private pensions. I dont have a private pension and I invest outside a pension wrapper but I don't live in Ireland and I always recommend private pensions in this forum.

Jim2007

snoopboggybog wrote: »

Rather have the money in my pocket now and can go to more concerts, premier league matches, sun holidays etc.

Given that you'll have more on time on your hands and less responsibility at 60, do you think it is possible you might actually want to do more of those things, rather than less?

A match used to be go Friday evening or Saturday morning and be back for work on Monday... now we usually go on Thursday, sight see on Friday, may be take in a concert if we're in London, match Saturday, lazy day Sunday and home Monday afternoon... or may be Tuesday, depending on the mood.

You won't suddenly want to do less of the things you enjoy, when you retire and have the time, you'll want to do more, especially early on when you are in good health.

snoopboggybog wrote: »

I don't need a huge wage on retirement. I find it pointless. Your basically into the final quarter of your life at 60.

Do you think dreams and ambitions stop when you are 60, that all you'll want to do is sit around and watch the grass grow?

Even wanting to be able to help a son or daughter out buying a house, helping with grand kids education, or leaving something in a will requires savings...

When you are 17 you have few responsibilities and no money, when you are 60 you have few responsibilities and money... most people see it as an opportunity to follow their dreams, not sit around and be board for 20 years or more.

At the end of the day it is your life, but I recon you will not be happy to sit at home while your mates go to that AC Milan match, the hiking holiday in the Jura or whatever is popular then...