How To Retire Early On The Average Wage (Simple Steps)
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- Опубліковано 31 тра 2024
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00:00 Intro
01:29 Average Wage Example
08:07 Average Wage Retirement Lifestyle
10:35 Lower Wage Examples
11:49 Effects of Saving More
CLARIFICATION: Auto Enrollment rules only apply to the portion of your salary above the lower earnings limit of £6,240. Although this limit is expected to be removed shortly.
Am I right in saying it also only applies up to a salary of £50,270. So on the statutory rules someone earning £50,270 and someone earning £100,000 are going to make exactly the same pension contributions each month if their employer offers statutory minimum
@@tommypip Very true..my experience so decided to open a private sipp which is much better for me even though I will not get employer matching .Wished thee were videos on these matters .Late starter on autoenrolment and part time though DB scheme . Private SIPP is a Win Win. Is this video clip directed to those on DC pension scheme ? Does it apply to those on Autoenrolment in DB schemes,Pls?Now,I am trying to catch up having realised that I have a very small DB pension pot that is half of State pension age annual salary. Thanks to UA-cam for all these finance education videos though I wished I knew all these facts thirty four years
Unfortunately I didn't start saving into a pension until 41, and then it was only in the default fund for 10 years until I learnt recently that this was a really bad idea. Now I'm pouring much more money than I should need to at my age into both my pension and stocks & shares ISA to try and catch up a bit.
Learn from my mistake all you youngsters out there, you have no idea how lucky you are to have all the financial videos like this and information on the web freely available now.
It's quite remarkable, though, how much you really can put into these things while working over the age of 50. It really focuses the finances.
Totally agree. I’m in the same boat. I’d only I knew about all this when I was in my 20s
When he says if you are 20 and are watching this video, you are very lucky to have learnt this at such a young age. YOU HAVE NO IDEA how lucky you are. If I knew this information at 20 I would have probably saved at least another £100k into my pension.
If I knew at 20 years old what I know now about investing I would be retired!
I will drill it into my kids when they start working, I'll give them an incentive, if they invest £50 per month I'll put in another £50.
Indeed. If you start at 35, as many people seem to do, then you need to whack in nearly 20% to catch up, and that's harsh on median wage with UK housing costs. Max it out at 20 whilst living at home (sure you'll be doing a LISA and so on too)!
Heck, if I learned this 3 years ago, I'll save an additional 20k, just from avoiding reckless spendings. 🤦🏻♂️
Also now we have things like trading 212 and free trade stocks and shares ISAs and SIPPs.
There aren't many 20 year olds watching this video. Most won't really care about what happens when they are old at this age and rightly so.
The government should employ people like you and Martin Lewis to teach this stuff in schools - but then the government dont want a money savvy population who can all retire early and not have to work until they clock out in a coffin do they!
Teachers themselves would appreciate bring taught a lot of this stuff! They're not gatekeeping, they don't know either.
Not everything you need for life has to be learned at school. It's perfectly feasible to self study if you are motivated enough.
I retired in 2019 aged 51 despite not learning any of this in school.
I didn't start investing until age 30. It's not hard, but you do have to educate yourself.
Blaming your school for your inability to retire early is a thin excuse.
No, the system only works because its broken
I don't understand this obsession with early retirement. My friend (best man at wedding) retired at 56 and was back at work after three years. He'd never been so bored and unhealthy during that retirement phase and he literally felt his life slipping away.
@@kevinsyd2012 agreed... Some people are not cut out for early retirement.
In my case, I stopped work in 2019, aged 51. I spend my time on 5-6 nature recovery projects across the Cotswolds and 3 community projects in my town.
My diary is full and my friendship network is way bigger than it was when I was working.
I'm five years in and don't regret a single moment. I shudder when I think that the alternative was to work through my 50s.
But I do think I'm an outlier ... Most people prefer the structure that employment provides. It's better for both their health and wallet.
To unlock pro level, also invest in a S&S ISA, retire earlier, use the ISA to bridge that gap until your pension kicks in….
This !!!
Thankfully my Dad taught me young. Been putting 8% into pension since 18, with the employer averaging 20%. I'm 45 now, hoping to retire at 55. Just waiting on a projected quote 😊
Do not entertain an Annuity…
You don’t have to stick with the company pension. Get advice. It probably doesn’t have drawdown.
I recently retired aged 55. I was able to do this as a result of saving as much as possible into my company pension over the last 15 years, including annual bonus which was paid by salary sacrifice into pension. Meanwhile my colleagues were busy buying new cars, bigger homes etc. and they will be working another 10 years most likely.
That was the most comprehensive and balanced video I have have seen on saving for a pension, and I have seen hundreds. Thank you so much.
Self employed since 19, started pension at 23 once I’d had a house a few years (with 13% interest). Hammered it late 20’s when I earned more, rather than buy a nice car, and was fully funded for a while. Put in max contributions in my 40’s to take advantage of 40% tax relief and retired at 57 last December. Compound interest really does work. My father in law was given this advice by a bank manager in the 1950’s : Buy the cheapest reliable car, and the most expensive house you can reasonably afford. That was good advice. I’ve discovered your channel recently, and I seem to have followed most of the same strategies that you recommend for both investing, and then withdrawing income. Great channel, I’m sure many people will benefit from your advice.
Great work and a good example of how it should be! Unfortunately now many folk get stuck at that first hurdle you mention; buying a house at 20 is a pipe dream for many people now (unless support from the bank of mum/dad is available). The real impact of this isn't just the cost of rent (ouch), it's the opportunity cost of not being on the ladder (i.e. no capital gains), the incremental cost of buying the same standard home for considerably more years down the line (while others realise their gain), and it's the lost income that's been paid to landlords instead of being funnelled into pensions to compound over the years. I genuinely believe the real impact of the housing market on young people is being vastly underestimated, it's not just expensive rent, it's peoples entire financial future being put in jeopardy.
Incidentally I think the other big issue for young people today is the UKs obsession with people studying pointless degrees, racking up loads of debt, missing out on years of earnings which as we know can compound significantly at that age, all for a piece of paper that's meaningless to the majority of careers. Of course there's exceptions where the study is essential (doctors etc), but for most people it's a total waste of time and I wouldn't be surprised if it halves the expected average retirement pot when the variables are accounted for.
Thanks, in the late 80’s, the housing market was going crazy. I started to train as an accountant after A levels, but soon realised I would never qualify as chartered so my earnings would be capped, and if I didn’t buy soon it would get harder to get on the ladder. I jumped ship to contract engineering as a helper, learned to weld, pipe fit & fabricate, saved like hell & got a deposit in together. Getting a mortgage was really difficult. Later I had to sell a move in the housing depression of ‘92, due to change of partner, but that was a good opportunity to trade up, as the differential was less. I concentrated on paying the mortgage down. I got the chance to be the main contractor, it was a big risk as l was quite secure but went for it. Many years of stress and long hours & divorce later it paid off. It may not have been the best way, but now happily married and very much enjoying life with financial freedom.
Nice. What's your outgoings like vs funds available (if you don't mind divulging of course). Comfortably lifestyle, and are you the sort of retiree you always see swanning off on holidays? That's the goal 😅
@@freakstate we have a very good income. We are both crystallising an amount each month, then taking 25% of that as income. Then taking an amount of that post retirement fund to use up our tax allowances. Additionally, I’m drawing a monthly amount from my stock & shares ISA, so we have a good tax free income. We should be able to maintain this until we both draw our state pensions, which will then effectively pay the tax bill. I’ve never lived on a regular income, so I wanted one to work too. We both have several hobbies, and done two holidays this year, so I think that answers your question. I’ve seen too many people take their 25% & blow it. BTW our funds are now higher than when we started drawing out.
@@nigelallen1500 I've just had to look up the term "crystallising" in reference to a pension so that's another thing I've swotted up on today haha.
That's very insightful thank you for sharing. I think I may need to look at an ISA next after watching a few more videos. I'm mostly investing in a 2nd property and my pension but it might be sensible to cover alot of bases where possible. Anything to escape tax!
A reassuring and very timely video James. I was a very late starter to Pension savings and started from Zero at age 36 but now at 52 I've managed to accrue a £195k pot from an average wage thanks to hard saving and good advice from you and other UA-camrs. However I'm probably going to be leaving my job soon as I've not been happy there due to some changes in the last few months and they're offering a generous voluntary redundancy package so I'm hoping to take advantage of that. I've reassessed my life since the turn of the year after suffering a heart attack out of the blue in January so suddenly excessive money doesn't seem important as my life expectancy is probably going to be shorter than I once thought ! The lockdowns we went through already proved to me that I can live quite a frugal life with just the basics so I might even be in a position to be able to step away from the working world - or at the very least have a summer break and then take on a simple 'pocket money' job whilst my pension grows a little more until I reach the magic age of 55, This video gives me some confidence that my plan may be OK.
Nice journey. Great feeling to have control over your own destiny
Good luck to you and well done for turning around your financial situation over the past 16 years!
And of course if you take a little less in the early years, maybe a part time job, then there is more chance for the rest to grow. Good luck
That comparison of 3.6% becoming 35% in retirement is the kind of calculation that overrides "intuitiion" and hits like a hammer. I love that.
Great video - as always - clear, to the point, no crap jokes or padding. Oh, and loving the look of that Compound Return chart!
Just sent this video to my 22 year old son who is just about to start a career as an accountant and is oblivious to how important this is.
You'd like to hope an accountant might be more clued up than the rest of us on this sort of thing 😀
@@MPD90 Many accountants are like builders. They are good with other people's assets but rubbish at looking closer to home.
As a 50 something with no idea about this stuff when I was young I feel a bit gutted. I’m enrolled in my company default pension and I’ve no idea how to choose available funds on my own. You educate us and young people now really don’t know how lucky they are to have you give them this solid gold knowledge. Too late for people my age to compound this pension wealth but at least there will be something. Great work James. 👌🏻
Absolutely brilliant video, first time I've actually been able to grasp the understanding of pensions! Bravo 👏
Thanks for another fantastic video. These lessons are so important they need to be taught in school. Just the other month I had to talk a younger guy just starting out not to opt out of the work place scheme. For someone just starting out the numbers unsurmountable and videos like this really help.
Im 36 so maybe a bit late to the game but over the last few days I've upped my pension payments (self employed) and started a ISA in stocks, thanks to your videos, got me thinking about it all.
Admittedly I've always been an employee so benefited from the employer contribution but I started from zero at 36 to build a £195k pot at just over 50. Good luck !
Oh thats comforting. I'm not where I feel I should be at 39 but I've upped contributions to 10% and loving the tax kick back lol @@dabe1971
I started learning about the benefits of investing and compound growth at the end of 2019 when I was 23 with a small pension pot. The crash at the beginning of 2020 (just after I'd converted in 100% equity) was a good learning experience, but now 4 years on I'm closing in on £50k in there!
Financial planning is like navigation. If you know where you are and where you want to go, navigation isn't such a great problem. It's when you don't know the two points that it's difficult
People dont understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments dont match our income, yet certain investors still earn over $365,000 in stocks and assets. Wish I could accomplish that.
Very possible! especially at this moment. Profits can be made in many different ways, but such intricate transactions should only be handled by seasoned market professionals.
Some persons think inves'tin is all about buying stocks; I think going into the stock market without a good experience is a big risk, that's why I'm lucky to have seen someone like mr Brian.
Finding yourself a good broker is as same as finding a good wife, which you go less stress, you get just enough with so much little effort at things
Brian demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit
Great content James. Really good and insightful stuff. Keep up the education to the masses!
great video as always and love to see more of the 'everyman' content. thank you
That was the most relatable video yet and has given me some reassurance as my investment returns are in the early stages.
Hey James thanks for the video! Would be very interesting to do a video with not the objective to have enough for your own pension but to have enough for it + to leave something for your kids/family when you are gone. Keep up the good work!!
Very nicely done, with great clarity, as usual.
2 key points to hammer home
1) this isn’t rich vs poor, it’s financially educated vs not. Richer people tend to seek this advice/info more. This financial awareness needs to be taught at school, mandatory for everyone.
2) When people hear “put extra x% of salary i to pension”, they immediately do the calc of how much less they have each month to spend. BUT, they miss the tax benefit element which means the impact is less than it seems, tragically meaning people don’t consider doing it enough.
James, how about we start a campaign to get this level of financial knowledge (and things like credit, loans, mortgages) into the school curriculum?
Another well explained piece of advice. Have shared with my son so that he can make better decisions for his future. I wish I knew more about this when I was his age.
Really informative video, thank you! I've had a pension in higher risk funds for the past 10 years and still haven't seen anything near some of these compound numbers. Aiming to do a few years with salary sacrifice and max pension contribution to get a step change bump that I've missed out on from returns.
I remember finding one of your early videos around 3 years ago you posted on Reddit and only really just noticed how many subs and views you’ve been getting awesome stuff mate! Thanks for making your content James this kind of stuff really has a big impact on people’s lives when I think about it.
I’m 25 and have been putting in 7.5% into my pension Matched on 30k salary. I don’t expect to have a career and will likely stay an average to low earner additionally I’ve been putting in £400 each month into Vanguard FTSE Global All Cap and intend to keep doing both until I retire
That’s a seriously good amount to be putting away!
It’s been a long old road since Reddit days! Thanks for the support.
Great video! I'd love to see a bit of a deeper dive into stock vs bond allocation. Is it truly less risky to diversify into bonds? Bonds limit downturns, but also limit growth. In the example you gave, it would be interesting to see what would have happened if someone had retired in January 1969 but with a 100% stocks portfolio. Would they have run out of money sooner, or would their portfolio have rebounded and recovered eventually?
Alternatively, with all the historical data you have, assuming a person retiring each month, how many instances would there be of someone running out of money for a 100% stock portfolio vs 60:40 split allocation?
This is such a great video, probably the best one you've done! I was lucky to realize this in my late 30s and took action to that I would have at a minimum £300,000 by the time I was 50. By luck I ended up with close to £500,000 (£250k in a pension, £250k in my ISA).
Excellent video, thanks.
You know what, l wish we had the internet information 40 years ago ! Finances back then was baffling and so we thought for the wealthy. But the young today have got people like yourself to make finance matters easy! Put some money away every month over your entire working life to have a decent retirement! Thank you for the wisdom ,albeit for me a little late!
Excellent video. Well done James.
Great video.
This should be taught in schools!!
Very good advice. I decided to take advantage of the employer contribution match (and think most people should), anyone receiving an annual wage rise I would suggest if you can afford to live on your 'old money' then put the 'new money' straight towards it until you max out the employer match threshold. Free money for living on 'the same money' is quite a feeling when you look at your statements. Plus it gradually teaches how to budget for day to day inflation rises.
Yep, lifestyle creep is the main reason why most people don't retire in their 50s.
Apart from inflation, there's no reason why someone on £50k can't have the same lifestyle they had when they were earning £30k.
The desire to consume is way stronger than the desire to invest.
@James shack great video very informative. Just a quick one you mentioned at 05:45
"a few problems with this example firstly many of you are probably scratching your head thinking my pension has not achieved returns anywhere near this in fact most people will not have because their pensions are not invested correctly and later on the video I'm going to show you how you can fix this " Having watched the video you didn't go much detail about this and was wondering how can l go about to contact HR so l can move my pension into a stock market shares like making use of the SIPP and global index funds etc?
Good video , I have just retired after 51 yrs with the same company I ended up with with the company pension coming to the end of work I put 10% the company put 10%, I ended up a 40%tax payer, in the last four years I did an AVC my tax bill per month was around £1600 but because of the AVC my tax contribution went down to £250 p/ month great investment . I ended up taking my 25% and my pension 5 yrs ago I’m 68 i did this because my wife said I may get run over by a bus, she had a point.
So I took the lump sum and I’ve taken £150000 out of the scheme so far plus about the same with the tax free lump sum ,with the 40%tax threshold I have just manage to keep under the threshold with my old age pension after retirement.
Also after taking the company pension I started another pension with the company THIS VIDEO HAS BEEN REALLY HELPFUL INFORMING ME WHAT TO DO WITH THE SECOND PENSION ,BUT WHEN I GET NEAR 75 THAT COULD BE A PROBLEM.ie Tax.
Great video as per James!! Mind if I ask where you bought your fleece from, looks comfy :)
I used to work in financial advice, this is all really great information.
Hi James, love the content as always! Would you be able to do an updated video on how to be as tax efficient as possible during retirement years? That would be extremely helpful as tax thresholds keep changing. Many many thanks!
Amazing video with very update to financial education regarding retirement.I am paediatric nurse ,work my ass off as male nurse in an incredibly busy A+E NHS hospital in London for years , I also do a bit of property investing on the side ,but I did not know anything about compound interest ,the 8th wonders of the world,index funds ,growth funds ,the rule 72 and private equity funds.I really want to retire comfortably ,as I would love to travel the world and give something in charitable donation .Your video is really motivating and incredibly helpful.Thank you very much.
Thank you James 🙏
Thanks for the video! Can you please make a video about options that are available for those of us who are on auto-enrolment pension schemes, such as NEST? As I understand there is no way to take your money out to invest elsewhere as long as you are still working for the same employer and that's the provider set up in your company? Or am I wrong? Could not find information about it.
Another question, can you make a comparison of offerings that the workplace pension providers have? Or just some sort of overview.
Excellent video
Fully endorse this. I managed to stop work early ( 53 ) by making extra contributions to my company pension, and whilst I'm now busier doing various volunteer roles in the 3rd sector, I get to decide where I spend my time and as a consequence am much happier, healthier and feel more fulfillled.
Congrats 👏
Thank you for leaving the workforce early, taking your skills and knowledge with you and leaving the rest of us up the creek without a paddle.
@@SirHargreevesjealous much?
Very good video, the more one saves as suggested, the more one gets use to live more frugally and the more likely to retire early, or to be in a financial position, in the mid fifties, where a redundancy from a restructuring will be less impactful.
Being able to ride off into the sunset with a juicy redundancy package in mid-50s is the dream! 😀
Good content. It would have been good if you had given the income in retirement some more context. Perhaps referencing the PLSA Retirement standards of living report.
James! I’d love a video on retiring with an age gap and how to plan if your spouse was 20 years, 15 years, or 10 years older than you. There is only content in the US and nothing for the UK.
Depriving yourself of consumption (aka 'saving') is mailing a cheque to your future self. So you can do the math and figure out if your future self will think 'i'm' glad I didn't do xy so i can now do z When i'm old and crusty'. This calculation led me to exclusively spending in my 20s. Smoothing consumption utility over the lifecycle is well worth considering. One should also discount expectations for survival. For men especially mortality beyond 40 starts to look a bit dicy. Just things to consider. Amassing pension savings simply for the sake of it may be 'suboptimal' from a utility perspective.
About 3 years ago aged 35 i went through all my old workplace pensions and consolidated them into a SIPP. I worked out i only had £50k in the pot. Luckily, my current employer provides a minimum of 8% contribution (0% employee contribution). I maxed that out (10% from me, 12.5% from employer = 22.5%) and invested in high level of equity and have about £10k so far.
I've started slow but im determined that I make up for lost time.
I'm also looking for a junior SIPP so i can start my kid off on the right foot amd not make the same mistakes I did.
Fantastic video James, very well explained! I'm constantly banging on about the importance of saving/investing money and making each £1 work as hard as it possibly can for you. I have an emergency fund in a easy access account earning 5% interest, I consolidated all my pension pots into one and have invested them into a global fund, and I'm consistently adding to my S&S ISA each month (a minimum of £250 per month right now) and again the focus is on a global fund (the VWRL to be exact). The whole goal for me is to ensure that work is optional in the future. I don't want to HAVE to work - more time with my wife and girl (soon to be plural 👶) is what is important to me. If you're reading this comment and haven't started investing yet, make it a priority! Your future self will definitely thank you. 🙌
Enjoy life but also have your head screwed on. I am in my late 40s and the two main things told to me over the years by a few people a generation or two above, and why they were not retiring earlier were kids and divorce. A couple of people were at the right place at the right time to be made redundant and others seem to ignore their own decisions or spending habits being a real factor. Great video, and food for thought.
IMO and without really considering this in depth, each kid will add 3 to 5 years onto your career unless you are earning significantly over your cost base. Kids mandate larger houses, larger cars, childcare costs ... on the upside, they move out, you have a bigger house to leverage, and you have someone to inherit your DC pension pot when you die (need to read up on how this works more). The opportunity cost of a child is immense (e.g., £150k to £200k between 30 and 50 is a lot to not have in pensions and ISAs). Divorce will probably keep you working until state pension age although you won't have to fund the other party in retirement at least.
Kids are worth it though!
My daughter is 10years old, I put this type of videos on speaker so she listens with me. Am in my 40s and didn't start paying into pension until 2018. If schools are not teaching us, I will make sure everyone around me gets to be educated through channels like yours.
Started my first DB contributions at 26 and 29 years later I haven’t stopped saving but now on DC. On DBs the amount is fixed what I was paying but I could have saved a bit more on my last DC in the last 11 years. 12% wasn’t enough so I moved to 15% still not enough. Now on AVCs moved to 60% and this is spot on now! At least I can now retire in 2-4 years and still not reach 60 years old. 60% is all we need to save for few years and this is in addition to saving on ISA but also on other share schemes
Thanks James. I sent this video to my 20 year old son who has now agreed to increase his pension contributions by 5% after watching this.
Hopefully that triggers an employer contribution increase as well!
Hi James. One comparison that I have not yet seen would be LISA vs salary sacrifice pension for a basic rate tax payer - especially now that the N.I. rates are changing. Is this something you plan on doing? I think the results could be interesting and relevant to some viewers Best regards, Rob.
Thanks for this listening to your comments section and doing this video! Would you perhaps be able to do one for someone on lower income starting out saving a pension in their 30s? 😅 My wife is 36 and hasn't done anything regarding pensions, ever, but I want to convince her it's still worth starting something/anything late than never.
I started at 36 (5 years ago) and now I’m at 53k. It’s never too late to start especially at 36!
I am a bit confused about what rate of return would be safe to assume in my calculations. I remember in one of your videos it was 8%. Ben Felix spoke of it closer to 7% but I think he was talking about globally diversified but overweight to Canadian stocks. Now in this video it is closer to 10.5% after fees. Can you make a video on this topic. Thanks
Is holiday pay pensionable? I noticed my employer doesn’t pay any pension contributions on holiday pay.
Of course you are assuming people stayed retired. I retired at 56 and yet 6 years later, I went back to work. Now, aged 70, I'm working a 3 day week. I was working a 5 day week but my employer didn't want me to stop when I suggested that I might, hence the 3 day week. Loss of experience etc.
Do I need the money? Not really, just the camaraderie that one gets when you work among many people. And they are very flexible when I want holidays - 6 weeks off? No problem. One does need to watch the tax situation though. 5 day working plus pension income can get you paying 40% tax. Oh, and I started paying into a pension aged 18yrs.
Like all pensions, so many unknowns. I do know though from previous generations of the family, I'll be doing well if I make 85yrs. 90plus? I seriously doubt I'll get there.
If I move my workplace pension pot into my existing SIPP, what downsides are there when I withdraw at retirement?
Off-topic: but I wonder under what circumstances an offset mortgage makes sense? Until I sat down an worked out the sums I did wonder about it as I'm self-employed and pay my tax on account, meaning I have often have large sums sitting around waiting to pay the tax man. The sums I did, with rates at the time, made it clear that there was little sense for my circumstance but now I'm wondering (based on staring at James' amazing graphs over the last few videos I've watched) when they ever make sense?
Another great vid JS. “Most people don’t wake up to all this later on in life” wise words.
Ive been in full time employment since i was 19 when I did my apprenticeship. That was 1999 and have always paid into pensions but between them they are nowhere near these numbers. One of them is even an index linked DB civil service pension. This worries me.
Hi James, sorry if I missed something but is it not likely that you will pay tax on the monthly pension payments? Are these in the calcs?
The software calculates this. That’s why I talk about expenditure rather than income.
3:29 auto enrolment for 8% is 8% of annual allowance not % of your salary
Is there anyway people like yourself could do a deep dive on alot of the default funds people could be invested in? I myself have been with Scotish widows (default fund) which is a fund of funds/multi asset fund I think, 4 in total. 100% equities but dosent seem to still be getting the growth I would expect. 45% in LGIM diversified multi factor equity index as an example. There's one passive option but that's even more overweight US. Would it just be the case to seek advice, any advice would be appreciated. Thanks for the videos James 👍
Great point, I'm also with SW.
I think there are probability to many providers and to many funds for this to be feasible; you really need personal advice. Possibility the best solution (if your scheme allows it and you are happy to manage your own investments) could be to move your accrued contributions into a separate SIPP, where you have control of platform fees and fund ongoing charges but the downside may be that your employer is already paying some of those charges on your behalf. Using a fully self-managed pension fund could be a step too far for some people.
The first step is to understand the available options and costs within your current scheme. These can sometimes appear to be less than transparent.
James, why didn't you reduce the 8% invested per month by the £6,420 LEL? I know that the lower earnings limit will go eventually, but at the moment, you've quite significantly overstated the amount a low earner will pay through auto-enrollement
Preach!!
I may not be twenty but i still take good things from these vids. 🤝
Friendly request for a video on best bond fund ETFs.
How about invest in yourself and command a high wage?
My wife is 56 and has worked for NHS for 32 years, she has special class status which means she can take her full pension from 55. Is she wise to take it know or wait till she is 60?
James, I’m 72 years of age and earning well below the average Chinese factory worker, is there a strategy that’ll allow me to retire super wealthy?
Is the 11.2% you quote an arithmetic or geometric mean? Does this matter given the simulations your software does?
Geometric. The software used actually historical returns data.
15:04 The biggest variable is actually the employer contribution. If I worked for an employer that only coughed up 3% I'd go and find a new proper employer. Pay is not just the headline rate it's also the package as a whole. My employer has recognised that and has made a big push to employ 25% more people (aerospace industry currently on a bounce back after COVID) and they put 10% in towards new staff pensions. Why? you ask? Simple, they need qualified people who can hit the floor running. That means they are older, more experienced people. Those people already have one eye on their pension.
I’m 38, looking to retire before 57 using stocks and shares ISA but what I’d really like to do is drawdown on my works pension whilst keeping most of it in a global index fund. That’s where you can really generate wealth for future generations in the millions (fingers crossed).
Is it possible to get a video on the most efficient way to save for a couple.
Like many people maybe, my wife has a very low income due to raising our children, I am putting money in a pension for both of us as a high rate tax payer but, when it comes to collect my/our pension I am likely to be paying tax on my pensionable income even though it will be to support two people.
I appreciate I can put a few thousand in a pension in her name but not sure what is the most tax efficient.
Many thanks in advance
If you consider yourself to not be a high earner, then realize that is something that is entirely in your power to change...
They say it's never too late to save for retirement. I started at 49. But I was never told about retirement planning and I have never had a job that offered a work place pension. I have a lot of catching up to do but with some strategic planning and by making a few sacrifices now, I think I can put together the semblance of a retirement that will give me an income comparable to what I was getting when I was in full time work and earning at my best. That said I cannot envision full time retirement. I like to stay busy and provided my health is good I want to keep working part time.
Do you know anything about teachers pensions? Should I stay enrolled or contribute to a SIPP?
Stay enrolled!
I was self employed throughout my 20's and only started paying into a pension at age 35.... Don't follow my lead!
Please please please do a video discussing dB pensions. I work in the nhs and like millions of others my pension is defined benefit. How does this effect the retire early scenario in this video??
The NHS pension makes the assumption that you will continue to work until your State Pension Age but you do have the option to take it early but by doing so you will face a % reduction for each year before SPA you elect to take it. It's complicated since there have been several variations so your best bet would be to request a personal forecast via your HR department. Of course the big benefit is that you will never face the fear of running out of cash as they payouts are guaranteed so that aspect of James' video is irrelevant..
Sorry just a small mistake. You’ve adjusted everything for inflation but the future salaries. So if you add average salary increases for inflation over the future salaries too (although they are lower than inflation it self) it will show even more promising figures.
That’s true with the first example that hits £900k but in the other examples everything is in todays terms so it is correct.
Using inflation-adjusted returns for growth has the effect of bringing things back to today's values, which is much easier for most people to understand. In that case, wage growth is irrelevant.
I know it is probably not your wheelhouse as you generally deal with people with greater assets, but it would be great if you could do a video based on different incomes and the different student loan thresholds, write off time lines for these loans, and how savings can be made by additional pension contributions mean you don't pay them off and at what incomes this might be worth considering doing.
I know personally as someone on around the median income, I end up paying 9% extra tax (student loan contributions) and given the interest rates currently mean I add around £1000 a year to the student loan, while if I didn't add anything to a pension at all would pay off £800, I am clearly never going to pay off this loan but it does write off in what will be 15 years at this point.
Given this extra taxation rate I end up with a 37% taxation rate as a basic rate tax payer which is completely remove by any extra pension contribution, add in any employer match and you could be making 137% on your money. With Plan 1 rising by inflation from 22K to 25K for Plan 1 and Plan 2 being 27.2K, a lot of low and middle earners can reduce their payments to near nothing through pension contributions.
They NEED to teach this stuff at school. Then at 21 if you're in your last year at University. God it frustrates me so much that at 39 I'm only getting my head around this.
Why do you people always go so conservative and base it on living to 95? Its not likely. I am planning cashflow around lasting to 85 and anything beyond as a miserable 'bonus'. I want to enjoy my money when I am younger, rather than drawing less just in case I live to 95. Beyond 85, if I am so 'blessed', or even well before, I will be downsizing to a sub 500K house (IHT free) and passing the remainder down, and live like a dog off state pension waiting for death. I will have enjoyed my retirement in my 50s and 60s. My son can help me if I am short. He's 21 and already earns more than me! PAYBACK TIME!
IMO if you get to 80 you can pat yourself on the back, look at your reduced pot and reassess. If the pot ever collapses, you live frugally for a while, you don't blindly continue to take £X out. You should always check the burn rate of your pot, and if it's too steep, step back and take care early enough to not suffer later on. Beyond 75 downsizing to a 2 bed bungalow on a bus route is probably the best option (or a place you can fit a stairlift). Mobility issues are the older pensioner's bane. Why rattle around a large dusty box, have something you can manage, early enough to gift some if you wish.
@@grahambriggs8338Very true. James previously did a video on just this topic, it was about using "guardrails" to make adjustments to your drawdown based on inflation vs. growth rates, if I recall.
I’m in my early 20s and wondering if I should go with an interest only mortgage and put quite a high amount into my pension (with the government top up) and have that compound all the way until I retire and use my pension to pay off my house, instead of choosing a normal repayment mortgage. Any tips/risks?
I did something like this at around 35 and retired last year aged 60, paying off my interest only mortgage from the 25% tax free pension cash. At this point though my five year 1.99% fix was ending, and my previous one was 2.99%, the previous previous one 4.99% meaning I could funnel a lot into my pension. These conditions may never occur again. I was lucky to have the opportunity then. Trying this in your 20's may be more risky because of the long period before you can access the pot, and withdrawal rules can change. Maybe use an ISA instead if and when the mortgage rates come down, but remember 5% mortgages are historically more normal. Global growth predictions suggest this strategy may not be as successful as it was for me. The pension Vs ISA decision changes when you hit the 40% higher tax threshold. At that point pension more attractive, hope that helps
@@elephantandcastle838 hi mate, thanks for the great and detailed response! Yes I agree it’s a bit risky - and having an interest only mortgage for the whole term and little to no equity would be scary and possible expensive when renegotiating another mortgage.
If I still have a mortgage when I’m 45 or something, I may consider this.
What was it that you mention about ISA vs pension? Currently not in the 40% higher rate tax band, are you saying saving into an ISA instead of a pension would be better?
Surely with the government bonus of 25% tax from quite a young age with their money compounding will be far better? Even if you have to pay tax on some of it when it comes out? Especially as tax free lump sum of 25% and the rest taxed as normal income - where you probably won’t be withdrawing a crazy amount in retirement anyway?
Also a question about the 25% lump sum. Do you have to take it all in 1 go?
Or let’s say if you have a million when you start withdrawing, can you take 250k tax free at any time in however many instalments.
Thanks!
I should say that originally aged around 35 my original plan was to use my ISA to pay off the mortgage. I could have just about managed to do this aged 60, but wanted to keep it, so used the pension tax free cash instead. You don't have to take the 25% all in one go. You can take lots of slices each time getting 25% tax free. But all this is according to current rules. A pension is a long term commitment though is more tax efficient than an ISA. But the ISA is much more flexible and you could then change your strategy at any time. The real game changer is if and when you pay 40% tax. Any marginal amount of income over this threshold is most definitely best paid into a pension. Pensions are great because you can pump much more into them each year up to £60k, assuming you have relevant earnings to support this, and do this when you're older and probably earning more. Bear in mind you won't be able to access your pension pot until aged 57, though currently it's 55. I'm not a financial advisor, and this does not constitute advice.
@@elephantandcastle838 yeah I’m with you, thanks for the reply. I agree with this when paying 40% tax the government pension contribution is crazy! Hopefully the laws don’t change around this too much! Sounds like you’re in an amazing financial position though, well done that’s awesome! I hope and plan to pay off a mortgage when I get one relatively early but based on my sums, it’s very beneficial to get an interest only mortgage and lump tons into pension if it won’t be paid off until 55/60 ish anyway. Of course less control and some downsides but yeah, why not have the governments 40% effectively pay off your mortgage through a pension like this haha
If you're on universal credit all your life and have no qualifying years for a state pension. When you get to pension age can you continue getting universal credit or does the gov just make you starve on the street?
You automatically get NI credits in the same way carers, jobseekers, maternity leave claimants etc get them www.nidirect.gov.uk/articles/getting-credits-towards-your-state-pension
Is it possible to be on universal credit all your life?
Universal credit counts as qualifying years for NI contributions
I've noticed no body speaks about the fact that your pension doesn't pay out until your later age. Even then the government can change your payout age.
I'd like to hear more about what happens to your pension if you pass away does it go to your spouse and what does the government fund with your pension pot?
Later age ? I wouldn't consider 55 to be later, still plenty of time to enjoy it. And yes, you can leave your pension to anyone you so wish as long as you've filled out your beneficiaries form with your provider expressing who you want to have it. If you die before 75 you they can have it tax free too. The Government does nothing with your Pension pot, it's nothing to do with them and it's a private arrangement between you and your supplier. Your State Pension is different as it's not really a pension, it's a benefit (and always has been since 1946 BTW) and if you die before you reach state pension age there's nothing to pass to someone as there is no "pot", it just means you didn't reach the qualifying age to start receiving the benefit. The NI tax you pay today funds the pensions in payout to todays pensioners as your children's will fund your own.
Great video. What rate of inflation were you assuming for the calcs?
The software used historically inflation data.
For the historical portfolio data inflation was about 5% but varied alot over the period.
Can you open a SIPP and then transfer it to someone else (like your kids)? Thinking grown up kids that won’t be interested in pensions yet but might be good to give them a head start
You can open an Junior SIPP on their behalf and you or other relatives can add £3600 a year into it.
You can open a Junior SIPP as dabe1971 says. You can only transfer a DC pension by dying before 75. You can transfer the value of a DC pension by dying after 75. That's my understanding anyway. The issue most people have is finding the money to put into these things for their kids.
Is this assuming the triple lock will not continue?
Question if I may:
As soon as my wife became pregnant, I instantly created a Junior ISA and started investing £100 into the S&P500 with the thought that come the time, they will have a nice lump to do what they wish with. The downsides are that I can't touch it should the worst happen. I am 5 years into that now and wondering if there are better ways of investing this money outside of a Junior ISA?
I don't currently max out my personal ISA allowance or my wifes.
I'd personally will max ISA allowance of parents first, then have junior ISA if you need more allowance for fund to be invested or when kids start getting money from relatives as gift.
Started my pension at 34, now 37. Should I increase my pension or should I keep that as is and concentrate on index funds
@Description-JamesShack yeah like I’m going to fall for that 😂
Another great video James, thank you 👍🏼
I am one of those late to the investing game but I've managed to build up a £100k portfolio in just 3.5 years thanks to UA-camrs like yourself, something which i never thought possible.
I often kick myself for not doing this when i was younger but then 27 years ago it wasn't as simple as it is now.
How did you do that in 3.5 years? How much was you putting in each month?
@@VicFlange minimum of 1k per month then more where I could, just shy of 100k which I'm hoping to hit in the next 2 months. Tbh I really limit myself regarding spending, just household bills.
I was late to the party so now I save aggressively as I want to retire early.
So, James … why is it that my workplace pension is at a measly 55k after 25 years? I have a feeling something has not been done right by my company - any clues as to dig into why the accrued sum is so small? Perhaps the required amounts were smaller in the past?
What were your total contributions over that period (employer and employee)
I would expect a pot to be roughly 45% contribution, 55% investment return after 25 years
If you were paying £1k per year on average,this would be about right as a pot. If you were paying £2k a year, then something is very wrong.
Probably not ever moved from a default hyper-safe plan. You should log in and check all the plan details, the level of risk which determines how many equities there are. Also high fees on some providers can eat away at the gains, especially at the low end. And finally, check that you have been contributing enough, that it didn't stop ever without your knowledge, and so on.
@@ChrisShawUK Good to have a sanity check on this - my thanks. I don't recall the numbers as I am from that 'awkward' tranche of folk who started out Working Class and became 'professional' over time *but* was not raised with any notion of financing personal pensions and so on :blush: I shall have a dig about and find the last pension statement I received before I left the company but my guess is that, as I left everything at the defaults, the 1k per year figure would be about right.
An overcautious default fund would be my guess. My employers choice has only averaged 3% a year since Nov 2021. My choice in a global tracker has managed 13% in the same period.
@@dabe1971 Aye :nods: I am sure it didn't help that we seemed to switch providers every time we switched CEO as well.
I didnt wake up until 30, 37 now and Im lucky enough enough to be a high enough earner that i think im making up for it (though a sole earner with stay at home wife) . All i can say is i wish you were there when i was 18. And to any youngs, for goodness sake, get your pension going. Time goes quicker than you think and compounding is insanely powerful. Im paying in huge, huge, sums to chase where i should be.
First - Thank You for your videos.
Quick question - what is the software?
www.timeline.co
@@JamesShack - Many Thanks, will be adding it to my bookmarks. I certainly wish I knew what I know now in my 20s!
Thank you - is there anything similar that is also freely available to the every-person on the street?
8% auto enroll minimum at 22k would only be £1325 a year due to the first 6370 not counting for qualifying earnings. Sorry for the nitpick ;)
Good point 👍🏻
Ah the ending of this video is music to my ears!!! I’m a late starter lol