Some context on these calculations re our pensions

I am turning 40 this year so have started to think about our pension provisions.

As things stand both my wife and i have dc pensions.

Hers has a current value of 200k give or take and mine circa 165k.

She will take an indefinite career break at the end of this year, lets assume she doesnt go back to work.

My very basic calcs are that by the time we are 65, assuming an average 3.5% growth, her 200k should be worth circa 480k (in gross terms) in 25 years time.

At the moment i contribute the maximum allowed and have assumed that will continue, my 165k plus max contributions for the next 25 years, again assuming 3.5%, should result in a pot of circa 1.75m.

First off is there any merit in the assumptions i have made on growth or should i be adjusting this. Secondly how does that leave us at 65? Hard to know what the story will be with state pension at that stage and whether 18 years working mostly paying tax at the marginal rate will qualify my wife (she will be off caring for kids so that will help in terms of eligibility)

pretty basic questions i know but never gave our pension much thought before!

If you are invested in equities, 3.5% is too conservative a growth assumption, you should increase it to 5%.

If you are hitting 40 this year and contributing the maximum you can, I'd just carry on doing what you are doing, there's not a whole lot more you can do. Review again in 10 years time and see how you are getting on with regards to hitting the €2m cap.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

thanks steven, 5% net of fees?

what kind of pension should 2m provide at 65? and is the cap per couple or each (not that it will matter but curious)

Current €2m cap is per individual.
€2m less 25% lump sum, leaves c€1.5m. And currently you are required to draw down minimum of 4% pa (so €60,000).
However I would be inclined to assume a long term investment return to age 65 of c4% net. But it depends on what investment strategy you adopt for the next 25 years (perhaps gradually derisking as you get closer to 65).

Blackrock1 said:

thanks steven, 5% net of fees?

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If you are invested in equities and in a good priced pension contract, then yes. The MSCI World Index has returned 3.97% gross per annum since 2000, one of the worst times to invest as you get clobbered by the dotcom crash and not too long after get hit by the credit crunch. Roll that investment period start date back to 1995 and you're looking at 7.63% per annum gross.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Conan said:

Current €2m cap is per individual.
€2m less 25% lump sum, leaves c€1.5m. And currently you are required to draw down minimum of 4% pa (so €60,000).
However I would be inclined to assume a long term investment return to age 65 of c4% net. But it depends on what investment strategy you adopt for the next 25 years (perhaps gradually derisking as you get closer to 65).

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ok thanks so 500k tax free (is that correct) plus 60k per annum plus state pension

should be sufficient to provide a nice retirement

Don't forget inflation.

Inflation has averaged 1.65% since 2000. So the real (after-inflation) return on the MSCI World Index since 2000 was only 2.32%.

And then you have investment expenses...

Personally, I ignore all projections of future returns. Nobody knows what the future holds.

Blackrock1 said:

ok thanks so 500k tax free (is that correct)

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No. The first €200k of the 25% lump sum is tax free and the balance is taxed @20%.

Predictions, particularly about the future are difficult.