If I only remember 3 numbers …

Apparently the people who worry about their financial future are the people who can afford to worry about it. I read that somewhere recently.

If you live hand to mouth, then you don’t have the luxury to do the math over what money you need whenever you choose or are forced to retire.

Only people with sufficient money worry about retirement.

By my reckoning the sufficient-money people fall into two categories.

Type one have real money. They have serious cash to invest between now and then. Not that it will necessarily all go smoothly, but still… they are highly incentivised to pay a lot of attention to how pensions work. Things could go very well for them if they do.

Type two have enough money that they live well today (not hand to mouth), but they don’t have enough surplus for anyone with real financial sense to be interested in helping them invest. For type two’s retirement is terrifying.

To save a reasonable amount for the future, most type two’s would be forced  to live a lot less well today. And we are not a generation of people built to do that.

I’m a category two. And here’s what I found out about retirement this week.

In calculating how much money I need for retirement I did three things. Technically four if you count that the first thing I did is avoid the entire question for decades.

1/ I asked around …

Specifically I asked people who can count the years to their retirement on less than one hand. Most of them said the same thing: About a million. This is what they believe they need to survive their retirement.

2/ I Googled the answer

This is one of those times when Google makes things worse, not better. After quite a lot of seemingly-perfect links, in the end I only found one pension calculator that made any sense. It didn’t demand numbers I know nothing of (e.g., my current pension balance?) and it spat out numbers that even I could understand.

The calculator that proved helpful didn’t come from motley fool or money saving expert Martin Lewis or any of the obvious places to go looking for a pension calculator. It came from Aviva, an insurance company. Check it out here, in about 3 seconds it gives you an idea of what sort of money you’ll need when you retire. In theory.

3/ I asked my brother

This was always the most obvious course to take.

He’s a banker. But before he became one of those he was still the most obvious person to ask.

If asking around and Googling a pension calculator gave me fast answers, my brother gave me the long answer. The one that involved him pulling up a chair and looking around for a piece of paper and a pencil.

In the past I might’ve felt tearful half-way through this conversation, but it’s amazing what 4 months of Counting 000’s has done for my tolerance of financially stressful chats.

He confirmed several things that back up what I’d learnt Googling and asking around and these are likely to be the only 3 numbers I manage to retain of the many he flung around the place with that pencil and paper.

  • 50 per cent is the target that many people tend to set themselves in terms of how much money they hope to live on after their retire — 50% of what they earn today.
  • 6 per cent is the sort of return on your investment (interest on savings) you might assume you’ll earn on any money you put away for your retirement. So 10,000 in the bank right now might earn 6% in the very long run.
  • 5 per cent inflation, while aggressive, is a sensible  forecast of year-on-year increase that predicts what 10,000 today will equate to in real money terms down the road.

After walking me through these assumptions, he then mapped out two equations:

  1. How to work out how much money I  need to save now if I know I want … let’s say a £1 million when I retire
  2. How to work out what the value of today’s £1 million will be in twenty or thirty years from now.

“These two equations are the building blocks to understanding your pension, Nat.”

We’ll be creating a spreadsheet (i.e., my own personal retirement calculator) so that I don’t have to mess around with either of these equations personally.

And from there I’ll need to do a lot of other things before I get clear on pensions (such as working out how my company pension works today, what I have in the pot and how much I should be saving).

I may end up exactly where I started — hoping for the best and not otherwise giving it much thought because it’s all too much to comprehend and/or afford.

But who knows, I might become the master of my own destiny and take on the challenge of whipping my pension into shape. Stranger things are happening. Like me even looking into any of this.

Let me know if you want a copy of the spreadsheet…

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7 thoughts on “If I only remember 3 numbers …

  1. I actually didn’t realise how terrified I am about this until I read this post! I’m somewhere between Category 2 and Off-the-scale. I don’t save and at the moment, couldn’t anyway. I mostly don’t think about the future at all. Thinking about the future sends me into a blind panic so I don’t, and then I forget that it worries me at all.

    1. I think you’re in very,very good company. You’re also still young so that’s on your side. Also I think (?) you’ve made certain work choices so that you could buy yourself the writing life you’re pursuing. So you’re not saving up to have the life you want when you’re 65.

      One of the people I know well who seems to be in OK shape for their retirement didn’t get out of debt till their 50’s.

      And finally, if you look at what causes the most stress in old age it’s social isolation. We need a minimum amount of money to be alright, but beyond that friends, family, community — this is THE thing we most need when our working years come to an end.

      In any case as a writer you’ll probably never want or need to retire and your published works will keep you going.

      I hope you’re feeling a little bit better now …

  2. You’re right about the work choices – it’s the main reason I can’t/don’t think about this much.

    In any case as a writer you’ll probably never want or need to retire and your published works will keep you going. – that is the hope… what worries me is at what stage you give up on that being a viable option and start to make some different choices. But as you say, there’s plenty of time for that.

    Thanks 🙂

  3. I feel very complicated about this subject. My father has been pretty much retired for my entire adult life (30 years) and he has enjoyed it very much. He had done savings here and there and a state pension. He has never really had much money but due to various factors he hasn’t really needed much. He’s currently 88.
    He always says to me he’s sorry to be in the last generation who gets to enjoy their pension.

    Most people suggest that by the time I get to retirement age it will no longer be so young. 70 maybe older than that will be the new 60/65. The “ageing population” are going to have to retire later. It’s the price for having a longer life expectancy. But then again as you say about Jen, I make life choices now to work less and earn less so I have time to do my “real” work which is creating things. Ideally at some point I will find a way to get paid for the creating things and be able to eek out a bit more free time.

    So really surviving off the state pension maybe being able to supliment it by then with some money for creativity sounds like a dream cone true. But I’m aware that by the time I get near that dream it may no longer exist. It may not be possible in that sense.

    And if course my life choices now, which mean I live very much month by month, mean that I don’t have a house. Don’t see any way of ever getting a house. A big part of me has always been scared of the lack of freedom that owning a property might give you. Now I am beggining to understand the freedom it can give you. If I could find a way to own a house outright then the main expense and finacial fear would be removed from my life. That would be a secure retirement situation for me. Knowing I wouldn’t have to find rent into my latest years would be such a relief.

    Not that I think about it.

    As you suggest, I don’t make enough that it helps thinking about it, I have no power to do anything. The only time I had savings was when I arrived at university. I burnt through them in a year of incredibly extravagant living. Good times. But such stupid times. Since then I have never had anything to play with. I’m very lucky to have managed (due to help from various places) to get out of debt (apart from the student loans I pay off from my salary each month). That’s the middle class background for you. There’s people there who can help you out. But practically now I am pretty out of the pension loop.

    In fact I don’t pay into my work pension because it’s a lot to pay out. I probably should start going it. But the attacks on public servant pensions are the big cause of strikes at the moment. Which suggests if I did pay into it it still wouldn’t be a safe bet. People used to do jobs like mine because although the pay is bad the security and benefits were good. Both those factors have gone in the current climate.

    I have no conclusion for this comment. I don’t know what I think, what I should personally do, but it sounds like you’re on the right track for you. Good luck with it.

    1. My brother and I were talking about this too — how the last generation never had to get to grips with the whole pension thing. How it works and how to create one for yourself.

      When I listen to you say all you really want is the security of a house and that this is something you’re sure you’ll never have, I think of my mum.

      The beautiful little perfectly formed home we’re now sitting in was something she bought in her 50’s when she still had debt and no savings! Her best friend kept urging her to “just see” if there was any way she could get her own home and mum went off to show the friend how impossible it would be and then found this bizarre steal.

      The bank was so surprised at its price that they immediately gave her the loan. The house came with a property feud situation with the neighbour which the previous owner never resolved and which has all worked out very amicably for my mom.

      So you just never know! And if you really, really want something sometimes circumstances conspire to help.

      But that’s as close as I’m getting to all “the secret” malarky!

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