Until about four hours ago, I thought I had my pension situation relatively sorted.
I’ve always signed up for work pension schemes, and when I went on maternity leave with Belle, aged 24, (me not Belle), I also set up a personal stakeholder pension plan, which I’ve been paying into ever since. I’ve recently had a bit of a pension spring clean, put everything into one big nice pot, and upped my personal contributions dramatically to £300 a month. My pension fund at the moment is worth about £60,000, which in my head is a massive amount of money.
So when Aviva challenged me to live on my predicted pension for a week, I thought it would be easy peasy.
Turns out that in the world of pensions, £60,000 is not a terribly large amount of money at all, as I discovered after doing a few sums on the Aviva Shape my Future tool.
Doing some realistic calculations about the sort of lifestyle I’d currently be able to afford on retirement has been a massive eye-opener. I’d always imagined that retirement would be a bit like having a day off work, but every single day. You know how sometimes you get a day off in the week with your partner, while the children are at school, so you go out somewhere nice for lunch, maybe have a mooch around some shops, or go for a stroll and a piece of cake at a local National Trust property? That’s what I imagine retirement will be like every day. Plus maybe a spot of light gardening, because obviously by the time I retire I will know all the Latin names for plants. (I don’t know how this happens, but older people always seem to know them, so I’m assuming it will just pop into my head at some point?)
Oh, and the odd cruise around the Norwegian fjords.
To give you an idea, I created a little mood board for my retirement.
Except that’s not the reality at all is it? I hate to break it to you, but unless you’ve started seriously thinking and saving already, then apparently retirement doesn’t just mean getting to go out for lunch every day.
The good news is that although it can be best to start planning as early as possible, it’s never too late to do something. As with most things financial, taking that first step to feel more informed and in control is always positive.
I’m going to talk you through the Aviva Shape my Future tool, to show you my sums, and then hopefully you’ll use it yourself to get a realistic idea of how you can create a retirement for yourself that’s worthy of its own Pinterest board. I’d definitely recommend giving it a go. It’s very quick and easy to do.
First up then, I put in some information about my current pension situation, to give an idea of how much my pension would be should I carry on as I am. You then answer some questions about how you would like your retirement to look in terms of how often you’d like to eat out, the sort of house you’d like to live in, hobbies you’d like to pursue, that sort of thing.
Here are my results:
As you can see, there is a massive gap currently between the amount of pension I’m likely to receive, and the amount it will cost me to maintain the lifestyle I would like. Not cool. The £318 a week is the figure I will be using in my challenge, so check back in a couple of weeks to see how I get on living on that for a week.
Clearly there is work to be done. I fiddled around with the pension contribution number, until my pension matched my lifestyle. As you can see, it needed a massive increase:
£950 is just not a manageable amount for me to put away every month, so let this be a lesson to you – think about and plan your pension as early as you possibly can. Do not leave it, imagining it’s not something you have to think about yet. You’ll see than even to bring it down to that, I had to significantly reduce the amount every week that I spent on family. Sorry about that kids.
Although I may not be able to save £950 a month, there is another factor that I can change, and that’s home ownership. I answered ‘no’ to the question about owning a home outright at retirement as a sort of reflex. I’ve never owned my own home, and so I’ve just never thought it would happen. I can see now though that it has to happen. I’ve gone along in a sort of denial, imagining that paying the rent every month equates to paying a mortgage, but it just doesn’t. If I want to have any sort of financial freedom on retirement, then I have to get my arse in gear and buy a house.
If I change my home ownership assumption, the figures change significantly:
Okay, so that’s more manageable. I’ll still need to up my contributions by £150 a month, but that’s doable, and the satisfaction I got from doing the calculations and taking charge of the situation was huge. Yes, pensions are a bit scary, but you just have to face up to the future and get clued up. Keeping yourself in the dark just isn’t going to cut it. You could have the retirement you want, but you need to be prepared now.
Do have a go at the Shape my Future tool. If you want any more information, you can also check out the Aviva Shape my Future hub.
Come back in a couple of weeks to see how I get on living on my £318 a week pension and in the meantime, Norwegian fjords, here I come…
The Aviva Shape my Future tool uses simple inputs to give a basic idea of retirement income. Details of assumptions are available at Aviva.co.uk. Fjords image credit – lsantilli/shutterstock
This is so interesting and a bit of an eye opener as I haven’5 done ANYTHING about pensions!! Argh! So apart from freaking out i’m going to get organised! It’/ so annoying that I never really thought about this in my twenties!
Jo! Now I’m scared. I have no pension. I better hope one of my kids is good at making money and looks after me ;)
Great post and thanks so inspiring me to start paying into my pension again. I hope you have a great weekend. x
Well this is scary! Since going freelance I’ve not done anything with my pension – argh!
Definitely worth thinking about! We’re all guilty of burying our head in the sand about it, because it seems so far away, but you’ll feel very proud of yourself if you take action :-)
Loving your retirement moodboard, Jo! Like you I need to get my pension-related bum into gear ASAP. I’m on it! x