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Pensions - John C. Kirk

Oct. 16th, 2004

12:10 am - Pensions

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Looking through recent news reports, the latest scare-mongering is all about pensions. Not to take it lightly, but if I took all these reports at face value then I'd get brain cancer from my mobile, be car-jacked, have a heart attack from obesity and too much salt, not be able to buy a flat, lose all the money on the flat I couldn't buy, and then live a long life after retirement.

Anyway, I don't actually have a pension plan. I did think about it a while back - when I started using MS Money to track my accounts (when I was 21), the manual talked about compound interest, and said that investing X amount of money each month from 22-30 would result in the same overall pension as saving from 30-65. But I was also living pretty much hand-to-mouth at that point, so I wasn't in a position to afford it.

Nowadays, I'm leaning towards the view that it's best to pay off debts before I worry about savings, on the basis that the interest I'd pay on a loan is higher than the interest I'd earn. More specifically, once credit card etc. are out of the way, I'm looking at my mortgage. Some news reports have said "Don't rely on your property for your future", but I think it depends how you interpret that. If they mean "Don't assume that your house will double in value by the time you retire, so you can sell it and be quids in", then that's probably wise. But if you've paid off your mortgage completely, then you have no "rent" each month, which obviously makes it easier to handle the bills. Similarly, if you pay off a mortgage in 20 years rather than 25, and then put the final 5 years worth of payments into a savings account, that's a reasonable nest egg. And I think there's a case for saying that paying off a loan is a safer bet than investing your pension in the stock market.

The other aspect is that I don't have any specific retirement plans. I get the impression that writers and academics can basically carry on until they drop dead or get bored, rather than being booted out at 65. So, if I'm doing something I enjoy by then, it wouldn't be a disaster to keep with it. That fits in with my general philosophy, e.g. losing a year's salary to do an MSc.

Obviously this whole plan gets skewed a bit if I decide to buy a bigger place in 10 years, or get married and have kids, but it will do for now.

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From:rjw1
Date:October 15th, 2004 04:32 pm (UTC)
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puttting soemthign away is better than nohting. We are unfortunetly in the position that we cant exoect the state to look after us ince we retire. Admitredly we have the advantage that we work in the it industry so are paid quite well so should be able to afford at least a modest pension contributuion. im only doing 50 squid a month currently but it will mount up.

also pensions are a reltively tax efficient way to save.

ask me irl at some point
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From:rjw1
Date:October 15th, 2004 04:38 pm (UTC)
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this is pisssed ranting if you dididnt notice
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From:elvum
Date:October 15th, 2004 05:15 pm (UTC)
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Surely if you're retiring next Friday, you're not going to get much of a pension anyway? ;-)
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From:elvum
Date:October 15th, 2004 05:13 pm (UTC)
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Almost all employers will match your pension contributions, up to about 5% of your salary. Plus you don't pay income tax on them. For those reasons, paying money into pension schemes is a far better way of saving than paying back loans early. Do the maths - once you've accounted for compound interest, you end up two or three times better off saving 5% of your salary each month than paying your mortgage off even ten years before you retire and then paying the same amount into a savings account. And a factor of two or three in your retirement income is the difference between eating cardboard and being able to enjoy all the free time you suddenly have, regardless of whether you own a house or not. :-)

FWIW I'm on the BBC's in-house pension scheme, currently contributing about £100 a month.
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From:easterbunny
Date:October 16th, 2004 05:25 am (UTC)
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I agree on this one. I'm in the university pension scheme, and they match what I contribute - even though the interest rates aren't very high, it's still free money. If your employer will contribute to a scheme, then it's a great idea.
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