How to Use a Pension Fund Projector
Photo Credit: Ken Teegarden
It’s never too early to start thinking about your pension. Even if you’re just starting out on your career and have only just started paying into your pension pot, it’s important that you consider what it means in the future.
With people living longer than ever, it’s entirely possible that you will spend a couple of decades if not more in retirement and you need to know that you’re going to have the money you want in later life.
A pension projector is a simple calculator that helps you work out how much you can get from your income and what your current contributions mean. You can use this one from the Pensions and Wealth Management Service.
Step 1 : Enter your existing premiums
Enter any single premiums that you already have, or plan to have in the future. This is a single pot that you may have from a previous pension plan or agreement. You can also use this bit to help you work out how much extra you might need to reach your target.
Step 2: Enter your monthly salary contributions
Enter the monthly premiums that you pay as a contribution from your salary, or if you’re trying to work things out in the future, the contributions you’re likely to make, or the ones that you want to make.
Step 3: Enter your years until retirement
Enter the number of years that you’ve got until retirement. In this case they need to be full years for the calculator to work. Bear in mind when you do this that the exact number of years may not be guaranteed – you may not be able to retire at the age you’re predicting given potential government legislation.
Step 4: Decide upon your target income
Enter the target income you’d like when you retire. Think about the fact that you are unlikely to have as many things to pay out for, such as a mortgage. In the UK, the average yearly pension income is around £15,000 which is similar to minimum wage.
Step 5: Annuity rate (if you decide to take an annuity)
Finally, you need to put in the annuity rate that you think you might get. The annuity is the product you buy with your pension pot that pays out each month. The higher the rate, the more you’ll get.
If you follow all the steps above, you should be left with a clear indication of what your current trajectory is and what you might need to do to get where you want to be, use this information to plan for your future.
For additional advice on pensions savings, see the following posts:
Pay down debt vs Saving for Retirement
Are you getting the right pension tax relief?
Derek at MoneyAhoy says
Many of the pension calculator tools are great because it can be pretty difficult to put together an accurate spreadsheet unless you’re planning to spend hours setting everything up!