Have you ever really thought about your pension?

Wednesday, June 2nd, 2010 at 9:22 am

I received an email recently that really shocked me. We all know that relying on the government to fund our retirement is very dodgy logic, well I hope we all know that. Certainly if you have been reading any of Robert Kiyosaki’s books you will know that. Anyway I received some figures in an email recently about the return we are getting on our compulsory pension contributions.

If you follow these assumptions:

Salary £25,000 per annum
Working life 18-65 years that is 47 years
Contributions to the pension through NI and Tax at a total of 20%

You would have contributed (25,000*20%) £5,000 x 47 = a staggering £235,000 over your working life time.

What would the return be ??? Well at today’s rates approximately £95.25 per week that is £4,953 per year

Without going further you know you are going to loose out, because after 47 years of working “for the man” you are unlikely to live another 47 years in retirement. Even if a third of your tax contributions went towards your pension a meager £77,550 then you would need to live over 15 years to get your money back.

Wait though …. surely it’s not about how long you live but the quality of that life …. £95,25 a week – to cover food, heating, clothes, luxuries, everything !!!!!!

What about the opportunity cost, what if you invested £5,000 per annum. Let’s take a ridiculous example and say that all things stay the same and over 20 years (so by the time you are 38) you start investing the nest egg you accumulate (20 * £5,000)

If I invested £100,000 in property I could immediately buy at least 3 properties giving me between £750 – £900 per month profit (already a 9% ROI). Then if I continued slowly the following year I could remortgage and buy another 3 properties. The first cashflow would reduce slightly and I would have approximately £600 plus another £750 -900 giving a conservative total of £1350 (already much more that the pension and I have not even considered capital growth).

Now let’s project forward five years and say you continued to remortgage only the newest purchases, you would have a portfolio of 15 properties giving a conservative £3,000 per month. That would be a 36% return on your initial £100,000 investment. At 43 years old you could afford to retire on £3,000 or you could keep investing.

Okay so it’s only an example and the “What if” crowd are shouting about voids and maintenance issues …. they are missing the point. What if you could help your children to say £5,000 per annum? What if you could invest in property now? What if you took responsibility for your finanical future?

Hopefully that gives some people food for thought. Since I read Robert Kiyosaki’s Conspiracy of the Rich – I have become very focused. Lots of people are facing retirement right now and looking at how they can afford to live – don’t become one of them.

To our mutual success, wealth and happiness
Vicki – The Property Mermaid

1. Ways to Wealth – Make Money from Property – http://www.waystowealth.co.uk/wtw-events/