Retirement income

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
30 replies 2.1K views
JayZedJayZed Forumite
731 Posts
I'm many, many years from retirement, but am thinking ahead and considering whether I'm making sufficient pension contributions. One of the key questions is the level of income I'll need after retirement (as proportion of pre-retirement income in real terms, rising with inflation).

What is a normal/average amount of income to aim for as a pension if you want to maintain a similar standard of living? I realise that this varies enormously depending on personal circumstances, but let's assume no mortgage or other debts, no dependent children, no dependent parents/in-laws, and a reasonable capital cushion through non-pension savings/investments.

Based on the considerable amounts that I spend now on mortgage payments, childcare, pension contributions - outlays that I don't expect to have in retirement - I would imagine that I could get by reasonably comfortably on considerably less (in real terms) than I earn now. Would a retirement income in the region of 65% of pre-retirement income be realistic if one wanted to maintain a similar standard of living? What do most people aim for?
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Replies

  • dunstonhdunstonh Forumite
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    I would aim for 75%.

    Whilst you wont have children and mortgage, you will have 8 or so hours a day every working day of time to fill where you currently spend little or nothing.

    You will also have no abilility to save up and build your savings/investments more (unless you plan well) with new money. So, a larger emergency fund needs to be there just in case.

    Also, the things that people buy in retirement tend to be hit harder with inflation than working people.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • m_c_sm_c_s Forumite
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    It would be interesting to find out what the young :) people currently in retirement think?
    I thought 2/3rds was the established aim but I guess 75% seems to the current wisdom and will only be achieved with good planning and a nice pension(s).
  • bigbloke45bigbloke45 Forumite
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    m_c_s, the 2/3rds thing is a complete "Red Herring". It is no more than the limit on Civil Service pensions and was used a base when previous governments wanted to establish pension legislation (i.e. to limit tax relief as much as possible!)

    I agree with dunstonh.

    Try writing down all of your current expenses and then project your expenses in retirement. There aren't many savings, are there?

    Good luck!
  • LintonLinton Forumite
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    I agree with bigbloke45 - dont estimate retirement need on current income - you may be struggling now, or you may now be saving the majority of your income.
    IMHO you should start by determining how much you are spending now on things you would continue to want. Then add on the cost of what you want to do in retirement (eg annual £5000 cruises or whatever) and a bit extra to be on the safe side.

    In my case this is proving to be over-generous. Filling in an extra 8 hours freedom a day doesnt cost much, and I have found that there were more hidden costs of working than I had thought.

    You need to consider the emergency funds identified by dunstonh and the access to sufficient money to cover reasonable care costs when/if they become necessary.
  • Hi JayZed,

    I agree with the comments above.

    Whatever income level you decide to target as part of your retirement provision, if you start by thinking about it as your 'wages in retirement' it'll help you grasp the enormity of what lies ahead.

    It's a huge topic but I'd add that you might wish to consider factoring-in your current and future health too as there may be gaps in your ability to save in the future (unemployment, ill health, etc).

    You need to plan as well in advance as your income and circumstances permit.

    You haven't said how old you are, but you might be surprised by average life expectancy in the UK and how that has increased (roughly 2 years for each decade in the latter half of the 20th century).

    Therefore any income you provide for your retirement might need considerable inflation-proofing.

    Some more food for thought, maybe?

    Mike

    I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.
  • JayZedJayZed Forumite
    731 Posts
    The thing is, right now I spend a very large proportion of my income on mortgage payments, pension contributions and childcare. We have made a deliberate decision to overpay the mortgage and increase pension contributions while tightening the belt in non-essential areas.

    Things are a bit tight, but on the whole we're managing fine on the relatively small proportion of my income that remains for bills, groceries, insurance premiums and general spending (we have no cc debt). I wouldn't want to live this frugally for ever, but in a year or two my wife will go back to work and/or we'll cut back on the mortgage overpayments.

    Still, if tomorrow I were on 65% of my current salary with no mortgage/pension/childcare costs, my spending money would be more than two and a half times what it is right now, which seems to me to be a small fortune, certainly enough to live comfortably with a good amount of holidays etc.

    I also expect to have a decent amount of capital outside my pensions savings (from ISAs and inheritance), which should be comfortably enough to avoid the need to accumulate further savings once I retire.
  • Isn't it more important to think about what you need to live on rather than aiming at a particular % of your current income. If you are on a low income in the first place then you will probably need to aim for a higher % (which presents a real problem for many people) whereas if you are on a higher income but have no particular extravagances you might well be able to do everything you want to do on a much lower %.

    As linton and others have highlighted health costs could be a big issue. You can help yourself on this quite a lot - I'm giving it a go anyway. My parents are 86 and 85 - they are very careful to eat a very good mixed / balanced diet (no fads) and have also always exercised (garden, walking, cycling). They have also always kept themelves busy with reading, painting, crosswords and so on.

    Like JayZed a huge amount of our incomes go on children, mortgage etc. So although we have earned pretty decent salaries we have never really had a lot of it to spend on ourselves.

    I've thrown a lot of numbers into spreadsheets for thing like insurances, car, holidays, presents, bills et etc (but broken down to a more detailed level than this) and then added a 10% contingency on top. It helps focus the mind but if you do this you need to be careful not to underestimate.
  • margaretclaremargaretclare Forumite
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    Re the comment about not being able to save in retirement.

    I've been amazed to find that I can save more now in retirement than I ever could before, and the same applies to my DH. He finds he has approx £200 unused every time his next 4-weekly state pension payment arrives and he saves that. He also gets a monthly annuity payment and he pays off his credit card from that - credit card is used for buying groceries and petrol.

    We've both had years of struggling for one reason and another. The worst for me was widowhood combined with redundancy in 1992 when I was 56. I struggled to pay the mortgage and keep the roof over my head. Once DH and I got together in 1997 we were able to combine resources, both work until we were 67, and be prudent financially. One of the reasons we still save is that we don't know what lies ahead of us in the future. We've recently had some more home improvements. Like MrMicawber's parents a decade older than us, we do eat healthily, probably even more so since DH's recent serious illness. We have probiotic yogurts, 'Ocean Spray' cranberry drinks, and we're fussy about where our meat comes from. Food costs at present for the 2 of us come to approx £70 a week, which we share.
    [FONT=Times New Roman, serif]Æ[/FONT]r ic wisdom funde, [FONT=Times New Roman, serif]æ[/FONT]r wear[FONT=Times New Roman, serif]ð[/FONT] ic eald.
    Before I found wisdom, I became old.
  • exilexil Forumite
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    Pensions salesmen will always try to persuade you that you need an absolute fortune to live on in retirement. It's in their interests to do so.

    That ignores the very high cost of renting or buying a house, commuting, other work expenses (lunch, all the ready meals and takeaways because you get home late and tired out, paying people to wash your windows or do your garden or paint the house which you could do most of if not busy working, the evenings in the pub with your workmates, etc), the gigantic costs of raising children. All these costs disappear by the time you're in your 60s. Or at least one hopes they will, I do know people still buying a house in their late 60s.....

    My elderly relatives are managing fine on a takehome income of under £1,000 a month each. They go on holiday more often than I do!

    One thing you don;t need to do when you retire is - save for your retirement. So when making the calculations, the standard of living you're trying to maintain is the money left after all the above expenses and your savings/pension contributions are taken off.

    My own target is £2,000 (in today's money) a month for me and my OH when we're both 65 in 17 years time. We've already reached this with a combination of company, personal and state pensions and savings, and so now need to work to keep us alive until then - any more we save will be to add a touch of luxury, or to hand on to our daughter should we fall off the perch before reaching an advanced age, or even to allow us to retire early.

    Bear in mind that a large percentage of families have a combined income of less than 2k a month and have to find rent, mortgage and everything else out of this amount. So why should we live like Scrooge in order to fund a luxurious lifestyle in our 70s when we may either be (a) dead or (b) too ill or physically or mentally disabled to enjoy it?

    Don't forget tomorrow, but LIVE FOR TODAY!
  • margaretclaremargaretclare Forumite
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    Paying people to wash your windows and do your garden - we're paying people now, not because we haven't the time while working, but because we haven't the energy, especially since DH's illness. Just as well we have enough to live on and can contemplate expenses like that, which we didn't have in earlier years.
    [FONT=Times New Roman, serif]Æ[/FONT]r ic wisdom funde, [FONT=Times New Roman, serif]æ[/FONT]r wear[FONT=Times New Roman, serif]ð[/FONT] ic eald.
    Before I found wisdom, I became old.
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