Pensions Planning: The NUMBER

Mnd

I agree, I've recently stopped working at 63, my wife will do 4 more years to get to full state pension qualification and stop at 61. If my calculations are right then we will have 2k a month net, no mortgage
If we need to then we will take a lump sum of equity release to give us the life style we need

DairyQueen

Thank you everybody.

The lessons I will take away from this thread:

a) Retire as early as feasible.
b) Expect to use all the equity in your home for care costs
c) Prepare your children and other prospective inheritees for the possibility that they won't receive anything
d) Don't try to ring-fence assets to pass down. It's your responsibility to look after yourself as the younger generation can't afford it (the social contract needs updating). The price they pay may be the loss of an anticipated inheritance.
e) Follow the great advice published here about an holistic approach to retirement planning.

My number will be published once I've finished playing with those spreadsheets. This 'number' thing really is a very helpful tool.

michaels

whilst I would love to inherit some of my parents assets, they did the time to earn the money so it is only fair that they enjoy spending it so we try and encourage them to do so.

DairyQueen

After all my recent doom-mongering about the cost of care in later life I have now reached a few conclusions on our retirement number.

My rationale calculates our number/s by defining two stages of retirement.

OH and I anticipate that our lives are likely to change considerably between stage one (up to approx. age 75) and stage two (75+): different needs, different expenses, different living arrangements, etc.

I have also defined a ‘pyramid of needs’ for each stage. This pyramid has three levels:

1) Bottom: the income required to provide for our physical and mental well-being: good food, warm and cosy, utilities, internet/phone, insurance, clothes, well-maintained home, running one small car (low mileage), dentist/optician, etc. It includes the cost of replacing household items, and of purchasing materials to maintain the home and garden, and also the cost of food/vet for our pet. Very little discretionary spending. The stage 2 number for this level includes the cost of self-funding 3 hours of in-home care each day.

This is the minimum level that I believe we will need to maintain a safe, stress-free and independent existence at home for as long as possible. It also assumes a daily life primarily focused on local/low-cost/home-based pursuits. At this level expenses would be similar whether single or a couple and we have therefore calculated that this will also be the minimum income required by the survivor when the first of us dies.

2) Middle: Adds a reasonable level of discretionary spending: gifts, Christmas, annual holiday, entertainment, leisure pursuits, eating out, two cars in stage one and cleaning/gardening/repair services in stage two.

3) Top: Adds a good level of discretionary spending. This is the level at which it’s unlikely we will need to keep an eye on our expenses, and at which we can indulge ourselves in stage one: expensive holidays, higher spec cars, regularly eating out, expensive hobbies do-able, that kind of thing.

Stage One Profile: Character 3-bedroom detached in rural location. No mortgage. Lots of country and community pursuits and activities, many of which will be home-based and cheap, or free, (walking, U3A, volunteering, gardening, cycling). Car a necessity. We would be content if we had to survive at our minimum income level at this stage, but we have saved hard to achieve at least the middle level. We are prepared to delay retirement by a couple of years if necessary to meet that target, and to provide some insurance against care needs in later life.

Stage Two Profile: Two-bedroom apartment/bungalow in comfortable retirement complex in market town (good area in the south) with good transport links and local services. We think this will cost around 60/70% of stage one property equity. The downsize should release a chunk of cash which is earmarked as an additional contingency fund for carers/nursing home if we don’t have sufficient other income/funds. We believe that our discretionary spending will reduce significantly from the beginning of this stage (if we achieve stage one top level) but that carer costs (and paying others to undertake repairs, cleaning, etc.) will more than offset that reduction sooner or later.

The numbers look like this (all net of tax):

Stage One:
Bottom - £13200
Middle - £19500
Top - £35000

Stage Two:
Bottom: £13200 + £18500 (carer cost) + £3000 (domestic services and repairs.) = £34700
Middle: £19500 + £18500 + £3000 = £41000
Top: Same as Middle as discretionary spending reduced in later life.

Our intention is to drawdown our capital to bridge the gap between state/DB pensions and the number over our lifetime. We are not aiming to preserve any assets for inheritance.

Reviewing our current situation:
At stage one the middle figure is already covered within a conservative drawdown rate on our DC/SIPPs. As these are split between me and OH we could achieve this now, without paying tax, before state/DB pensions become payable.

OH’s DB pension will also more than cover the stage one middle figure, even allowing for inflation on the number until OH reaches scheme NRD. DB widow’s pension, plus my nSP, would also more than cover the middle number net of any drawdown on DC/SIPPs.

By the time OH reaches sPA his DB plus nSP will more than cover the top number of stage one. My nSP becomes payable two years later. The total of our nSPs and DB will then cover the middle/top number of stage two (the highest of our numbers) after tax.

When one of us dies the DC/SIPPs will fill the gap between DB/nSP and the middle/top number of stage two. The contingency for later-life care (house equity, before or after downsizing, plus whatever remains of DC/SIPP, plus other capital) should therefore remain intact for residential home fees if required – or for the kids/charities if not.

Apologies for waffling-on but this forum is really excellent at helping people like me (non-experts) negotiate the pitfalls of retirement planning. I am trying to ensure that we make informed decisions at this key stage of life, and this process involves listening to others as well as investing time researching.

Having looked at our situation in more detail my instinct is that we are now being over-cautious and that we need to take our foot off the brake: retire earlier, travel more, whatever.

As always, the forum’s view is appreciated.

michaels

DairyQueen wrote: »

After all my recent doom-mongering about the cost of care in later life I have now reached a few conclusions on our retirement number.

My rationale calculates our number/s by defining two stages of retirement.

OH and I anticipate that our lives are likely to change considerably between stage one (up to approx. age 75) and stage two (75+): different needs, different expenses, different living arrangements, etc.

I have also defined a ‘pyramid of needs’ for each stage. This pyramid has three levels:

1) Bottom: the income required to provide for our physical and mental well-being: good food, warm and cosy, utilities, internet/phone, insurance, clothes, well-maintained home, running one small car (low mileage), dentist/optician, etc. It includes the cost of replacing household items, and of purchasing materials to maintain the home and garden, and also the cost of food/vet for our pet. Very little discretionary spending. The stage 2 number for this level includes the cost of self-funding 3 hours of in-home care each day.

This is the minimum level that I believe we will need to maintain a safe, stress-free and independent existence at home for as long as possible. It also assumes a daily life primarily focused on local/low-cost/home-based pursuits. At this level expenses would be similar whether single or a couple and we have therefore calculated that this will also be the minimum income required by the survivor when the first of us dies.

2) Middle: Adds a reasonable level of discretionary spending: gifts, Christmas, annual holiday, entertainment, leisure pursuits, eating out, two cars in stage one and cleaning/gardening/repair services in stage two.

3) Top: Adds a good level of discretionary spending. This is the level at which it’s unlikely we will need to keep an eye on our expenses, and at which we can indulge ourselves in stage one: expensive holidays, higher spec cars, regularly eating out, expensive hobbies do-able, that kind of thing.

Stage One Profile: Character 3-bedroom detached in rural location. No mortgage. Lots of country and community pursuits and activities, many of which will be home-based and cheap, or free, (walking, U3A, volunteering, gardening, cycling). Car a necessity. We would be content if we had to survive at our minimum income level at this stage, but we have saved hard to achieve at least the middle level. We are prepared to delay retirement by a couple of years if necessary to meet that target, and to provide some insurance against care needs in later life.

Stage Two Profile: Two-bedroom apartment/bungalow in comfortable retirement complex in market town (good area in the south) with good transport links and local services. We think this will cost around 60/70% of stage one property equity. The downsize should release a chunk of cash which is earmarked as an additional contingency fund for carers/nursing home if we don’t have sufficient other income/funds. We believe that our discretionary spending will reduce significantly from the beginning of this stage (if we achieve stage one top level) but that carer costs (and paying others to undertake repairs, cleaning, etc.) will more than offset that reduction sooner or later.

The numbers look like this (all net of tax):

Stage One:
Bottom - £13200
Middle - £19500
Top - £35000

Stage Two:
Bottom: £13200 + £18500 (carer cost) + £3000 (domestic services and repairs.) = £34700
Middle: £19500 + £18500 + £3000 = £41000
Top: Same as Middle as discretionary spending reduced in later life.

Our intention is to drawdown our capital to bridge the gap between state/DB pensions and the number over our lifetime. We are not aiming to preserve any assets for inheritance.

Reviewing our current situation:
At stage one the middle figure is already covered within a conservative drawdown rate on our DC/SIPPs. As these are split between me and OH we could achieve this now, without paying tax, before state/DB pensions become payable.

OH’s DB pension will also more than cover the stage one middle figure, even allowing for inflation on the number until OH reaches scheme NRD. DB widow’s pension, plus my nSP, would also more than cover the middle number net of any drawdown on DC/SIPPs.

By the time OH reaches sPA his DB plus nSP will more than cover the top number of stage one. My nSP becomes payable two years later. The total of our nSPs and DB will then cover the middle/top number of stage two (the highest of our numbers) after tax.

When one of us dies the DC/SIPPs will fill the gap between DB/nSP and the middle/top number of stage two. The contingency for later-life care (house equity, before or after downsizing, plus whatever remains of DC/SIPP, plus other capital) should therefore remain intact for residential home fees if required – or for the kids/charities if not.

Apologies for waffling-on but this forum is really excellent at helping people like me (non-experts) negotiate the pitfalls of retirement planning. I am trying to ensure that we make informed decisions at this key stage of life, and this process involves listening to others as well as investing time researching.

Having looked at our situation in more detail my instinct is that we are now being over-cautious and that we need to take our foot off the brake: retire earlier, travel more, whatever.

As always, the forum’s view is appreciated.

Thanks DQ, really useful

OldMusicGuy

DairyQueen wrote: »

Having looked at our situation in more detail my instinct is that we are now being over-cautious and that we need to take our foot off the brake: retire earlier, travel more, whatever.

I think you are, as was I. My approach is similar to yours. Mind you, our bottom number came out at about 21K and the top was 36K. Like you, this approach helped me think things through more clearly and made me realise I need to retire and start enjoying the fruits of our hard work.

Great post and very pragmatic approach to planning.

crv1963

OldMusicGuy wrote: »

I really agree with you here. When I really started to look at what will happen to me after age 60, I got out of the "I'll just keep working one or two more years" mindset and decided to retire early at 60. The years 60 to 70 could really be quite valuable for us and I want to enjoy them rather than just keep flogging myself into an early grave in an increasingly pressurized job.

I am hoping we will both be reasonably fit after 70 and we will both be working hard to stay fit, healthy and active but realistically the decline has to happen sometime. So I want to enjoy the early retirement years together.

It's a thought provoking line we're following. We're looking to retire in the next 5-8 years and after my own (hopefully now resolved) health issues this year we definitely are not going to work until we drop, aiming to retire me age 60-62 and wife age 57, then enjoy ourselves.


We're concentrating on funding the 10 years between retirement and SP kicking in, so aim to have SP as "extra" which will be saved/ modest use as our other income should cover expenses of living but if all else fails we will look at moving to a cheaper house in our area or equity release to fund care needs.

datlex

Interesting thread. Currently I earn take home of £19K. I am one of those people who rents so will still have that expense into retirement. I however don't run a car and if things stay as they are I will save on travel. (no petrol, car insurance, car mot and maintenance + free bus travel for OAPs (unless that is withdrawn)). I am able to save from my take home pay which I appreciate is less than some people feel they need to retire on. I don't have a frugal lifestyle, I have takeaways, evenings out etc. However I always think about best value for me in my opinion when buying things (that will differ from others). E.g. I buy the Iceland ready meals range because a lot of them don't have onions listed on the ingredients list not because they are under £2. My current number is 15K per annum, those this could change in a few years depending on certain factors.

enthusiasticsaver

I think there will be a lot of people in the future who will have to go into retirement paying rent which will take a good chunk of income. We have looked on our retirement as two seperate terms. The first is the most active as early retirement(57,58) until say age 75. We have between us 3 DB pensions, a DC pot and a SIPP and 2 fully funded state pensions paying out at age 66. Our requirements we have worked out to be comfortable is £2500 net per month and a further sum of around £100k in accessible funds to cover long haul holidays, age proofing our home as we get older and changing 2 cars initially until we go down to 1 between us. Luckily our income portfolio from investments and 2 DB pensions cover 90% of this. The state pensions will be a bonus so hopefully will saved for additional care as we get older and last resort we will downsize. We have gifted significant sums to our children already to help them with uni and buying first homes, wedding, childcare etc so if there is money left for them to inherit all well and good. We do not intend to end up in one of the awful care homes you sometimes see though so I will have no problem using our investments and house proceeds to pay for decent care in our old age.

swindiff

My Number is about £30k net for a couple going on current expenditure and being generous with fun money. I have halved the fuel bill as not commuting to work. This is based on my wife and I both retiring at 60. We are both currently 47.

Car Lease £200.00
Council tax £130.00
Gas and Electric £80.00
Sky TV £85.00
Water Rates £50.00
Fuel £60.00
Mobile Phones £60.00
Home Insurance £25.00
Car Insurance £25.00
TV License £12.00
Food £300.00
Holidays £250.00
Property Maintenance £150.00
Fun Money £1,000.00

Total Monthly expenditure £2,427.00
Net annual income required £29,124.00

If we can retire at 60 then I will have a USS pension of around £15k, my wife will have an NHS pension of around £2k and an LGPS pension of around £5k. Thats £22k per year for 6 years until we can both draw our full state pension which will increase the total to about £38.5k Gross (net about £34k). I will have about a £45k lump sum from the USS pension and currently paying 15% of salary into ACV's which should give about another £100k in 13 years time. So this should bridge the gap until we are both 66. Thats the plan anyway, just hope there are no unforeseen spanners