Pensions Planning: The NUMBER

Anonymous101

colmel16 said:

looking at this thread with interest it occurs to me many posts see their NUMBER as being 2/3 final salary. 5 years ago my final salary was £30000 which meant £20000 in retirement so i got a job that only paid £20000 so i only need less than £15000 in retirement, seems like good retirement planning to me,

I like your style!
I see the 2/3rds salary as too basic a measure. Plenty of people reduce expenditure prior to retiring or are already investing well above 1/3rd of their salary.
I think a much better measure is to base your number on expenditure and work on multiples of 25-30 times that for an invested pot total if you’re based on a DC / ISA strategy.

Bravepants

The 2/3 salary idea came about because, on average, people spend about 1/3 of their salary on their mortgage. The expectation was that the mortgage would be paid off before retirement, therefore...

Anonymous101

Bravepants said:

The 2/3 salary idea came about because, on average, people spend about 1/3 of their salary on their mortgage. The expectation was that the mortgage would be paid off before retirement, therefore...

Understood. Perhaps that was a good rule of thumb for someone in the past when DB schemes were the norm or buying an annuity was mandated. Even then I still think its way to basic a measure as it doesn't factor in decreasing work associated costs or increased leisure costs etc.
Nowadays it also raises all sorts of questions about drawdowns strategies and pot sizes too, or at least it should do. 

AlanP_2

Bravepants said:

The 2/3 salary idea came about because, on average, people spend about 1/3 of their salary on their mortgage. The expectation was that the mortgage would be paid off before retirement, therefore...

I thought it came from the older DB schmes that used a 1/60th accrual rate and the maximum entitlement was 40 years worth hence 40/60th = 2/3rds.

My FIL worked in local gov from Age 18, at Age 58 his pension accrual stopped but I "think" he still had to contribute. This was early 90s, anyway he finished off the up-coming election he was responsible for and left about 14 months later.


So more a case of you can get 2/3rds of salary than you need 2/3rds of salary.

Many years later, and with a very different pension environment (not many of the DB schemes left are targeting 2/3rds salary at retirement, let alone the increased prevalence of DC schemes) the old "golden rules" still get trotted out.

crv1963

While I agree that 2/3 final salary as an absolute must for a pension is not at all fine tuned for individuals who take an active interest in their pension planning and provision, it is a good broad brush approach for those that are starting out. If as the time approaches to taking the pension and/ or as an ad hoc check to see if saving is on target it also serves to encourage increase saving or review of pension performance. 

My sons relatively new to the world of employment are using it as a means to have a broad goal, but are not slaves to it. 

caeler

What an interesting thread.  I don't have a number yet.  I know that once the mortgage is gone bills and spending money will be £12K per year but of course holidays, transport, unexpected expense needs to be factored in.  

badmemory

The way I see it is that your number can only be YOUR number.  My number was the same as when I was working a 4 day week after my mortgage was paid off.  I walked to work so my car expenses actually went up after retirement, but my "what can I do quickly for tea" became more what shall I make, so cancelled one another out.  Much to my amazement I am still saving as I miscalculated.  But that will soon go when I need a cleaner rather than just would fancy having one.

I'm on my own, but I think as a couple you may have an advantage in that one may be able to fill the others ability gaps.  But also as a couple you need to factor in what will happen when one of you dies.

AlanP_2

badmemory said:

I'm on my own, but I think as a couple you may have an advantage in that one may be able to fill the others ability gaps.  But also as a couple you need to factor in what will happen when one of you dies.

My wife hasn't found anything I can do better than her yet - apparently.

Gatser

caeler said:

What an interesting thread.  I don't have a number yet.  I know that once the mortgage is gone bills and spending money will be £12K per year but of course holidays, transport, unexpected expense needs to be factored in.  

 Good luck with the planning.  Any NUMBER is a good start...as you can then refine and change it over the pre retirement years.  I realise now that I was too cautious in my spend expectations, especially with years like this where every month we seriously underspend on leisure, holidays and "cash" items. Decluttering fun is FREE!  (shame the charity shops are closed again though)

Gatser

badmemory said:

The way I see it is that your number can only be YOUR number. 

I'm on my own, but I think as a couple you may have an advantage in that one may be able to fill the others ability gaps.  But also as a couple you need to factor in what will happen when one of you dies.

Totally agree...there is no such thing as a wrong NUMBER in this context.   By comparing other folks NUMBERS over the years it made me question mine but I was happy with my early retirement figure and 2 years in, it has been useful to plan where and when we can spend our retirement income... very useful in the years before state pension kicks in.
Good point on our mortality too... we do take health and partners for granted too often.  I plead guilty to that so thank you for the much needed prompt.