Pensions Planning: The NUMBER

DairyQueen

michaels said:

Even if we only see a temporary blip to 5% (+) this autumn that is a 5% real fall in the value of all assets including pension funds and assuming it is temporary and interest rates/bond prices don't adjust that is also 5% of the national debt burden.

Funny how we accept financial repression as 'one of those things' but would be up in arms if the govt proposed taxing 5% of all assets to help pay for Covid.

Likewise, we accept a 5-year cap on tax allowances with barely a murmur but an increase in rates of income tax? No chance. It's a perception issue. 

I recall Brown's insidious removal of the dividend tax relief on pension funds. One of the greatest stealth taxes of all time and (arguably) the final nail in the coffin of private sector DB schemes. Most people didn't understand the implications. Decades later and most still don't understand the impact on their pensions.

Still, we are where we are. Massive public debt to repay and inflation now beginning to rise. The markets seem to think this is a blip but I wouldn't bet against a sustained period of inflation. The tax allowance cap prompted a review of our drawdown plan. I am now reviewing our cashflow to allow for inflation at 5% for perhaps 5+ years. I would rather err on the side of caution. Our number may have to be revised down as a preemptive strike.

Daffodil1234

Well, after finding someone talking about this thread, and then reading through it over time, I can see there are some very informed people here ! Views or criticisms welcome....

Our NUMBER (for me plus spouse) is to live on £26k per year.  We are currently doing this even though both still employed, saving like crazy.  The £26k covers everything that you would spend in a year - food, bills, household, car, travel, holidays, gifts to family or friends and so on.  We are happy to live fairly frugally and don't expect any huge holidays round the world etc.

We think that for any big one offs (e.g. buying a car) we'd have to go into savings and use them.

This will be funded by:

Me - stopping work in 4 years time at age 60, then receive ~ £9k pension from TPS - will top up to the required £13k equivalent (plus inflation) by using savings, and maybe by a part time bit of employment such as tutoring.  When I'm 67, some more teachers' pension kicks in so pension from TPS becomes ~ £11k, plus state pension.  Savings pot would be around £130k.

Spouse - stopping work in 4 years time, age 55, estimated pension pot will be £400k and savings ~ £250k.   Living on a combination of a bit of drawdown (e.g. £7k - 10k) plus a bit of part time work to make up the remainder to the required £13k.  

So I think we should be ok for our NUMBER (though do say if you disagree) but I do wonder how on earth we could ever determine how much we (or anyone) would need for unexpected costs- e.g. having cataracts done, or having a lot of physio, or any other unexpected demand whether medical or not.  This feels like a gamble as not possible to know in advance !

squareside

We haven’t arrived at our NUMBER yet. I’ve read loads of this thread and others, and found them mostly very informative/interesting. However, I really struggle to envisage what we (age 56 at the moment) would require and therefore what to do regarding current pensions and perhaps paying more in.

I really envy many colleagues who retired on the ‘company final salary scheme’ a good few years ago (sadly now closed). Those colleagues as I recall barely mentioned their pension, didn’t have much to decide and retired happy. I do find it ironic now that the government says that the pension reforms have given people unprecedented choice. A lot of us simple folk were quite happy with the way things were until business/employment models changed.

If I knew when I was going to die, I would welcome the flexibility! In the meantime, I’ll keep questioning the NUMBER.

SouthCoastBoy

My number keeps on changing, initially was 2k per mth, that was about 4 years ago, now after a bit more analysis and reflection it is 3k mth until around 75 then 2.5k mth then down to 2k mth around 80. 

Current position is approx 680k savings/investments outside sipp, 700k inside sipp.

Spouse has db schemes worth around 10k at 60, 6 years time. I'm 56 and holding on at work with a dc pension I just dont have the confidence to leave. If I had a db pension I think I would feel more confident.

PJM_62

SouthCoastBoy said:

My number keeps on changing, initially was 2k per mth, that was about 4 years ago, now after a bit more analysis and reflection it is 3k mth until around 75 then 2.5k mth then down to 2k mth around 80. 

Current position is approx 680k savings outside sipp, 700k inside sipp.

Spouse has db schemes worth around 10k at 60, 6 years time. I'm 56 and holding on at work with a dc pension I just dont have the confidence to leave. If I had a db pension I think I would feel more confident.

Can you explain why you aren't confident about..
age 56 .. 36k per year ... and almost 1.5 million to fund that.

NedS

Daffodil1234 said:

Well, after finding someone talking about this thread, and then reading through it over time, I can see there are some very informed people here ! Views or criticisms welcome....

Our NUMBER (for me plus spouse) is to live on £26k per year.  We are currently doing this even though both still employed, saving like crazy.  The £26k covers everything that you would spend in a year - food, bills, household, car, travel, holidays, gifts to family or friends and so on.  We are happy to live fairly frugally and don't expect any huge holidays round the world etc.

We think that for any big one offs (e.g. buying a car) we'd have to go into savings and use them.

This will be funded by:

Me - stopping work in 4 years time at age 60, then receive ~ £9k pension from TPS - will top up to the required £13k equivalent (plus inflation) by using savings, and maybe by a part time bit of employment such as tutoring.  When I'm 67, some more teachers' pension kicks in so pension from TPS becomes ~ £11k, plus state pension.  Savings pot would be around £130k.

Spouse - stopping work in 4 years time, age 55, estimated pension pot will be £400k and savings ~ £250k.   Living on a combination of a bit of drawdown (e.g. £7k - 10k) plus a bit of part time work to make up the remainder to the required £13k.  

So I think we should be ok for our NUMBER (though do say if you disagree) but I do wonder how on earth we could ever determine how much we (or anyone) would need for unexpected costs- e.g. having cataracts done, or having a lot of physio, or any other unexpected demand whether medical or not.  This feels like a gamble as not possible to know in advance !

@Daffodil1234 I think you are well placed. We are aiming to go around 57/58, and are similarly basing our number on or around our combined tax free allowances, giving around £25k. We kind of did a dry run on our number in 2020/21 with lockdown giving us a very good idea of what our minimal spend is, working from home and not going out at all (mortgage already paid off). Our 2020/21 costs were £18k so I'm confident that £25k in retirement gives us a bit of headroom.

We could probably sustain £35k spending IF we could guarantee that both of us live to a ripe old age, but the risks to the surviving partner should one of us die young means we need to not burn through the assets too fast as the surviving partner would struggle with a large drop in income.

With respect to your spouse, a DC pot of £400k plus savings of £250K (£650k combined), would support £13k per year at a very conservative drawdown rate of just 2% therefore I would think you have plenty of scope to increase withdraws there if needed to cover unforeseen expenditure (even a relatively conservative 3% would support £20k/year). At 67, assuming you have a full state pension, you have £20k guaranteed income alone, so the amount your spouse needs to contribute drops further, and once you both reach state pension age, your DB/state pensions gives you £29k/year without even considering DC pots or savings. At this point you could probably sustain £50k/year which should more than take care of cataracts and the odd hip replacement.

You are also in a very strong position tax wise. Your required annual income can be evenly split over your two tax allowances meaning you should pay very little/no tax, and your spouse can draw down their full tax allowance from the DC pension (£16,760/year) for 12/13 years prior to State Pension allowing withdrawal of just over half the £400k pot tax free before getting their state pension, and can top it up thereafter.

ossian

Bravepants said:

westv said:

From what I remember, those figures aren't guessed but are based on a survey of several thousand people. Might have been a Which? survey I think.

There was a survey done recently which quoted a person as needing to spend £1500 on clothes each year! I don't think I actually own £1500 of clothes never mind spend it each year!

I know there's nothing brave about fresh pants but suggest that fresh pants are a minor pleasure.  More seriously, my clothes don't wear out.  I have been wearing my favourite hoodie since 1996 and it looks the same to me.  It outlasted my first marriage!

SouthCoastBoy

PJM_62 said:

SouthCoastBoy said:

My number keeps on changing, initially was 2k per mth, that was about 4 years ago, now after a bit more analysis and reflection it is 3k mth until around 75 then 2.5k mth then down to 2k mth around 80. 

Current position is approx 680k savings outside sipp, 700k inside sipp.

Spouse has db schemes worth around 10k at 60, 6 years time. I'm 56 and holding on at work with a dc pension I just dont have the confidence to leave. If I had a db pension I think I would feel more confident.

Can you explain why you aren't confident about..
age 56 .. 36k per year ... and almost 1.5 million to fund that.

The concerns I have are a sustained period of inflation and a sustained bear market both I think are quite likely

Anonymous101

ossian said:

Bravepants said:

westv said:

From what I remember, those figures aren't guessed but are based on a survey of several thousand people. Might have been a Which? survey I think.

There was a survey done recently which quoted a person as needing to spend £1500 on clothes each year! I don't think I actually own £1500 of clothes never mind spend it each year!

I know there's nothing brave about fresh pants but suggest that fresh pants are a minor pleasure.  More seriously, my clothes don't wear out.  I have been wearing my favourite hoodie since 1996 and it looks the same to me.  It outlasted my first marriage!

 
Likewise I have several items of clothing purchased whilst I was at Uni 20 years ago!

I had a conversation with the wife about refreshing our wardrobes somewhat last night. We both have a few things that are starting to wear and look a little tatty. I don't think a couple of hundred quid each would be too misspent. That should do us for another few years!

Anonymous101

SouthCoastBoy said:

PJM_62 said:

SouthCoastBoy said:

My number keeps on changing, initially was 2k per mth, that was about 4 years ago, now after a bit more analysis and reflection it is 3k mth until around 75 then 2.5k mth then down to 2k mth around 80. 

Current position is approx 680k savings outside sipp, 700k inside sipp.

Spouse has db schemes worth around 10k at 60, 6 years time. I'm 56 and holding on at work with a dc pension I just dont have the confidence to leave. If I had a db pension I think I would feel more confident.

Can you explain why you aren't confident about..
age 56 .. 36k per year ... and almost 1.5 million to fund that.

The concerns I have are a sustained period of inflation and a sustained bear market both I think are quite likely

I don't disagree that both are possible, like anyone though we don't know when and how good or bad things will be.

The historical studies do include for previous periods of depression and inflation and presumably your investments reflect your outlook on life and are suitably defensive?

I am genuinely intrigued different viewpoints of what makes them feel confident or not of taking these type of decisions so I'd be interested to hear what would make you more confident?