Pensions Planning: The NUMBER

randompenitent

There are clearly many different ways of arriving at "the number" and everyone's is different.

I started by doing the obvious thing, what you might think of as a "bottom-up" approach: try to add up all the things I spend money on: council tax, mortgage, insurance, food, internet, mobile, etc...  Doing this was an interesting exercise and came up with some plausible-looking numbers.  But had I missed anything out? What might change when I retired?

I then took a different view. Forget the details and instead just look at the amount of money that leaves my bank account. Rather than getting into the weeds of *what* it was being spent on, just assume that whatever spending I am doing will continue (roughly) unchanged post retirement.  

Using three years of bank statements, and subtracting any withdrawals that went towards savings (ISA, SIPP, deposit account), I arrived at a pretty consistent annual figure.

Interestingly, it was quite a bit bigger than the number I came up with using the first technique, so being naturally a little cautious, that's the figure I decided on as a target for retirement.

So far (8 months into retirement) I seem to be on target, so it seems to have worked. 

kinger101

randompenitent said:

 But had I missed anything out? What might change when I retired?

Don't forget to include £1 a week for a bag of Werther's Orignal to hand out to the grandkids.  But you can take off any money for Parker Pens.  These apparently are given out free to anyone who responds to the adverts that are shown on the telly when Countdown is on.

paulr71

jimi_man said:

paulr71 said:

thanks very much - yes the mortgage payment  is part of the £3500 

Right. So, as michaels says, that may have a big impact on the figures. If you now only need £2500 a month because your mortgage is £1000 a month, then your figure drops to £18k a year plus the rental income. So on the 'going at 50' figures, your pot is now £500k with the mortgage taken off, but you only need £18k x 17 years - £306. After state pension age, you'd be fine with £18k State pension and £12k rental income.

Every year you work adds £32k to the pot, means one less year of needing £18k (and a little more paid from your mortgage)

Again play around with the numbers until you get something that's acceptable. You seem to be in a reasonable position.

There is probably a sophisticated financial tool to help you plan this, but just looking at it from the eyes of a non financial professional, that's how the figures stack up to me.

Cheers -thanks both for the input - appreciated

NedS

paulr71 said:

Good morning - really enjoyed reading this thread - would like some advice -  age 49 - currently in a corporate role - really disillusioned with all the politics and not getting any job fulfilment - wanting to retire at 55 but really do noy  think i can last that long !  have a wife who does not work as ill health- she has MS and 2 kids tracked our spending and we live off roughly £3500 per month. really want to spend more time with her
current assets 
2 properties fully owned at value of approx £280k which we get rent of £12,600
Savings in Shares & ISAs of £100,000
Pensions - mine @ £354k and wifes of £83k - i contribute  £1900 per month - company pays £760
would love to leave earlier than 55 with £42k being the number
Liabilities

£77k of mortgage left on house valued at £350k which we are overpaying 

Any advice appreciated  to give me the courage to jump ship - would still like to work but not in profession i am in 
thanks 

How about a career change or change of role with current employer? 6 more years in a job you hate is a long time. I have 4-5 years to go, and it doesn't seem so bad in a role I'm actually enjoying.

jimi_man said:

Another alternative is to spend less than £3500 per month. 

Every pound saved now is a pound you do not have to earn in the future.

MrsFingersCrossed

Hello. Me again, but this time with not such an optimistic outlook I'm sorry to say.

We had planned for our retirement quite well I thought, but my husband has recently been diagnosed with a terminal illness so I now have to look ahead as if it's just me, and unfortunately it's not looking very good financially.  I am a planner and am finding it hard with the future so sad and the timeline so uncertain. 

I have worked out that I should have an annual income of around £15,000 a year after tax. So approximately £1,250 per month. I haven't yet worked out our (sorry, my) exact monthly outgoings like council tax etc (too distressing), but I have a feeling £1,250 per month is not going to be enough. I expect I could just about get by with that, but living in the south east where we do it is an expensive area and I would have to live a very frugal life. 

I am thinking ahead to the possibility of equity release but I know it's not recommended and I am definitely too young (mid 60s) for it to be a good idea. I think there is a plan where you can release in dribs and drabs to supplement your income, rather than a large lump sum (which wouldn't interest me). But I fear the compound interest on any equity release, and wouldn't have the income to pay the interest (which I know is allowed on some plans).

We downsized 6 years ago so we could retire after my H was made redundant and I could downsize again but it would cost around £20k to move and I can't imagine how I would manage the move or settle somewhere else on my own. I know people do manage but it seems impossible to imagine just now. If I did move it would probably have to be to a terraced house with no parking outside which would make it difficult for friends to visit.

I suppose I'm just hoping for your views on whether I could manage on that income, or if it's too unrealistic. I don't spend much on clothes / hair etc, hardly anything, but do spend on the garden and house, and going out for coffee and meals with friends, which will be very important to continue when I'm on my own.

Sorry for the sad update. I think only a few posts ago someone brought up about how would I manage on my own and I agreed things would be tight in my old old age (when I would live a smaller, simple life), never for a moment imagining it would be while I'm still quite young. 

michaels

So sorry to hear your sad news.  Only advice I can give you now is probably not to panic and make any immediate decisions but probably best to give it time see what happens and how things work out.  Good luck.

enthusiasticsaver

So sorry to hear this and indeed I thought I might be in a similar position quite recently when my husband had to undergo emergency open heart surgery and given a few years life expectancy if surgery not performed which in early 60s and his pension being five times as much as mine was scary and throws all your retirement plans up in the air.  Is £1250 including everything including any widows pension you may be entitled to and state pension when you reach SPA? I would not consider equity release but maybe consider moving to a cheaper area if you have friends or relatives there not only for the financial aspect of living somewhere cheaper but also the emotional support if it was just you?  

Obviously you can work out  the bills if you stay put (with a single persons council tax discount) and although things like gas/elec would be more or less the same your food bill would presumably be lower and if you now run two cars you would only have one to worry about.  I could just about manage on £1250 on my own but it would be a different sort of retirement with having to think about expenditure and less holidays etc but then if you  are on your own maybe those sorts of things would be lower anyway. As you say coffees and meals out would be a priority.  How much you spend on the house depends on whether it needs updating or is as you like it anyway and just decorating and upkeep to think about.  What sort of pension does your DH have? Do you have children?  I guess equity release is not so much of an issue if you are not worried about leaving an inheritance but I would be worried about taking my assets down to virtually nil in case care needed in later years. 

Linton

MrsFingersCrossed said:

Hello. Me again, but this time with not such an optimistic outlook I'm sorry to say.

We had planned for our retirement quite well I thought, but my husband has recently been diagnosed with a terminal illness so I now have to look ahead as if it's just me, and unfortunately it's not looking very good financially.  I am a planner and am finding it hard with the future so sad and the timeline so uncertain. 

I have worked out that I should have an annual income of around £15,000 a year after tax. So approximately £1,250 per month. I haven't yet worked out our (sorry, my) exact monthly outgoings like council tax etc (too distressing), but I have a feeling £1,250 per month is not going to be enough. I expect I could just about get by with that, but living in the south east where we do it is an expensive area and I would have to live a very frugal life. 

I am thinking ahead to the possibility of equity release but I know it's not recommended and I am definitely too young (mid 60s) for it to be a good idea. I think there is a plan where you can release in dribs and drabs to supplement your income, rather than a large lump sum (which wouldn't interest me). But I fear the compound interest on any equity release, and wouldn't have the income to pay the interest (which I know is allowed on some plans).

We downsized 6 years ago so we could retire after my H was made redundant and I could downsize again but it would cost around £20k to move and I can't imagine how I would manage the move or settle somewhere else on my own. I know people do manage but it seems impossible to imagine just now. If I did move it would probably have to be to a terraced house with no parking outside which would make it difficult for friends to visit.

I suppose I'm just hoping for your views on whether I could manage on that income, or if it's too unrealistic. I don't spend much on clothes / hair etc, hardly anything, but do spend on the garden and house, and going out for coffee and meals with friends, which will be very important to continue when I'm on my own.

Sorry for the sad update. I think only a few posts ago someone brought up about how would I manage on my own and I agreed things would be tight in my old old age (when I would live a smaller, simple life), never for a moment imagining it would be while I'm still quite young. 

Sorry to hear of your predicament.

I would not rule out equity release.  mid 60s is about the earliest time when it could be worth considering.  At the moment interest rates are historically very low - we have ER on 1/3 of the value of our house at 3%  with roll-up fixed for the duration of our lives.  I would guess you may be able to get 25% of the house.  And yes release over time is available.  I think you would need to take a moderate lump sum first though.

You would need to talk to a suitably qualified advisor.  

SouthCoastBoy

Sorry about your sad news. My dad died at 67 which left mum with a £40 a mth private pension + old minimum state pension. This meant she had the benefit of pension credit and therefore no council tax etc so maybe worked out to a similar sum to £1250/mth. She coped fine although money was tight  she had always been good with money. So I would say doable, you however need to be good at managing a tight budget.

enthusiasticsaver

I think it is important to  consider the position if married and the one with the higher pension dies prematurely.  Horrible to think about but recent events for us and in view of @MrsFingersCrossed post above is a very real position for many of us. We have approx £3k income a month in DB pensions as we are not yet at SPA between DH and I and we live comfortably on that.  £2k of that income is his and due to me working part time for many years while children were small my pensions amount to  £1k.  If anything happened to DH my income would be £2k (£1k from my DB pensions and 50% of DHs DB pension) plus presumably widows pension and eventually state pension. If I died DH would have £2500 plus any state pensions. We could both live comfortably on that I think. 

At the moment of our £3k income about £600 goes on direct debits for bills etc.  £600 of our money is split 50/50 for personal expenses so obviously I would only need £300 if just me (or DH). £1k is saved for car expenses, holidays, gifts and house expenses.  If anything happened to one of us we would only have one car to maintain and gifts can be reduced so that £1k could easily be reduced to  £800 or lower. £500 of our money goes  on food and fuel which again would be lower if  just one of us and the remaining £300 goes on fun money for meals out etc which would again be lower if just one of us. So our number for 2 of us is £3k per month which we have at present but we could live on £2k per month even with 2 of us. I reckon if it was just me (or DH) we could manage on £1500 without too much pain.  To go lower we would need to reduce personal spending considerably which is doable, get rid of our country club subscription and do away with holidays. I have worked out that I could manage on £1k but it would be a very different retirement. So essential bills only would be £450.  Food could be £150, Entertainment and Personal expenses £200. Gifts £50 and car and fuel £150.  No holidays though and household stuff would have to come out of savings.