Pensions Planning: The NUMBER

MarriedWithKids89

So, another year has passed. We have definitely been more careful about what we buy, not so much quantity but avoiding brand names and keeping an eye out for bargains. Biggest sacrifice was probably hot water/heating. Nothing drastic, but wearing extra layers in the house and only turning the hot water/heating on if we were still cold or needed a shower (rather than having them blindly come on on timer). Anyway, here are our expenses for last year (couple, one 5yo car, living in the South East, band D house, no mortgage, non-smokers, occaisional drinkers, no dependents, no pets). 

Subsistance (food, utility bills, council tax, insurances, petrol, etc)

• £15809

Non discretionary CAPEX (occaisional big expenses e.g. replace car, new windows, new boiler, household repairs, white goods, furniture, etc): 

• £19302 (Included buying a 4yo old car for £15500. Note: I budget £7000/annum average for all non-discretionary CAPEX)

Discretionary CAPEX (holidays, weekends aways, days out, meals, takeaways, any other luxuries):

• £6368 (Note: Last year I budgeted about £13000 - so we didn't spend nearly as much as I thought we would but we are still both working part time and haven't embraced full time retirement yet. Amongst other things we did have 3 weeks away however)

How does this compare with your own calculations? Note: I'll be adding 3% to my estimates for next year.

EDIT: In summary, my new number is about £38K/year (comfortable life-style).

Organgrinder

pensionpawn said:

billy2shots said:

westv said:

billy2shots said:

pensionpawn said:

hugheskevi said:

pensionpawn said:

I'm having difficulty balancing "don't have a lavish lifestyle" with £37k retirement income! The median UK household income in the UK in 2021 was £28K (ONS).

Deducting the £2,387.15 of (unspecified) taxes from the gross figure leaves net income of £34,688.52.

The Pensioner Income Series shows that pensioner couples under 75 have a median net income of almost £30,000. However, that was prior to the recent inflation, so adjusting by 11.64% based on CPI growth since October 2020 (as Pensioner Income Series figures are from 2020/21) gives £33,500

Take into account a bit of regional variation, and a net income of £34,688.52 for a retired couple looks fairly typical. The days of the average pensioner household being poor are long gone.

£37k is their net figure, from the text above their numerical breakdown. The most that my wife and I have ever earned net combined is £47k! The point I was making is that the figure of £37k (net) is considerably more than what most couples are bringing home in the UK, and would probably be considered by those on these average incomes as 'lavish'. This is in no way a criticism of the posters desired level of retirement income. They probably had an even higher combined net salary when working. However I would wager that the majority of those who post on this forum are not on or under the average UK salary.

Again, not being disrespectful to the forum member but I personally would find over £200 a week on food for a couple 'lavish'. Add in £3500 on gifts and it's getting close to the idea of that lavish description in a lot of peoples books. 

£200 a week isn't that lavish if it includes meals out.

However weekly/regular meals out in itself could feel lavish to some. 

Not saying it's right, but my family and I probably eat out 5 times a year. 

As pointed out earlier in this topic, one might spend a lot in some areas but spend far less in others so the Total Number is probably a better way to determine -

Below average 
Average
Comfortable
Lavish 


Personally, and this is completely the wrong thread for this (belongs in FIRE)
I have just started to earn very good money. 
My plan is to be FI in 2 years (42) then do something that I enjoy/find rewarding/ gives back. 

My FI number is £30k per year. If my sideline produces £5k/£10k on top of that, I would be very happy. 

I could work another 5 years and push my FI number to £40k but when I'm on my death bed, how much would I give for 5 more years in my prime?

...and he hits the nail directly on the head! The best retirement years are at the very beginning. My father said he came into the money too old to enjoy it. I see my older brother start to grind to a halt / start losing his marbles 11 years after retiring. Since turning 50 the wheels are slowly and surely starting to fall off the bus. I've started partial retirement at 56 and am thoroughly enjoying it. Since gaining access to my pots on turning 55 the pressure is off and I've made sure my manager knows that I now only turn up at work because it suits me. We don't have anything like the size pots that some have on this forum however it's good enough for us as we don't intend being the richest people in the graveyard! It's a fine balancing act across your whole working / family act, however it's not the rehearsal so plan it well, you can't change your mind.

Just started reading some of this thread. How very true.

I once thought of staying till "the bitter end"....total pensions including state of £46k a year. An amazing retirement! And a better income than now!

As I got older I looked at what we spend etc. Currently 15% of my gross income goes on the mortgage, 10% on pension, 20% on tax and NI. We holiday 3 times a year, one skiing and two beach, but as I'm a teacher they work out more expensive than if I was retired.

Quality of life is my main driver now. Teaching allows a phased retirement. So I'm likely to take a lump sum from previous employment which pays off the mortgage and leaves me £30k in the bank, reduce my hours to 3 days a week for 3-4 years and then retire fully at 60. The years till I take my state pension would be funded by draw down on a private pension.

My equivalent earnings (i.e. if I factor in the mortgage) actually increase during all periods by some 10-15% with savings in travel to work costs as well.

Ok, there is a risk that inflation erodes the 10-15% increase but my pensions are cpi linked (capped yes).

We don't eat out a lot, but we would like to go away when retired. Even budgetting £8k a year for this when when retired sees my savings continue to grow by £5k a year with all other spending staying the same.

I simply cannot see any reason why I shouldn't semi retire this year and fully retire at 60.

Happy days.

michaels

MarriedWithKids89 said:

So, another year has passed. We have definitely been more careful about what we buy, not so much quantity but avoiding brand names and keeping an eye out for bargains. Biggest sacrifice was probably hot water/heating. Nothing drastic, but wearing extra layers in the house and only turning the hot water/heating on if we were still cold or needed a shower (rather than having them blindly come on on timer). Anyway, here are our expenses for last year (couple, one 5yo car, living in the South East, band D house, no mortgage, non-smokers, occaisional drinkers, no dependents, no pets). 

Subsistance (food, utility bills, council tax, insurances, petrol, etc)

• £15809

Non discretionary CAPEX (occaisional big expenses e.g. replace car, new windows, new boiler, household repairs, white goods, furniture, etc): 

• £19302 (Included buying a 4yo old car for £15500. Note: I budget £7000/annum average for all non-discretionary CAPEX)

Discretionary CAPEX (holidays, weekends aways, days out, meals, takeaways, any other luxuries):

• £6368 (Note: Last year I budgeted about £13000 - so we didn't spend nearly as much as I thought we would but we are still both working part time and haven't embraced full time retirement yet. Amongst other things we did have 3 weeks away however)

How does this compare with your own calculations? Note: I'll be adding 3% to my estimates for next year.

EDIT: In summary, my new number is about £38K/year (comfortable life-style).

Obviously the capex are by their nature variable and potentially discretionary - for example second hand car prices are up a lot over the last 2 years but it is easy to 'trade down' to keep to a budget.

So perhaps of more interest is how the subsistence spending has changed.  Not sure how your income splits in terms of a pot of money vs index linked income but obviously there is only so much trading down of brands and turning off of heating that can be done.  One thing is for sure, unless you have been highly skilled/lucky when it comes to asset allocation there is no way any money pot has kept up with inflation over the last 12 months, I suspect the average is down 15% plus in real terms - of course SWR type plans recognise that there will be good and bad years but psychologically it is tricky to carry on assuming that you can draw an inflation linked income from a money pot when it shoots up as a share of the pot some years.  Just for comparison, we have halved our gas usage compared to the previous 12 months but the spend has still doubled (1k to 2k) as the price is 4x higher, electricity we have got smarter with a TOU tariff but it is still up 20%.

L9XSS

Moved to PT work at 54 leaving my old employer and 40k salary. At 55 utilised some small pension pots using the small pot rule and paid off my mortgage. No dependents (grown up children) and managing on a salary of £22k per year. Still adding about £400 per month to my SIPP. Plan to work to 62. At 62 with DB pension and SIPP I’m looking at £46k per year before tax, bridging the gap to SP at 67........Will draw less from SIPP at 67 onwards due to SP but still forecasting 3k per month income after tax. I’m being frugal now, all being well health wise to enjoy what I see as a comfortable retirement. One caveat, my savings are very low, but my SIPP pot is forecast to be 200k at 60 years of age. I think I need to balance some of this towards ISA savings.

atush

SouthCoastBoy said:

We are a family of four, and our food bills is about £450 a month, total bill when buying non food at supermarket between £500 and £550 a month, with just two of us I would expect to get the 450 to around 300

It depends on what you buy,  
I put all my tesco mns etc in groceries but that includes all our alcohol, medicines, personal healthcare and grooming, cleaning etc.

MarriedWithKids89

@michaels et. al.
"Obviously the capex are by their nature variable and potentially discretionary - for example second hand car prices are up a lot over the last 2 years but it is easy to 'trade down' to keep to a budget.": Exactly. We plan to adjust our CAPEX spending depending on SIPP performance.

"So perhaps of more interest is how the subsistence spending has changed.": It increased from £14193 to £15809, about 6% - but please remember we became more price conscious so one would expect to mitigate the full 9% inflation.

"I suspect the average is down 15% plus in real terms". I haven't worked it out but my SIPP (without drawing down on it) is down maybe 1% (fortunately, I was not too exposed to bond prices - but that was luck not skill). I suppose in real terms that is 10%-11% down due to inflation. So 15% plus overall in real terms seems spot on.

Note: We postponed full retirement last year due to the economic uncertainty, We both work part time at the moment - just enough to cover subsidence and almost all non-discretionary CAPEX (car purchase not withstanding). We are lucky enough to have some cash reserves to keep us going for a few years yet without dipping into our pensions.

Daffodil1234

In case anyone hasn't seen this - latest update from the (PLSA)

https://www.theguardian.com/money/2023/apr/15/uk-pensions-how-much-retire-cost-of-living-inflation-income

"In 2022 the minimum required to survive as a single pensioner jumped by 18% to £12,800 a year. Meanwhile, a retired couple now need a minimum of £19,900 a year – up £3,200, an even bigger rise of 19%"

Sea_Shell

Daffodil1234 said:

In case anyone hasn't seen this - latest update from the (PLSA)

https://www.theguardian.com/money/2023/apr/15/uk-pensions-how-much-retire-cost-of-living-inflation-income

"In 2022 the minimum required to survive as a single pensioner jumped by 18% to £12,800 a year. Meanwhile, a retired couple now need a minimum of £19,900 a year – up £3,200, an even bigger rise of 19%"

Minimum!!!


🤣🤣🤣🤣

bigfer

In a nutshell, for us as a couple our yearly figures - £35000 nett of tax from DB pension. We spend approx £8000 on foreign travel and save circ £4000. So £23000/yr on "living expenses"
Any exception spend (touch wood none yet) from savings.
As everyone else, we have seen rising costs put pressure on our outgoings and are now at the point where all low hanging fruit has been picked regarding saving money.
Biggest savings imo, avoid eating (and especially drinking) out, swap lentils for meat, book foreign travel as early as possible and wear a hat indoors. Oh, get the homebrew back on the go, that saves me a bomb.

pensionpawn

No change for us. 2 x draw down to the personal allowance, one via UFPLS, which gives £28k9 tax free. Any spare goes straight back into the SIPP +20%.