Pensions Planning: The NUMBER

barnstar2077

As the monthly amount I will draw from my pension will be modest, my plan is to have £30k invested in my ISA that should generate the money needed to replace washing machines, computers etc, while also being available if the worst happens and I do need a new roof!

LHW99

I wouldn't say an emergency fund as such is important, but we do aim to have a certain amount always available on instant access, as it can take at least a few days to access pension moneys even with the most efficient administrator, and there are a few things (eg house becoming uninhabitable - flooding perhaps) where being able to call on funds at really short notice is of benefit.

Not necessarily the 3-6 months income often suggested when working though.

Arthurian

The retirement living standards from the PLSA, which were supposed to be updated at the end of last year, are now promised to be updated in February.  I find their information on how much you need to live invaluable. I imagine there'll be a big rise in amounts needed to live in 2024, due to inflation. I found this information about updating at https://www.plsa.co.uk/Events/Webinars-and-Seminars/Retirement-Living-Standards-changing-expectations and there's a PDF from them at https://www.retirementlivingstandards.org.uk/How-to-estimate-likely-RLS-20230110.pdf which indicates (using the current, not yet updated figures) which shows how much you need in your pension fund to achieve either a basic, moderate or comfortable lifestyle.  Hopefully, this PDF will update in a week or two.

SarahB16

Arthurian said:

The retirement living standards from the PLSA, which were supposed to be updated at the end of last year, are now promised to be updated in February.  I find their information on how much you need to live invaluable. I imagine there'll be a big rise in amounts needed to live in 2024, due to inflation. I found this information about updating at https://www.plsa.co.uk/Events/Webinars-and-Seminars/Retirement-Living-Standards-changing-expectations and there's a PDF from them at https://www.retirementlivingstandards.org.uk/How-to-estimate-likely-RLS-20230110.pdf which indicates (using the current, not yet updated figures) which shows how much you need in your pension fund to achieve either a basic, moderate or comfortable lifestyle.  Hopefully, this PDF will update in a week or two.

Thank you so very much for sharing this as always interesting to read however I know for me, based on the wonderful comments I read on here, that it is worth recording on a spreadsheet your own expenditure for years before you retire to see the level of income you may need in retirement and of course worth factoring in having more leisure time too and the cost of those activities. 

michaels

Arthurian said:

The retirement living standards from the PLSA, which were supposed to be updated at the end of last year, are now promised to be updated in February.  I find their information on how much you need to live invaluable. I imagine there'll be a big rise in amounts needed to live in 2024, due to inflation. I found this information about updating at https://www.plsa.co.uk/Events/Webinars-and-Seminars/Retirement-Living-Standards-changing-expectations and there's a PDF from them at https://www.retirementlivingstandards.org.uk/How-to-estimate-likely-RLS-20230110.pdf which indicates (using the current, not yet updated figures) which shows how much you need in your pension fund to achieve either a basic, moderate or comfortable lifestyle.  Hopefully, this PDF will update in a week or two.

In the past their suggested annuity rates have looked on the high side meaning the pot sizes suggested are too small but may be more realistic now.

enthusiasticsaver

saucer said:

enthusiasticsaver said:

I am bumping this thread to get it back to the top of the forum and bring back on topic.  

Just checked on here and in 2014 3 years before I retired and 10 years ago I posted on here saying we needed £25k to survive and it was too late to start a SIPP given I only had 3 years before I left work. Oh how things change. 

We in fact did retire in 2016 and 2018 (both 58 years old ) and although the income did not kick in all at the same time and we still are waiting on state pensions we are in the comfortable category when it comes to pension living standards categories. In the end we retired initially on £30k for a couple. Now our income is approx £2500 each per month so £5k in total.  That will increase by around £1k each when our state pensions pay out later on this year and early in 2026. That is a mix of DB pensions, DC pension, SIPP, stocks and shares ISAs. We live comfortably off that and indeed are still saving and we gift a lot so we could survive on a lot less. Our drawdown percentage on SIPPS, stocks and shares ISAs and DC pension is about 4%. 

Thank you enthusiasticsaver for all the great detail. We’re still 2+ years off but getting there. We’ll be on a bit more pension than you, predominately DB, but will probably spend more, especially on holidays and the planned motorhome, the latter being supposedly an expensive way to have a cheap holiday. 

One question is whether you have a specific plan or pool of saving for big spends, new roof, bathroom etc or does that come from DC and/or saving? It’s been discussed before but I am still wondering how much of an emergency or big ticket fund we should aim for when having a good and reliable DB income. 

We do have a pool of saving for bigger spends and when an opportunity to change my car came in at the end of last year we used it  and then reimbursed from investments.  Some say an emergency fund is not needed in retirement but we like having a buffer to book a last minute holiday, splash out on something for the house or as we did last year change one of the cars. We keep approx £20k in cash .  I know some don't bother but I would prefer it as we would not want to cash out if the market was in a slump so having an accessible cushion of cash is preferable for us. 

poseidon1

Thought I might chip in and perhaps provoke an alternative  thought or two  on this number thing. In my view there is no number. 
Targeting what you think you might need to enjoy a certain level of income in retirement requires a level of crystal ball gazing nobody is capable of.

What events such 2008 financial crash, 2020 pandemic, recent stratospheric interest rate rises together with concomitant high inflation  ( not to mention ongoing geopolitical conflicts ) should  teach us, is there will always be unpredictable events  ( some quite extreme ), that can and do derail the effectiveness of a targeted income plan.

My advice is amass as much as one can in pensions, savings, isas, and other income producing assets, with a view to exceeding what you think you might 'need' in retirement. If you reach the happy position of  accumulating financial resources  way beyond your needs ( and indeed wants ), then you always have the option to give away surplus to family/dependents etc.

This advice is especially directed to the younger generations, who unlike many 'boomers' will have little or no access to final salary pension schemes; a state pension starting at age 70 ( if they are lucky but in all liklihood means tested by then; far less in terms of property equity ( assuming they can get on the ladder in the first place ). Yes, some may benefit from inheritances, but security in retirement cannot hinge solely on such expectations.

Nebulous2

poseidon1 said:

Thought I might chip in and perhaps provoke an alternative  thought or two  on this number thing. In my view there is no number. 
Targeting what you think you might need to enjoy a certain level of income in retirement requires a level of crystal ball gazing nobody is capable of.

What events such 2008 financial crash, 2020 pandemic, recent stratospheric interest rate rises together with concomitant high inflation  ( not to mention ongoing geopolitical conflicts ) should  teach us, is there will always be unpredictable events  ( some quite extreme ), that can and do derail the effectiveness of a targeted income plan.

My advice is amass as much as one can in pensions, savings, isas, and other income producing assets, with a view to exceeding what you think you might 'need' in retirement. If you reach the happy position of  accumulating financial resources  way beyond your needs ( and indeed wants ), then you always have the option to give away surplus to family/dependents etc.

This advice is especially directed to the younger generations, who unlike many 'boomers' will have little or no access to final salary pension schemes; a state pension starting at age 70 ( if they are lucky but in all liklihood means tested by then; far less in terms of property equity ( assuming they can get on the ladder in the first place ). Yes, some may benefit from inheritances, but security in retirement cannot hinge solely on such expectations.

To some extent you are right about saving as much as you can - but there is a balance to be struck between lifestyle and saving. Most people in the country are going to have a big drop in income post-retirement, or are going to have to work longer, as they aren't saving enough. It can go the other way as well, with deferred gratification and saving becoming such a habit that changing from accumulation to decumulation is a challenge. We certainly have people here who have saved at the expense of current lifestyle. See this thread for example.  Has saving affected your mental health. — MoneySavingExpert Forum

I think there is a valid number. Expressing it in todays rates, if you have a handle on what you want to do in retirement, is reasonably straightforward. Where it becomes more difficult is calculating the DC pot needed to fund it, and how much you need to save to get that pot. Almost everyone will have some defined income feeding into that, even if it is only the state pension. Many people retiring now will have some DB pension as well. Annuities are looking better value than for a long time, so it is possible to mitigate the risks by buying some indexed income. I agree the further away from retirement people are the less sure some of that is, but many people on here are pretty close to retirement, rather than just starting out. 

Because retirement planning feels complicated it gives an opportunity for some people not to engage. In my view the number helps demystify that and gives a basic structure for planning. Where are you now, where do you want to be, and how are you going to get there? 

QrizB

poseidon1 said:

In my view there is no number. 
Targeting what you think you might need to enjoy a certain level of income in retirement requires a level of crystal ball gazing nobody is capable of.
...
My advice is amass as much as one can in pensions, savings, isas, and other income producing assets, with a view to exceeding what you think you might 'need' in retirement.

I'm reminded of that well-known John Harvey-Jones quote:

“Planning is an unnatural process; it is much more fun to do something. The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.”

In the case of retirement planning, "failure" isn't simply running out of money before you die or living on the breadline in the fear that you will; it's also getting to 85 and realising that, rather than working to 75 to amass a pile of treasure worthy of a dragon, you could have retired at 55 and had an extra 20 years to yourself.

So, despite all the unknowns that the future might bring, knowing your number and setting a target is still an important step in planning for retirement.

And you should start planning early. I began in my mid 20s, once I found stable employment and started looking for a home. (That original plan had me retiring at 50, which has slipped a few years but should still be before 60.)

My number? It'll be about £30k (in 2023 money) once the kids finish education.

NoMore

poseidon1 said:

Thought I might chip in and perhaps provoke an alternative  thought or two  on this number thing. In my view there is no number. 
Targeting what you think you might need to enjoy a certain level of income in retirement requires a level of crystal ball gazing nobody is capable of.

What events such 2008 financial crash, 2020 pandemic, recent stratospheric interest rate rises together with concomitant high inflation  ( not to mention ongoing geopolitical conflicts ) should  teach us, is there will always be unpredictable events  ( some quite extreme ), that can and do derail the effectiveness of a targeted income plan.

My advice is amass as much as one can in pensions, savings, isas, and other income producing assets, with a view to exceeding what you think you might 'need' in retirement. If you reach the happy position of  accumulating financial resources  way beyond your needs ( and indeed wants ), then you always have the option to give away surplus to family/dependents etc.

This advice is especially directed to the younger generations, who unlike many 'boomers' will have little or no access to final salary pension schemes; a state pension starting at age 70 ( if they are lucky but in all liklihood means tested by then; far less in terms of property equity ( assuming they can get on the ladder in the first place ). Yes, some may benefit from inheritances, but security in retirement cannot hinge solely on such expectations.

Although you make some good points, you can't say there's no number then say "My advice is amass as much as one can in pensions, savings, isas, and other income producing assets, with a view to exceeding what you think you might 'need' in retirement" because how do you determine that position without the number, your needs and wants is THE NUMBER.