Pensions Planning: The NUMBER

SavvySaver24

Nebulous2 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

As a quick and dirty way, do everything in today's money. What would you need today to get the lifestyle you would like in retirement? 

But surely that amount is going to be significantly off the purchasing power of my money in 20 years time (and the following 30 years or so)?

Nebulous2

Sarahspangles said:

Nebulous2 said:

I'm convinced many people's ambitions dwindle on retirement. That bucket list (I don't have one) never gets completed, other things get in the way of travel ambitions, people find enjoyment in the small pleasures rather than spending money. As a result, and from an excess of caution, people over estimate their needs. 

In the run up to retirement, OH was focussed on being able to replace the diesel used for his long commute, with something more ‘fun’

Yeah, he now has four mountain bikes and a railcard.

It wasn’t until he got behind the wheel for our first UK weekend away that he/we realised how stressful long drives are. We’re currently debating going down to one car, and if so what that should be. His diesel is useful for DIY and transport for bikes but there are other solutions. Mine is a bit more fun, but half the time, as I work from home, I’m looking for an excuse to drive it at weekends just to keep the battery healthy.

I've been used to long drives. I used to do a lot of work miles - but I'm trying to adapt to the idea of the journey being part of the holiday, and not something to endure at each end. 

I used to drive to the continent, over night, without sleeping, which looking back was quite dangerous. It allowed as much time as possible there, but at a cost.

I'm learning slowly, to take more time, stop to explore and take photos, break the journey with an overnight, rather than just bash on. 

swindiff

SavvySaver24 said:

Nebulous2 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

As a quick and dirty way, do everything in today's money. What would you need today to get the lifestyle you would like in retirement? 

But surely that amount is going to be significantly off the purchasing power of my money in 20 years time (and the following 30 years or so)?

Not as long as your investments at least keep up with inflation

Sarahspangles

SavvySaver24 said:

Nebulous2 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

As a quick and dirty way, do everything in today's money. What would you need today to get the lifestyle you would like in retirement? 

But surely that amount is going to be significantly off the purchasing power of my money in 20 years time (and the following 30 years or so)?

There are clever tools that do all the calculations and simulations for different contribution and growth rates, and which factor in inflation and income needs.  You have to pay though, and possibly go through  an IFA.

Sarahspangles

Nebulous2 said:

I've been used to long drives. I used to do a lot of work miles - but I'm trying to adapt to the idea of the journey being part of the holiday, and not something to endure at each end. 

I used to drive to the continent, over night, without sleeping, which looking back was quite dangerous. It allowed as much time as possible there, but at a cost.

I'm learning slowly, to take more time, stop to explore and take photos, break the journey with an overnight, rather than just bash on. 

Yes, the holiday should start on the doorstep. If we go west by car, my OH always mentions it was his commute. In fact he’s already catastrophising about ‘delays I have known’ that may mean he (and his bike mates) may miss their flight later this week.

Pat38493

SavvySaver24 said:

Nebulous2 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

As a quick and dirty way, do everything in today's money. What would you need today to get the lifestyle you would like in retirement? 

But surely that amount is going to be significantly off the purchasing power of my money in 20 years time (and the following 30 years or so)?

As mentioned by others, if you make the assumption that your investments will keep up with inflation, not more not less, you can do a kind of rough analysis by just working in today's money for everything.

If you want to do it more advanced you need to make spreadsheets or use a dedicated software - some people have enormous spreadsheets where they try to guess the inflation and returns year by year.  Others might use a kind of rule of thumb.

A typical rule of thumb that might be used by some financial advisers might be that your investments will grow on average by inflation plus 2%.  e.g. I often used 3% for inflation and 5% for investment returns.  In reality your returns will vary - some years you might have negative returns, others you might have +20% or more, but 5% would be a fairly conservative estimate to use.

SouthCoastBoy

I use 2.5% inflation, next 4 years are currently set to 4% inflation, 1% for cash returns, changed cash to 4% return for next two years and 3.5% for investment returns. I have a spreadsheet taking me up to 100, one row for each year and adjust as necessary 

Sea_Shell

SouthCoastBoy said:

I use 2.5% inflation, next 4 years are currently set to 4% inflation, 1% for cash returns, changed cash to 4% return for next two years and 3.5% for investment returns. I have a spreadsheet taking me up to 100, one row for each year and adjust as necessary 

We are all destined to run out of rows!! 

I have a similar spreadsheet.

Hard to not see your remaining years as rows of financial data 😉🤣😲

LL_USS

Peterrr agree, totally.

Thanks hugheskevi for the quick demonstration of ISAs vs pension contribution. I'll keep doing both (and LISAs for a few more years) - a bit leaning more towards pension contribution when I feel I don't want to handle the S & S ISAs (choosing USS to manage the  investments).

SavvySaver24 you start with pension planning early, good for you I suppose. Like others say, I also work out the pots in today's money to know "the numbers" that I will probably have versus what I will need. I did not think of pension planning when I still sorted out housing, kids, immediate living costs (but I knew at the back of my mind that automatic work pension was not too bad in my case). I did though start 7-8 years ago putting more into pension to get the match-up from employer, then increasing it to stay in the basic tax band/ avoid high charges. Only recently once other fronts are settled, I look into my pension more closely and weigh up between more pension contribution and other types of investments (still not knowing much about stocks and shares).

SarahB16, @barnstar2077 for both now and later in retirement I try to keep an ISA reserve constantly at 20K for emergencies (in the past when I was really low on savings as trying to pay off my mortgage and some investments I did not even have ISAs but instead some LISAs that I could take out though with a penalty). I don't keep a car but with a car I would too keep a higher cash reserve.

Nebulous2 good to know £2,500/m net is a sufficient fund. I am not a big spender and will not be, so I hope that fund at retirement is very much enough, and still have a little leftover each month, to maintain the ISA emergency reserve. In my case I am not too super worried about all the "what ifs" beyond this plan as I am going to liquidise most of what I don't really need and lend interest-free to my kids when they start having jobs, helping them climb the property ladder, with an agreement for them to pay back a bit (or more) each month :-). That's another safety net for me (though when lending money to children, I am prepared that I should still live fine even without getting the loans back). I am happier this way than keeping on actively investing and paying hefty tax on any earnings.

So in summary what I will need in retirement:
- a small flat that has no mortgage on (ahh I forgot a flat will have service charges and ground rent compared to a house - but my current house has big maintenance costs now so these will be offset)
- monthy net pension of £2,500 (including state pension or bridging money till then)
- ISAs buffering to be maintained at 20-30K.
And I am still too young to think about nursing home costs thank you
Everything else will be used to help the children and/ or passed on to them to manage.

michaels

Pat38493 said:

SavvySaver24 said:

Nebulous2 said:

SavvySaver24 said:

Quick question on getting to 'The Number' as I'm thoroughly inspired after this thread (and a shot day at work). I'm early 30s, keep rigorous expense details but what % should I apply to these expenses for inflation in say 20 years time?

As a quick and dirty way, do everything in today's money. What would you need today to get the lifestyle you would like in retirement? 

But surely that amount is going to be significantly off the purchasing power of my money in 20 years time (and the following 30 years or so)?

As mentioned by others, if you make the assumption that your investments will keep up with inflation, not more not less, you can do a kind of rough analysis by just working in today's money for everything.

If you want to do it more advanced you need to make spreadsheets or use a dedicated software - some people have enormous spreadsheets where they try to guess the inflation and returns year by year.  Others might use a kind of rule of thumb.

A typical rule of thumb that might be used by some financial advisers might be that your investments will grow on average by inflation plus 2%.  e.g. I often used 3% for inflation and 5% for investment returns.  In reality your returns will vary - some years you might have negative returns, others you might have +20% or more, but 5% would be a fairly conservative estimate to use.

I would recommend working in today Money terms with assumptions for real (post inflation) returns for different asset classes (eg shares 2-3% pa, bonds 0% pa, cash -0.5% pa).  The advantage being when you see your income in 2050 is £30k you understand what the purchasing power of that 30k is.  Instead if you use nominal terms then you have to remember when you see £50k in 2050 it only gives you the same spending power as £30k today