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Pensions Planning: The NUMBER

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  • Sea_Shell
    Sea_Shell Posts: 9,905 Forumite
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    Ours was DIY (from MFI) and still looks as good as new 20 years later!!!   

    OK so it might not be to modern tastes, but it is still sound.  White with black granite effect worktops.   We see no reason to change it for "decorative" purposes, and if we decide to move, then it will be "sold as seen". 
    How's it going, AKA, Nutwatch? - 12 month spends to date = 2.56% of current retirement "pot" (as at end January 2025)
  • Ibrahim5
    Ibrahim5 Posts: 1,214 Forumite
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    I was very surprised that you had bought a new cooker. Could you not have repaired the old one?
  • michaels
    michaels Posts: 28,895 Forumite
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    So there are two numbers
    1) the little number - how much a year in real terms one would want to live on in retirement
    2) the big number - what size of pot might be needed to provide the index linked small number for as long as a reasonable guess at longevity

    I am becoming more nervous about the little number and whether an assumption of wanting to keep a certain real terms income is appropriate or whether instead the target should be a fixed proportion of average income.  Consider someone retiring on real terms 33k (or whatever current median income is).  If wages grow at 2% in real terms per annum then after 20-30 years this 'median' real income could end up being below the poverty line and the retiree rather than being moderately well off has become a 'poor pensioner'

    So I guess my questions are:
    1) For our little number, should we actually target an income relative to average earnings rather than a real terms amount?
    2) How to model what big number pot would be needed for this sort of strategy?
    I think....
  • robatwork
    robatwork Posts: 7,246 Forumite
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    I've just been through the L&G retirement planner. Its numbers (for a couple) strike me as a bit excessive 



    How do retirees think this stacks up in the real world?
  • Sea_Shell
    Sea_Shell Posts: 9,905 Forumite
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    robatwork said:
    I've just been through the L&G retirement planner. Its numbers (for a couple) strike me as a bit excessive 



    How do retirees think this stacks up in the real world?

    🤣🤣🤣🤣🤣

    I don't know about real world...but on which planet? 
    How's it going, AKA, Nutwatch? - 12 month spends to date = 2.56% of current retirement "pot" (as at end January 2025)
  • swindiff
    swindiff Posts: 968 Forumite
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    Is that gross or net lol

  • SouthCoastBoy
    SouthCoastBoy Posts: 1,035 Forumite
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    I guess it depends on the definitions of each level, and the associated assumptions. I'm confident I need 30k a year after tax to live a lifestyle that will allow a decent standard of living for me and my wife.

    What I'm not so confident about are the unknowns of inflation and capital growth


    It's just my opinion and not advice.
  • hugheskevi
    hugheskevi Posts: 4,402 Forumite
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    edited 12 June 2024 at 2:16PM
    michaels said:
    So there are two numbers
    1) the little number - how much a year in real terms one would want to live on in retirement
    2) the big number - what size of pot might be needed to provide the index linked small number for as long as a reasonable guess at longevity

    I am becoming more nervous about the little number and whether an assumption of wanting to keep a certain real terms income is appropriate or whether instead the target should be a fixed proportion of average income.  Consider someone retiring on real terms 33k (or whatever current median income is).  If wages grow at 2% in real terms per annum then after 20-30 years this 'median' real income could end up being below the poverty line and the retiree rather than being moderately well off has become a 'poor pensioner'

    So I guess my questions are:
    1) For our little number, should we actually target an income relative to average earnings rather than a real terms amount?
    2) How to model what big number pot would be needed for this sort of strategy?
    Setting aside the experience of wages and inflation being largely the same in the last 15 years or so, earnings are expected to be 3.83% in the long run, and CPI 2% (Office for Budgetary Responsibility forecasts).

    The younger you are, the more important it is to increase your target figure by earnings growth - a 30 year old who plans they need £30,000 in real terms for retirement is very likely to find that will be inadequate.

    Personally I always liked the uprating arrangements for second-tier pension under the old State Pension system, which increased pension in line with earnings to State Pension age, and then by RPI/CPI during retirement.

    I'd be inclined to increase my target number by forecast earnings growth until age 70-75, after which income needs may well be declining, so I'd plan to switch to CPI increases from then (possibly getting a bit more through State Pension, but that isn't guaranteed). 

    As to how to calculate that, a spreadsheet with lines of income required gross and net of tax, taking off State Pension and any DB pension, to show how DC pension is needed, and discount that back to present day using expected investment growth net of charges.
  • hugheskevi
    hugheskevi Posts: 4,402 Forumite
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    edited 12 June 2024 at 1:54PM
    swindiff said:
    Is that gross or net lol
    Gross, inside London, for a couple.

    A couple outside London are said to need £59,000 after tax - L+G are just using the PLSA Retirement Standards which are often discussed here (albeit with some dodgy looking before and after tax conversion).
  • LL_USS
    LL_USS Posts: 202 Forumite
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    I would work out the "little number" as how much I will need after tax to live on.
    I wouldn't compare with our current average/ median income as that number is for the general population. In retirement there is no NI, less tax overall, and (hopefully) no mortgage, no dependent.
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