Pensions Planning: The NUMBER

Sarahspangles

michaels said:

But I am not comparing income pre retirement with post retirement, I am talking about relative income post retirement. 

It is easy to look at older people who are say only living on half of average income and think they seem relatively poor but it is quite likely they retired 25 years before on above average income but their earnings have only kept up with inflation not with average earnings.  In absolute terms they can purchases what they could on the day they retired, it is just that relative to society that is now judged to be insufficient/poverty.

I think average income reflects the cost of living/income needs of the current working generation. The present level reflects that houses are expensive, and hence mortgage repayments, and most couples need two incomes and therefore have childcare costs.

Take an ‘average’ couple where the husband retired at 65 in 2000:
Born 1935 (husband) and 1937 (wife)
Married at 24 and 22 in 1959 and soon start a family 
Second or third child born in 1967, mother is a housewife throughout, as only highly paid career women have a nanny or nursery
Youngest child goes to secondary school in 1978, wife might now go out to work as the children are in their teens
This is the year ‘married women’s stamp’ is withdrawn, so she’s contributing to a pension in her own right, but only has 21 years to retirement. She did work for a couple of years in her early 20s but any contributions were returned when she left to marry, and paid for her wedding dress.
Husband has been working/making pension conts. for 25 years at this point and has another 22 to go
Couple move into their second or third house around now, but at this time wife’s earnings are not normally taken into account, so mortgage affordability places a ceiling on house prices
Wife retires at 60 in 1997, husband in 2000

It’s not relevant to this couple that average earnings have risen during their retirement, as they own their home and don’t need to pay childcare (though in early retirement they may help with grandchildren)

I think the challenge is forecasting the unavoidable costs that will affect us in retirement. Care is the obvious one, but I wonder if there will be other significant shifts in how society works which could impact us. For example, if car ownership becomes a luxury.
 

Nebulous2

michaels said:

LL_USS said:

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.

That is my current planning but is it really true that I don't mind becoming relatively quite poor as I get older?  Imagine being on average income on retirement at 55 and then finding you were only on 57% of average income by 75.  Do you imagine yourself sliding down the income percentiles into the bottom 20%?

Surely that is a question for yourself, not for others? 

I may be wrong, but from reading your posts you appear to have a fairly frugal lifestyle. How does your current expenditure compare with average earnings? Do you expect that to change, that you'll open up the purse strings, and let rip post-retirement?  

Do you know anyone who has been retired that long? My personal sample size is of one couple in their mid-80s, both of whom moved to the public sector later in life, and so have 2 DB pensions, both short of what we used to call full pension, and 2 state pensions.   Not the new state pension, so less than that, with the woman having quite a bit less. They also had some capital for one-off expenses. They are now 25 years into retirement. 

They no longer holiday abroad, no longer drive, have down-sized to a small bungalow and have everything they need to cover what they want. A few days away in a hotel, very regular lunches and coffees out with people in their social group. Much reduced interest in clothes, comfort rather than fashion, and no desire for consumer items, gadgetry or the latest phone. I've never heard either of them discuss average wages, other than whether they are paying their cleaner enough, but current interest rates and tax on interest is a regular topic. 

My view is that their scenario is very common. A shrinking of horizons, spending less than you expect in retirement, and generally continuing to accumulate is common. 

I stopped work 8 years short of SPA, took the actuarial reduction on my DB pension, and expected to draw on our capital until SPA. A part-time job, some caring responsibilities, and general lack of impetus to spend, means I'm almost 4 years in, and we have more capital than we started with. We've bought some big ticket items including; a kitchen, and a bucket list holiday. Once we reach 2 SPs its very possible we will not spend all our income. 

I've never been one for comparing my finances with others. I've done jobs I wanted to do, and given them up if I've wanted to, which means what happens to average wages doesn't feature very much on my radar either. 

robatwork

kev2009 said:

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?

Hi, Where did you see this? I was going to look what it said for a single person but i couldn't find it on legal and generals site.

Thanks

Kev

https://www.legalandgeneral.com/workplace/_landg/wpp-post-ae/helpful-resources/planning-tools/retirement-planner/

Start Planning Now

YellowCarBlueCar

robatwork said:

kev2009 said:

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?

Hi, Where did you see this? I was going to look what it said for a single person but i couldn't find it on legal and generals site.

Thanks

Kev

https://www.legalandgeneral.com/workplace/_landg/wpp-post-ae/helpful-resources/planning-tools/retirement-planner/

Start Planning Now

If you look at the "What do these living standards mean", it says (among other things)...
"These standards were developed by the Pensions and Lifetime Savings Association (PLSA) and you'll find lots more information about this on their website"
...which has been discussed on here previously as pretty poor research based on a small sample size.

LL_USS

michaels said:

But I am not comparing income pre retirement with post retirement, I am talking about relative income post retirement. 

It is easy to look at older people who are say only living on half of average income and think they seem relatively poor but it is quite likely they retired 25 years before on above average income but their earnings have only kept up with inflation not with average earnings.  In absolute terms they can purchases what they could on the day they retired, it is just that relative to society that is now judged to be insufficient/poverty.

I see - I've only planned on principles of how saving for pension and pension work, knowing there may be issues such as pension not keeping up with real inflation. I just think if it is Defined Benefit, annual pension is meant to be kept at the same level over the years but spending needs decrease in general anyway. I do save for contingency during retirement (though to be fair I am earmarking most of my savings till now and in the next few years for helping kids buy their own home - and will get more back from the loans if I need more in retirement). 

We need a crystal ball to know what will happen in the future so I only put in pension that much, and focus the rest on saving and investing. Unfortunately these days and in our retirement we still need financial planning and to make the money work a least a bit harder than just relying on banks' saving interest rates.

Arthurian

I'm not so sure spending needs decrease in old age.  You have to pay people to do what you would once have done, like heavy gardening and DIY, painting the walls and cleaning the gutters, having ready-assembled furniture delivered rather than hauling flat-pack furniture home from IKEA, and eventually paying for carers.  Not to mention being ripped-off by predatory builders.

LL_USS

Arthurian said:

I'm not so sure spending needs decrease in old age.  You have to pay people to do what you would once have done, like heavy gardening and DIY, painting the walls and cleaning the gutters, having ready-assembled furniture delivered rather than hauling flat-pack furniture home from IKEA, and eventually paying for carers.  Not to mention being ripped-off by predatory builders.

Aahhh yes. I only thought about having less need for travelling and going out. And I hoped to be able to still do basic things....
Definitely I'll consider downsizing to a ground floor flat with communal garden for the later years...

kimwp

This made me ponder care home costs - at £1,100 a week, that's a take-home of £57,000 a year!

Ganga

Arthurian said:

I'm not so sure spending needs decrease in old age.  You have to pay people to do what you would once have done, like heavy gardening and DIY, painting the walls and cleaning the gutters, having ready-assembled furniture delivered rather than hauling flat-pack furniture home from IKEA, and eventually paying for carers.  Not to mention being ripped-off by predatory builders.

Whilst i am not super fit i still do the gardening ,dont like painting but will do the DIY and decorating ,if my wife would let me i would clean the gutters ( i do the low levels ones at the moment ) and i am 74 next month ,i am one of those people who will not pay someone to do jobs i can do my self.

kimwp

Ganga said:

Arthurian said:

I'm not so sure spending needs decrease in old age.  You have to pay people to do what you would once have done, like heavy gardening and DIY, painting the walls and cleaning the gutters, having ready-assembled furniture delivered rather than hauling flat-pack furniture home from IKEA, and eventually paying for carers.  Not to mention being ripped-off by predatory builders.

Whilst i am not super fit i still do the gardening ,dont like painting but will do the DIY and decorating ,if my wife would let me i would clean the gutters ( i do the low levels ones at the moment ) and i am 74 next month ,i am one of those people who will not pay someone to do jobs i can do my self.

My 90 year old neighbour has only just stopped replacing tiles on his bungalow (similar wife related reasons). He was out hoovering his car ahead of it's MOT and cutting the hedge then other day. He's slow, but keeps going, he played tennis until COVID restrictions meant he stiffened up. Combination of keeping active and good genes I think.