Pensions Planning: The NUMBER

peterg1965

Linton wrote: »

You need a number to start off the process, but there s nothing to stop you changing it when you see the results:

1) Determine how much you need per year to live on at an acceptable standard of living. A good starting point is how much you are living on now minus any expenditure that won't apply when you retire such as mortgage or children plus any extra expenditure you may want because of your extra free time.
2) Decide on a retirement date.
3) Decide on a contribution %
4) Calculate whether your savings, State Pension and db pension if any at your chosen retirement date can provide your required income taking into account inflation. If not change required income, retirement date,or contribution and recalculate.
5) Repeat the exercise regularly, your priorities may well change as you get older.

The objective is that the three requirements of income, retirement date and contribution are always consistent. You then have both a goal to aim for, the basis of a plan for the rest or your working life and the means to measure how well you are progressing to achieving your objectives.

Agree with all of this. The "unknown unknowns", or rather the "known unknowns", of political interference and tinkering of pension rules/regulations often has the effect of putting a spanner in the works though. It has happened to my plans a couple times over the last 5/6 years which has led to a reset and re plan.

I'd like to think, apologies for being rather selfish, that being the other side of 50 that the drawbridge will come up behind me and not in front!

I have my date set at April 2023, i am stuffing as much as possible into my SIPP and Company DC scheme (c£30k/year gross) and hoping for the best

Triumph13

michaels wrote: »

I thought this thread would be an interesting discussion about how people came up with their numbers so I read the first few pages....

Anyway I am now wondering if 'the number' makes sense as a concept. Surely in reality there is a trade off between:
- how much of current income you are willing to forgo,
- how many years you are willing to work and
- how much you are willing to live on in retirement (the number)

Suggesting the number is fixed and the other two will change in order to meet the number is surely artificially simplistic.

The number is a very useful concept, as is getting a broad idea for what other people's numbers look like to compare with and challenge yours. As you say though, it is only a part of the overall equation.
You have identified the three main factors, but the key issue is that each of us gives a different weighting to each factor. Because of the nature of this forum we are probably very over-represented with people who put the biggest priority on minimising the years to work to at least reach FI, if not actually RE. If the goal is to minimise remaining years and you know how much you are able to save then 'the number' is the input that drives 'the date' as the output. The number can also be the driver of how much to save for many people ie work out the number and your savings is then income minus the number and minus work related costs and other short/medium costs like mortgage repayments.
For many others, eg those who have no desire or ability to retire early it is the years still to work that is the fixed number and the other two figures are driven just by what drop or increase in lifestyle you want at retirement - their number is either driven by what is achievable or, if they have a well paid job they enjoy and want to keep doing could even be largely an irrelevance.
Personally I have a whole range of numbers, from what I could survive happily on, to what would give me a big, snuggly comfort blanket of extra cash. I'm currently in the position of trading off doing a few extra years to get that comfort blanket level, whilst spending at a much lower level to minimise those extra years. That wouldn't agree with any approach based on smoothing income, but it smooths my nerves.

michaels

vivatifosi wrote: »

It actually means that I like my job and don't want to retire earlier. However I may go PT at some point once mortgage paid off. I'm still retiring a couple of years before state pension, as that's what I've always planned for.

Being able to work in a job i like and without financial concerns once the mortgage is paid off will be great. I'm not ready to retire.

But perhaps you should be spending more now so you don't have too much to spend later? For example perhaps you are staying in 3* hotels now and will have enough for 5* when you are retired when it might make more sense to use 4* through out?

SpeedSouth

Think id rather leave money to the kids than stay in 5 star hotels just to spend the excess....

Wednesday2000

vivatifosi wrote: »

This is the first time I've come across this thread, what a great idea! It doesn't matter if it's over simplistic, if it gets an easy to grasp concept over to people who don't do pensions conversations.

I found it very helpful too. We are planning to retire in 2025 so we have time to tweak the numbers, but it is useful to have rough numbers at this point.:)

bigadaj

adam81 wrote: »

Think id rather leave money to the kids than stay in 5 star hotels just to spend the excess....

Or even someone else kids.....

atush

Or stay in a 4 star hotel and leave something (not all your excess) to t he kids.


I'm all for leaving money to my 3. But not All my money. I plan to spend some too?

PennyForThem_2

A lot of you are looking at your 'number' as a couple. What would your 'number' be if your partner died?

Living expenses don't automatically halve when one partner dies.

Just a thought!

RuleTheWorld

too young to think about 'the number'. I just default it to be current lifestyle minus mortgage minus pension contributions

a mistake ive seen in some older people is allowing their lifestyle to expand post mortgage. Really need to be clear before you allow thst to happen are you going to happily do that and enjoy yourself or say no id rather retire asap

AnotherJoe

RuleTheWorld wrote: »

too young to think about 'the number'. I just default it to be current lifestyle minus mortgage minus pension contributions

a mistake ive seen in some older people is allowing their lifestyle to expand post mortgage. Really need to be clear before you allow that to happen are you going to happily do that and enjoy yourself or say no id rather retire asap

by "lifestyle" i take it you mean "spending"

Yes, I can easily see how that can happen, simply because you have more time to spend money when otherwise you were trapped in your place of work

Holidays, local days out the maintwo that occur to me. I dont buy the mantra you often see that your spending is less in retirement because of the work related expenses that have gone.

Unless perhaps you buy £500 suits every few months, have a £5k season ticket, spend £1k a month parking at the station and eat out for lunch every day, then seems to me that you could easily spend a lot more just because you now have the time to go on local days out, more holidays since you arent limited to 2 or 3 a year more time for hobbies. (someone mentioned gliding upthread for example, if they spend £1l now i bet they could easily double or triple that)

So, there is a subset of (probably) office job commuters into London who'll find costs drop but for most people I suspect they are more likely to rise.

(and the comments you'll see about no kids to pay for, no mortgage, I dont count that as the difference between retirement and not. You may or may not have those expenses anyway, retired or not, they dont magically stop just because you wrote your retirement letter to your boss.)