Pensions Planning: The NUMBER

Northamptonblue

I did read what appeared to be sage advice from an advisor which might help:

£10k = survival
£20k = comfort
£30k = 'luxury'

I suppose the latter depends on your definition of luxury. The amounts are per household and after housing costs (I think that means assuming you own your own home.

Obviously everybody has a different idea but this seemed to me to be a good rule of thumb.

chiefie

Northamptonblue wrote: »

I did read what appeared to be sage advice from an advisor which might help:

£10k = survival
£20k = comfort
£30k = 'luxury'

I suppose the latter depends on your definition of luxury. The amounts are per household and after housing costs (I think that means assuming you own your own home.

Obviously everybody has a different idea but this seemed to me to be a good rule of thumb.

It's all a matter of lifestyle and opinion. I'd add £10k to each of them.

AnotherJoe

chiefie wrote: »

It's all a matter of lifestyle and opinion. I'd add £10k to each of them.

Ditto. £10k would be well below survival, unless you are counting on benefits rescuing you. And I wouldn't count £30k as luxury in any sense of the word. Or even £10k on top.

OldMusicGuy

I joined here recently because I am deep into retirement planning and have found this website incredibly helpful. Skimming through the last few pages of this thread, this post really stood out for me:

chiefie wrote: »

As I get more stressed from work my number goes down ��

That's exactly my situation. I have a high stress job that in recent years (what with bonuses and accumulating stock grants) has paid very well, for the last five years I have been an additional rate payer. I never gave much thought to pension planning until about 10 years ago, especially after the 2008 crash saw a big chunk wiped off my main pension pot, which woke me up a bit. I have no DB pensions, just DC and all I did was pay into workplace schemes whatever I needed to get the max employer contribution. No "number" in mind, I just assumed I would keep working pretty much up to SP age or close to it.

However I found that once I reached 55 my health started to suffer from the stress and pressures of work. I realized I needed to start thinking about retiring earlier but had no idea what kind of "number" I should be working towards. However, I knew I did not have enough in the pension pot so I made large contributions on top of what I was paying through work to take advantage of tax relief and carry forward allowances. Still no "number" in mind but at least I was doing something. I also consolidated most of my schemes into my HL SIPP. Vague idea was retirement at 62/63.

Last year aged 59 it all got too much and I nearly had a breakdown. I realized that I could not behave at work like a 40 year old any more. My mental and physical health were both suffering. Fortunately I raised the issue with work before it got too far and to their credit they reduced my workload. But my wife and I decided I had to stop asap. That's when I started reading FIRE blogs (MMM, The Escape Artist etc) and also ended up here. I found out about safe withdrawal rates, probability vs safety first and so many other things that have made me think seriously about retirement planning (and I wish I'd known about earlier). So I have decided to retire at 60, less than one year from now.

So my "number" has been forced on me but I wish I had planned more proactively a lot earlier. That's a message I am drumming into my 21 year old son and it's one for all you kids out there! By early next year I'll have a pension pot of around £750K and about £150K in cash and ISAs between us. We will be downsizing our house (fully owned) which will free up about £200K after we have given our son a chunk to help him get on the property ladder. The £200K will probably be used to purchase an investment property.

My wife will get two small DB pensions totalling about £5K, that with our SPs will 23K at SP age (66 for us both). I worked out that if I took the 25% tax free cash up front that we could spend all of our cash investments and taking into account SPs once they kick in, generate an income of 36K per annum up til age 75 without paying any tax. That would leave us £560K invested (which ought to be worth at least that in real terms when we are 75, hopefully more) plus the investment property (which may generate say 5K pa in rent but I have ignored that).

I then worked bottom up and said what is the absolute minimum we need to live on. No discretionary spending at all, and that works out at 16 to 17K per annum. My logic is that the 36K pa income leeway is plenty in excess of that so we ought to be ok with plenty of safety (given the investments and also we will own a house worth 400K in today's money). Neither of us has expensive hobbies or want to spend money travelling, we buy the whole Mr Money Mustache philosophy. So I am very happy to retire at 60. Realistcially if I had planned better I could have gone earlier.

Not sure if that helps anyone, but it's been cathartic to write!

greenglide

or the last five years I have been an additional rate payer.

You seem to say that you have a frugal lifestyle, no expensive hobbies or travel yet you have been an additional rate payer for the last five years?

What happened to the money?

OldMusicGuy

greenglide wrote: »

You seem to say that you have a frugal lifestyle, no expensive hobbies or travel yet you have been an additional rate payer for the last five years?

What happened to the money?

Paying school fees for part of it then supporting son at Uni. However, as much free cash as possible went into the pension. I have maxed out the last 3 years carry forward allowance, my pot has grown significantly through savings Some of it has gone into a classic car, which I plan to enjoy in my retirement and of course which is going up in value and can be sold when I can no longer drive it.

I should have been clearer - the frugal lifestyle will happen when we retire. I'm stocking up now on all hobby related items so that I will not need to spend much at all once retired. We'll be living a much simpler lifestyle. Holidays will be pootling around in the classic car, we'll be renovating our downsized house and my wife is into breadmaking, food preserving, gardening and growing veg. Can't wait to ditch the high tech world. I told you we bought into the "MMM" philosophy....:)

Linton

OldMusicGuy wrote: »

....

I should have been clearer - the frugal lifestyle will happen when we retire. I'm stocking up now on all hobby related items so that I will not need to spend much at all once retired. We'll be living a much simpler lifestyle. Holidays will be pootling around in the classic car, we'll be renovating our downsized house and my wife is into breadmaking, food preserving, gardening and growing veg. Can't wait to ditch the high tech world. I told you we bought into the "MMM" philosophy....:)

Up to you but I'm not sure it makes sense to change your standard of living when you retire. The "Good Life" may pall after a few years. Better to plan to keep it the same, if necessary by reducing your standard of living whilst working.

Yorkshirebornandbred

Linton wrote: »

Up to you but I'm not sure it makes sense to change your standard of living when you retire. The "Good Life" may pall after a few years. Better to plan to keep it the same, if necessary by reducing your standard of living whilst working.

I would agree with Linton. We are both 55 and we have spent the last 3 years living on our proposed retirement budget. Whilst we are not frugal, in the true sense, our retirement budget is more thoughtful about how and where we spend money. This has taken some getting used to for both my wife and I. The outcome is that despite achieving financial independence (@ 3% withdrawal rate), I have carried on working part time, to delay draw down. This will give us more spending in retirement, should we require it. By the time I retire we will have been living on our retirement budget for at least 5 years, so the spending patterns should be well ingrained.

In my case, I mostly enjoy my work so a couple of extra years part time is well worth it for the peace of mind. However, if my health was suffering because of work I would quit as soon as possible. I just think it makes sense to test out any lifestyle/budget changes before you make that decision.

OldMusicGuy

You both raise the key issue - you can never really know the "number" until you retire. All the models and supposed rules of thumb (2/3 final salary, safe withdrawal rates etc) are only that, guesses and rules of thumb. It's only once you have retired you really know what you need to sustain your lifestyle.

In recent years I have started searching for the "number." Financial advisers would just say 2/3 of final salary, which is probably not achievable for me even if I kept working until SP age. My crisis at work over the last couple of years has forced us to rethink our life priorities and how we want to spend the next phase of our life. I've also come to terms with mortality, something it was hard to think about even 5 years ago. I've been in the corporate world for nearly 40 years and it has served me very well, but in the last couple of years I've realized it is driving me to an early grave. Hence a philosophical readjustment.

Reading about FIRE and the approaches espoused by the likes of the Escape Artist have really resonated with me. So my wife and I have have looked at how we want to spend the next phase of our lives, and our goal will be to live a more sustainable life and spend time together enjoying the simple things in life. For example, I'm a musician so instead of buying new guitars and other toys but never having the time to play them, I am streamlining all my gear and making sure I have the right tools to spend many years making music without needing to waste money on new toys. Instead of consuming, we will be using what we have more effectively. I'm not too worried by inflation over the next 5 to 10 years because we will be downsizing our house and lifestyle.

Hence I've focused more on what is the absolute minimum we think we need to support our retirement lifestyle and then look at anything on top of that as a bonus. I think what we have accumulated should cover it but like Linton and YB&B say we won't know for sure until we are retired. It's funding the years until we get to SP age that could be challenging and I am particularly worried about pound cost ravaging during those years (hence holding a lot of cash right now). I could always do some part time work in the first few years but I want to try to avoid that if possible.

I guess the point I would make is that for anyone doing retirement planning, it's more than knowing the "number". It's about looking at your future self/selves and deciding how you want to live your lives. The more expensive the lifestyle, the more money you will need and the longer you may have to work unless you start investing early and plan well. We plan on going all Tom and Barbara rather than Margo and Jerry in our old age, so let's hope it doesn't pall. But my wife and I have had serious discussions about this and we are both looking forward to doing things differently in future. Keep your fingers crossed for us.....

Yorkshirebornandbred

It is good that you and your wife are on the same page with regards to your retirement lifestyle. That will count for a lot if things get tough. I hope that it goes well for you both and I am sure that you are doing the right thing if your health is suffering.