What percentage of income to save for retirement?

DavidHayton

dunstonh wrote: »

Pension credit brings you up to £137.35 per week. The Govt proposals are £140 flat pension (indexed).

Dunston,

What about housing benefit, council tax benefit, etc, etc. Are they likely to be around in the future for Hypothetical Harry?

David

Loughton_Monkey

The 'simple' answer to this is a mathematical one, really. Rules of thumb help, but everyone is different.

I personally see it more as a spending issue. Ask yourself this one 'simple' question:

"Given my current financial status, plus my expected future income, what is the amount I can spend (inflation proofed) so that I can continue spending the same amount when my [earned] income ceases?"

You should really map this out on a spreadsheet, starting with gross income and amount spent. Project this forward. Assume there will be a 'surplus' each year. Add this to your current assets/savings. These savings will grow [mainly in Pensions I would think, but not exclusively].

Having it all mapped out like this will allow you to answer the question in either of two ways. It can either tell you (a) the amount of spending you need to restrict yourself to, in order for that same amount to continue after age (say) 65, or (b) if I stick to the same spending (inflation proofed) at what age can I retire, but continue with that same spending pattern?

This is the 'mathematical certainty'. Now as a secondary (but still important) issue, you should consider how much that 'surplus' should be, and where you are going to invest it.

For most people, who retire at 65, then answers come out 'in the order of' investing 20% to 25% of gross income throughout working life. But I much prefer to look at my own finances from the spending perspective. Simply deciding to put £X into a pension (or ISA) is, in my view, the tail wagging the dog. Simply do a theoretical calculation of someone's earning pattern over 40 years. Assume they 'invest' 20% of income. By definition, they have spent the rest. Now do the same calculation but saving 21% of income. Notice how 'sensitive' it is. See how beneficial it is. Then ask the theoretical questions (a) could you save 5% more than you do? (21 instead of 20) - the answer being a sharp intake of breath. Difficult...... But ask (b) Could you spend 1.25% less than you do? (79 instead of 80) - the answer being Yes. Quite easily.

bendix

DavidHayton wrote: »

Dunston,

What about housing benefit, council tax benefit, etc, etc. Are they likely to be around in the future for Hypothetical Harry?

David

Let's hope not.

Lokolo

If I ever become PM then they will most likely not be available.

dunstonh

DavidHayton wrote: »

Dunston,

What about housing benefit, council tax benefit, etc, etc. Are they likely to be around in the future for Hypothetical Harry?

David

Whilst pension credit is for the chop, housing benefit and council tax benefit are not (at least not at the moment). However, they are not exactly things you want to be planning to rely on. You would effectively have to be planning to be poor in retirement to want to get them.