Save how much, to retire at 55?

Ogre_Nose_Grid

First off, this thread is not about Defined Benefit pensions - where say a 12k pension equates to around a 400k pension pot or more. It's about, how much a person without DB pension plans to save in order to retire. This will depend on personal circumstances (location, kids, age) but also on choice of lifestyle (frugal, or with luxurious trimmings). So here goes for me:

I am 49. With my wife we have net savings of 580k (net of mortgage debt of 180k). No other pension schemes. I plan to retire at 55. My target is to have 750-800k then. If I get to 800k sooner, I press the ejector button then and there. I know that will seem like a lot to many or even most, but as I say above, it equates at the moment to two people retiring on around 12k / year, DB.

What's your number?

bristol_pilot

Not many people will have that sort of savings with no pension, but I am a similar age to you and also intend to retire at 55 earliest so have given this some thought even though most of my provision is actually through pensions. My number is also £800k, HOWEVER I am not married and have no dependents and no one to leave anything to. I'd be wanting around £1.3M at 55 if I had a pensionless wife as well as being pensionless myself.

El_Torro

Retiring on £800k for two people at 55 doesn't seem all that high to me. If you spend 4% of your money every year then that's £32k per year for two people. I assume most of this won't be tax free either?

My plan is to retire at 60 on my savings, spend most if not all of it by the time I'm 68, then buy an annuity and spend the rest of my days on roughly £30k a year (in today's figures, including State Pension). In order to achieve this my pension will have to be worth about £560k by the time I'm 68. Plus about £200k in savings to see me through from 60 to 68.

Of course that's the theory. If I get married and / or have kids between now and then I really don't see how I'll be able to retire before 68.

Linton

I suggest you dont plan on drawing down vastly more than you would get from an index linked annuity. Have a play with firecalc to get some idea.
About 4.5% seems reasonable, though you could take more until you get your State Pension and then reduce the drawdown accordingly. With drawdown you have the two problems of inflation and longevity. If you and the Mrs retire both at 55 in 6 years time a quick calculation from the life expectancy tables suggests there is a 30% chance of at least one of you living until 100.

In order to achieve the 4.5% you would need to be invested mainly in equities so you would need a fair risk tolerance.

kangoora

This probably best being tacked onto the end of 'The Number thread'

https://forums.moneysavingexpert.com/discussion/2146737

jamesd

Lets see what you can do with 580k. First, long term it is common to use 4% plus inflation as the income available from a pot of money. At state pension age I'll assume that you both get a flat rate state pension of £8k for total income from that source of £16k. Add 4% of £580k and you'd have an extra 23.2k for a total taxable income of 39.2k.

The 23.2k is available at any age so if you were to retire now you would have it, assuming enough is outside pensions to last until age 55. If not you'd have to wait until 55 or closer to 55. Is 23.2k enough? If it is you can retire at 55 or as much earlier as allowed by your non-pension savings.

Say it's not enough. You would need to assume drawing on capital. For a really bad approximation that overstates the cost I'll assume that £1k more of income costs you 12 years of that with no investment income, just 1k from the pot per year from age 55 to age 67. This means that each extra 1k taken at 55 reduces your long term income by 4% of the 12k cost, so £480. I'll take half of that as the reduction until age 67 which means that the net gain is £760 before state pension age, a net loss of £480 after that. Now you have options like this:

age 67 income drops from 39.2k to 38.7k, before that it increases to 23.96k.
age 67 income drops from 39.2k to 38.2k, before increases to 24.4k
...
age 67 income 34.4, before 28k
...
age 67 income 31.5k, before 30.9k
age 67 income 31k, before 31.3k

So you could have a level income before and after state pension age of about 31k if you want to. Is that enough? If it is then you're both able to retire when you reach age 55, assuming you're both of about the same age.

Firecalc lets you play with more scenarios and allows some estimates of investment risk and safety margins so it's better to use that rather than this but this gives you some idea of how you can approach the planning.