Help with Reviewing Pension Calculations

tigerspill

I was wondering if someone could take a look at how I am doing my retirement calculations.
The option I have used for this calculation is for both my wife and I to retire at 52. I am assuming that I need £60K per year net. My calculations end at 80 years but I can change this when I am sure my modeling and maths is correct.
I have ignored inflation and investment growth/income on the assumption they will cancel each other out – I appreciate that this is pessimistic, as I believe that a more accurate assumption might be a 3% growth over inflation, but I prefer to be pessimistic and the maths is simpler.
I am assuming that we will both collect our pensions at 60 and the state pension at 67.

So I have broken down the time between 52 and 80 in to different sections –
52-60 (8 years)
60-67 (7 years)
67-80 (13 years)
So the total need is 28 years times £60K giving 1680K.

So how do I fund this?

67-80 – Company and State Pensions plus savings
My gross pension of 29K plus State Pension (assume £125/week) $6.5K
Gross Total = £35.5K. Assume £10.5K tax free allowance and BRT at 20% gives a net of £25.3K
Spouse pension of £15.7K plus State Pension (assume £125/week) $6.5K
Gross Total = £22.2K. Assume £10.5K tax free allowance and tax at 20% gives a net of £19.9K.
Overall Total Income = £45.2K.
Gap – 60K-45.2K times 13 years = £192.4K

60-67 – Company Pensions plus savings
My gross pension of 29K
Assume £10.5K tax free allowance and tax at 20% gives a net of £33.3K
Spouse pension of £15.7K
Assume £10.5K tax free allowance and tax at 20% gives a net of £14,7K.
Overall Total Income = £48K.
Gap – 60K-48K times 7 years = £84K

52-60 – Savings only
60K for eight years = 480K

So if I have savings of £756.4 (480K+84K+192.4K) when I am 52 then my assumption is that I am good to retire.

If I change my calculations from using 80 as the end date to 90, then I would need an additional £86K in savings (the gap of £8.6K times ten years).

Does this make sense of have I missed something important?

Thanks for helping.

AlanP_2

Why does your gross pension drop at 67 or is there a typo (29k and 39k)?

Most things I have read suggest you may need less to live on when you are into your 80s say as you will do less adventurous (costly) holidays so may be able to reduce the 60k pa?

dunroving

tigerspill wrote: »

<<snip>>

I have ignored inflation and investment growth/income on the assumption they will cancel each other out – I appreciate that this is pessimistic, as I believe that a more accurate assumption might be a 3% growth over inflation, but I prefer to be pessimistic and the maths is simpler.

<<snip>>

.

Slightly off-topic, but just wanted to say that is essentially what I have done in my spreadsheet calculations also. Probably not very scientific but I'd rather be safe than sorry (and it makes for simpler calculations!)

I am pretty happy with recent market movement because over the past couple of years, combined with low inflation, I am currently "up" on my predictions. I'm in no doubt there will be downward blips on the horizon but being ahead means you are in a better position to weather a storm.

mlv-1967

tigerspill wrote: »

I was wondering if someone could take a look at how I am doing my retirement calculations.
The option I have used for this calculation is for both my wife and I to retire at 52. I am assuming that I need £60K per year net. My calculations end at 80 years but I can change this when I am sure my modeling and maths is correct.
I have ignored inflation and investment growth/income on the assumption they will cancel each other out – I appreciate that this is pessimistic, as I believe that a more accurate assumption might be a 3% growth over inflation, but I prefer to be pessimistic and the maths is simpler.
I am assuming that we will both collect our pensions at 60 and the state pension at 67.

So I have broken down the time between 52 and 80 in to different sections –
52-60 (8 years)
60-67 (7 years)
67-80 (13 years)
So the total need is 28 years times £60K giving 1680K.

So how do I fund this?

67-80 – Company and State Pensions plus savings
My gross pension of 29K plus State Pension (assume £125/week) $6.5K
Gross Total = £35.5K. Assume £10.5K tax free allowance and BRT at 20% gives a net of £31.5K
Spouse pension of £15.7K plus State Pension (assume £125/week) $6.5K
Gross Total = £22.2K. Assume £10.5K tax free allowance and tax at 20% gives a net of £19.9K.
Overall Total Income = £51.4K.
Gap – 60K-51.4K times 13 years = £111.8K

60-67 – Company Pensions plus savings
My gross pension of 39K
Assume £10.5K tax free allowance and tax at 20% gives a net of £33.3K
Spouse pension of £15.7K
Assume £10.5K tax free allowance and tax at 20% gives a net of £14,7K.
Overall Total Income = £48K.
Gap – 60K-48K times 7 years = £84K

52-60 – Savings only
60K for eight years = 480K

So if I have savings of £675.8 (480K+84K+111.8K) when I am 52 then my assumption is that I am good to retire.

If I change my calculations from using 80 as the end date to 90, then I would need an additional £86K in savings (the gap of £8.6K times ten years).

Does this make sense of have I missed something important?

Thanks for helping.

How old are you and your wife now and how much in savings do you have now? You either have a huge income or are extremely optimistic.

kangoora

Well, I can see one glaring omission in my mind. Your figures seem to assume you will both be drawing a pension until 80 years old. Have you accounted for one of you passing away early? Especially if it's you as it looks like your wife would suffer a significant drop in income, although this would be to some extent be counter balanced by only having one retirement to fund.

Secondly, do you intend to leave nothing to any heirs apart from maybe a property?

Thirdly, your pension would presumably cover care home fees for one of you but would leave the other with a severely reduced income.

As mentioned above, spending might reduce at 75+

I would use as pessimistic growth figures of 2% as you could probably achieve that with just a mixture of gilts, bonds and high interest bank accounts assuming inflation doesn't go crazy.

Some things to consider maybe?

tigerspill

AlanP wrote: »

Why does your gross pension drop at 67 or is there a typo (29k and 39k)?

Most things I have read suggest you may need less to live on when you are into your 80s say as you will do less adventurous (costly) holidays so may be able to reduce the 60k pa?

Thanks for this. You are absolutely right and I have screwed up my numbers. I will fix the original post.
Makes slightly worse reading

tigerspill

kangoora wrote: »

Well, I can see one glaring omission in my mind. Your figures seem to assume you will both be drawing a pension until 80 years old. Have you accounted for one of you passing away early? Especially if it's you as it looks like your wife would suffer a significant drop in income, although this would be to some extent be counter balanced by only having one retirement to fund.

Secondly, do you intend to leave nothing to any heirs apart from maybe a property?

Thirdly, your pension would presumably cover care home fees for one of you but would leave the other with a severely reduced income.

As mentioned above, spending might reduce at 75+

I would use as pessimistic growth figures of 2% as you could probably achieve that with just a mixture of gilts, bonds and high interest bank accounts assuming inflation doesn't go crazy.

Some things to consider maybe?

I agree on the first point. I have yet to get into what happens if one of us dies. Assuming we get to 52, then the savings pot should remain unchanged. So the question I need to address is whether either of us can survive with only a fraction of the spouses pension. I think we should be OK as the reason for the large "requirement" is down to us wanting to travel when we retire and this is expensive. We need to talk about that and what would happen should the worst happen.

No plans to leave anything.

Care costs have crossed my mind. When/if we both get to that stage, I guess we would sell our home and this should free up enough in top of pensions for many years of care costs.

I assume your pessimistic growth figure of 2% is above inflation - i.e. a real growth?

Very useful post so thanks. More things to consider!

mlv-1967

tigerspill wrote: »

Thanks for this. You are absolutely right and I have screwed up my numbers. I will fix the original post.
Makes slightly worse reading

You sound like a 'Walter White' character! :rotfl: