Pension Planning in Retirement

coyrls

There are two elements to think about with taking risks. The first, which you have dealt with, is your attitude to risk; the second is the requirement to take risk. You say that your forecasts and spreadsheets show that you will be OK and I suspect that, given your attitude to risk, they have a lot of contingency built in. So given that you don’t want to take risks and that you don’t need to take risks, I would suggest that you don’t take risks.

OldMusicGuy

For me, retirement planning is a lot more than just financial planning. It's about thinking how you will spend the remaining 30 to 40 years (hopefully) of your life. It is a major life change and it is an important point to face your own mortality and decide how you will spend that time. What I see in many commentaries on retirement planning is the focus on the financial side rather than the lifestyle philosophy side. My wife and I have had some deep discussions about what we want to do with our lives and we want to live a more sustainable life, get out of the consumerist obsession with buying stuff and spend more time enjoying what we have (including each other).

ThinkingOutLoud wrote: »

You will also likely be paying more for transport, fuel, medical care, insurance and food, holidays, days out and so on.

We will be spending less on insurance, we will throw ourselves on the NHS for healthcare (but we lead fit and healthy lifestyles apart from me working too many hours) and we will spend much less on holidays. We've done our travelling to far away places and are done with staying in 4/5 star hotels and eating in fine restaurants. We actually prefer to cook a meal at home, have a game of Scrabble and a nice bottle of wine. Holidays will be gentle touring affairs in our classic car, mainly in the UK, staying in b&bs rather than expensive hotels. Fuel costs will go up a bit but we will not be replacing our cars, instead we will keep them. They should both be good for 200K miles and I will do the routine servicing. And I always have the classic car to sell at some point (she is only going up in value).

ThinkingOutLoud wrote: »

You won't be able to control inflation - you can reduce your expenditure on things to a point. But, as you say the aim is to enjoy not live ever more frugally till the fun has gone. You have to eat and some enjoyment comes from spending on things you like, not just from joy at saving :-).

That is where our philosophies differ. Our goal is to live a more frugal life and we will get enjoyment from that. I have realised that the "enjoyment" of spending on things you like is a false illusion that only creates momentary pleasure. Personally, I have everything I need. I reckon I could live for at least two years without buying anything (apart from food etc.). What I don't have is time to use all the things I have bought over the years. For example, I am sat looking at three guitars and a bunch of home recording equipment that I never get a chance to use because my life is dominated by work. I don't need to buy anything else.

Please don't take this as being critical, some people want to go on expensive holidays and have nice cars in retirement and if they do, that's fine. But they will need more money than us!

Hal17 wrote: »

You will enjoy retirement - no more answering to the "man". It is a great feeling and I love it. I hope you fulfil all the plans you have made, this is what we have all been working for and we need to fulfil those dreams..[/I]

I'm so glad you said that because that's what I am looking to achieve. My wife and I had a huge row this week and she said something that really made me take stock of my life. She said "where did that enthusiastic, happy go lucky person that I fell in love with go?" Well, he got crushed by 40 years in the corporate world which, although it has been good to us financially, has turned me into a corporate wonk that is rather too convinced of his own importance to be able to really enjoy life. I need to get back to enjoying life before I die.

Sorry to go all philosophical and some of the younger folks here may think I am odd, but IMO planning for retirement involves thinking about your lifestyle choices in addition to financial planning.

ThinkingOutLoud_2

So I could not agree more with some of what you say - especially that this is not just about financial planning. Doing that enables you to freely focus your mind on how you will live and not just with what.

Being more frugal at any age is possible as this forum demonstrates. Some only apply this when retiring by choice or necessity and some factors about retiring make it more possible as you explain.

I am, not sure inflation is about philosophy which is kind of the point I am making. I don't doubt you can mitigate inflation for a few years BUT you cannot duck it over 30 years. A new pound coin in 1984 would buy about 32p worth of stuff today.

So in your new life - inexpensive B&Bs, car insurance, home insurance, even cheap home cooked food, wine of any quality and some hobbies you will pick up with all that non-work time will all see inflation. As will care/support costs that you may never need, incur or hopefully not for a long time.

But, it sounds like you will relish the new life and manage very well because you pay enough attention to your expenditure.

Enjoy!

OldMusicGuy

ThinkingOutLoud wrote: »

I am, not sure inflation is about philosophy which is kind of the point I am making. I don't doubt you can mitigate inflation for a few years BUT you cannot duck it over 30 years. A new pound coin in 1984 would buy about 32p worth of stuff today.

But, it sounds like you will relish the new life and manage very well because you pay enough attention to your expenditure.

Thanks for the encouragement! I do agree with you about inflation over the long term, which is why I will keep 1/2 to 2/3 of my DC pot invested and in a higher risk portfolio than my cautious nature implies. But the remainder will be held as cash and together with savings I reckon that can fund us at an income level of around 30K per annum for at least 10 years. Now if inflation stays at around 2.5% that means 30K today is worth around 23K in 10 years time which I reckon should still be enough to live on (cover all the basics with a bit over). Hence my point that I can largely ignore inflation for the next 10 years (and I will get some interest on cash, even if it's small).

But then will come the next phase of planning, which will be balancing drawdown from the remaining invested pot against long term needs vs augmenting pension income from SP/DB and even considering buying annuities.

I just found this article that sums up my attitude: http://www.marketwatch.com/story/how-to-avoid-sequence-of-return-risk-2013-09-28

It's only thanks to this forum that I even know who Wade Pfau is. Thanks again to all of you regular posters on MSE that make us newbies aware of how much information there is out there to help us make these decisions.

Hal17

OldMusicGuy wrote: »

I'm so glad you said that because that's what I am looking to achieve. My wife and I had a huge row this week and she said something that really made me take stock of my life. She said "where did that enthusiastic, happy go lucky person that I fell in love with go?" Well, he got crushed by 40 years in the corporate world which, although it has been good to us financially, has turned me into a corporate wonk that is rather too convinced of his own importance to be able to really enjoy life. I need to get back to enjoying life before I die.

Ha ha this really made me smile. You turning into a Corporate Wonk. Many years ago my children bought me a domain name for my personal website with the name of "Wonkhead", they also said work had turned me into a Wonk. Still have the domain name to this day.

Once you finish work, you will soon revert back to that happy go lucky guy. It takes a while to wind down, at first you think you are on holiday and just waiting to go back to work - but you get pass that feeling and begin to relax and then you realize you have retired. :T

Dazed_and_confused

Hal17

Have you got the info relating to your spouse?

Hal17

Dazed_and_confused wrote: »

Hal17

Have you got the info relating to your spouse?

Sorry I was intending to reply. Yes happily married, my wife retired early after being made redundant. I have taken 10% of her personal allowance and we both take the full amount from our pensions to maximise the tax free allowance.

She has a much smaller pension pot than me as she only worked part time, and we made that mistake in not adding to her pension as much as we should whilst we were both working.

She is drawing a pension from her previous employer as part of a redundancy/retirement. We have been adding £2880 to her own pension for the last 4 years and will continue to do this into the future. We need to cover 3 additional years on her NI contribution so she get a full SP and will do this before she reaches SP age.

Thanks for asking the question, I think we have covered everything regarding her side. Between us we are making the most of our allowances where we can.

Dazed_and_confused

So are you taking £12650 rather than £11500 in the forthcoming tax year?

jamesd

5.5% beats nothing and what you did was suitable for you, so have no regrets and look to the future, not the past.

Today I think that lots of money cautiously invested is good and have a lot in peer to peer instead of equities and bonds myself because I think that P2P offers better value than bonds with not too dissimilar risk at the moment. Normally I'd be close to 100% equities and probably will be again when I think conditions are more suitable for that.

Guyton's rules for sequence of return risk taming look sensible and the rest of my initial posts in that topic contain my core suggestions. Guyton didn't go as low in equities as he could have because he was concerned that customers wouldn't like very big swings. You don't have to use that real world IFA customer reaction constraint and can go lower equity if you like.

Hal17

Dazed_and_confused wrote: »

So are you taking £12650 rather than £11500 in the forthcoming tax year?

Yes all sorted, have already informed my pension to amend my monthly payment.

Thanks.