How much annual income in retirement?

Not_Me_Officer

I'm not expecting a set in stone answer so please bear with me.
This is one area i haven't yet looked at. I know the answer will depend on various things. Do I wish to live a modest lifestyle? Do i wish to take 5 holidays per year staying in the top hotels money can buy etc.

I'm also aware of the general rule of thumb that you 'should' take your age when you began, half it & save that as a percentage. 14% of £21k is one thing, 14% of £100k is another. Yes it's still 14% but there's a bit of a difference.

Right now i'm earning £21k. I'm not a big spender. I'm not the type who would need a brand new car & regular holidays. I just like to live comfortably (yes i'm aware even the word comfortable can mean totally different things to different people).
I'm aware that come retirement i wont really need £21k gross income. My mortgage should be paid off for starters.

Question is though what i should realistically be looking at. It's hard to describe my question without it sounding like i'm fishing for a specific figure down to the pence.


Also the state pension. All i hear the older generation saying to me is it wont be around when i retire, so i do my planning based on assuming it will be removed totally (or replaced 100% with the workplace pension). How accurate this is i don't know. Maybe they're talking nonsense but i'd rather plan assuming it's going to be removed (& it doesn't) than assume it's going to be there for me (& it isn't).

Thrugelmir

Draw up a budget and cost everything. If you were to over save then you could treat yourself to a once in a lifetime trip etc. First step is to achieve a level of income with which you feel comfortable.

Linton

I think that if you budget bottom-up you will come out too low. Better to find out what you are actually spending now, remove what you wont be spending in retirement and possibly add a bit more. The point is that you will have become used to a particular standard of living and inadvertantly being forced to reduce it could be difficult.

enthusiasticsaver

When we were planning for retirement in our 20s and 30s we ignored the state pension thinking as you do that the goal posts could be moved and they have been mainly in terms of age of when we could get it.

Now we are in our late 50s OH retired last year and I retire at the end of this year and the eventual figure we have ended up with is between 58 and 66 our private pensions will be 80% of our salaries with savings/investments of 5 years of our income in addition. The state pensions will bring our income to over 100% so more than happy with that.

My advice would be start early and put away as much as you can afford.

Each time you get a pay rise reassess.

Keep an eye on your essential and non essential expenditure so you know the range of the figure you are aiming for. Better to aim high as we have found having more time means that we spend more on holidays and diy and leisure/entertainment.

Diversify your pension provision with a combination of occupational pensions, sipps and stocks and shares isas and nearer the proposed date of retirement keep a large cash buffer to give you the option of not drawing on the pension immediately should you decide to retire early.

weenie15

As you can comfortably save 14% of your current salary and live on the rest (£18060), if you got a big hike in salary, ie £100k, there would be nothing stopping you from still living on £18060 and then saving the rest. If you only saved 14%, you would have £86k to spend and yet you only need £18060 to live on...

Getting a bigger house, brand new car and regular holidays certainly would stop you from saving all that - you might end up not even saving 14% to pay it all off!

But if as you say you don't need those things and can avoid peer pressure and lifestyle inflation, then you should be able to save an adequate sized pension pot to cover your needs, pay off mortgage etc.

As the others have already mentioned, to know your 'number' you do need to budget and account for all your outgoings now.

Here's a handy pension calculator to play around for some ideas/guidance: https://www.ageuk.org.uk/money-matters/pensions/pension-calculator/

bostonerimus

Its great that you are thinking about this now. That's more than half the battle.

I agree that doing a budget is key to any financial plan.....so take some time with a notebook and a spreadsheet. Make an estimate of your spending to start and then actually record and characterize absolutely everything you spend. It will be interesting to see if the estimate and real numbers are close.

As a very general rule of thumb you should be saving between 10% and 20% of your gross salary, that includes any employer pension contributions, so at 14% you'd be on track.

silverwhistle

Well, I "retired" at 50 following redundancy (very voluntary!) at 45, followed by bits and pieces of work, none of it in my original IT area. After retraining as an EFL teacher I did work in multiple local FE colleges and summer schools before pootling off abroad for a bit when the pension kicked in, with a pleasantly surprising uprate for the intervening inflation. I'm now back in the UK again and manage on £13k net, and I haven't really touched my savings yet which would yield another £3k. I still do private teaching earning in euros and that I regard as holiday money as it's very variable - last month netting £250, for example, but reducing in the summer. (Summer schools don't pay enough to make it worth my while.)

Like others I regard the state pension I get in a few years ( a few years ago I'd have already been getting it..) as a welcome bonus. I'm not sure wealthier pensioners help the economy much though, as it'll probably be spent on more overseas holidays and better wine!

The best advice is don't spend to your income, whatever it is. These boards are full of people who not only have but beyond.. Prioritise what is important to you. For me two weeks skiing a year, a footie season ticket and not the cheapest wine but if I had a coffee and taxi habit (for example) they wouldn't be possible.

AnotherJoe

As I recall, the rule of thumb you quote is aimed at providing around half your previous income as a pension in retirement , so you don't need to "worry" that you'll be saving too much now to fund your future over generous pension.

As another poster cogently pointed out, if you can survive on £21k now with a 14% contribution you have no need to scale that back if you earn more (on the grounds I presume you think you'd have more income than you need in retirement?) since on those grounds you'd have more income than you need now in any case.

So I'd carry on as you are and stick to the 14% as a minimum, and save more if you can, without trying to guesstimate what you'll be spending in 30 years time.

Linton

AnotherJoe wrote: »

As I recall, the rule of thumb you quote is aimed at providing around half your previous income as a pension in retirement , so you don't need to "worry" that you'll be saving too much now to fund your future over generous pension.

As another poster cogently pointed out, if you can survive on £21k now with a 14% contribution you have no need to scale that back if you earn more (on the grounds I presume you think you'd have more income than you need in retirement?) since on those grounds you'd have more income than you need now in any case.

So I'd carry on as you are and stick to the 14% as a minimum, and save more if you can, without trying to guesstimate what you'll be spending in 30 years time.

The key advantage of trying to keep your inflation adjusted expenditure constant as your income rises faster is that it brings the retirement date forward whilst enabling you to continue to match your pre and post retirement expenditure. Simply keeping the same % saved increases your standard of living both now and in retirement whilst keeping the retirement date constant, or could lead to a major drop in standard of living if you retire earlier than currently planned.

westv

This subject is covered in great detail in the "number" thread.

jerrysimon

For me it was more important to look at my net monthly pay (actual money paid into my bank account) realising of course that I would not pay any NI, no pension and MUCH less tax. Before I retired these three were costing me over £550 a month!

Like others have suggested I worked out a retirement budget so I knew what I would be spending. Now in my third month and loving it :beer:

Not_Me_Officer wrote: »

Also the state pension. All i hear the older generation saying to me is it wont be around when i retire, so i do my planning based on assuming it will be removed totally (or replaced 100% with the workplace pension). How accurate this is i don't know. Maybe they're talking nonsense but i'd rather plan assuming it's going to be removed (& it doesn't) than assume it's going to be there for me (& it isn't).

People love to gloat and pull the ladder up behind them. The older generation are not doing themselves any favours by worrying the younger generation about their future. For me relying on the state pension would have meant that I would have had to wait until I was 66. I am fortunante in that my private pension has allowed me to retire much earlier.

As stated you are doing well by considering/planning for your furture at a younger age.

Jerry