How cash rich should we aim to be at retirement?

jimi_man

atush said:

jimi_man said:

atush said:

A min of one year cash, i'm going for 2.  Plus an emergency fund.  Most of this is outside of pensions, intend to keep them invested and harvest income.

Hi. Could you explain your rationale for this please? The OP states that the majority of his income is DB pension (I’m in a very similar situation) so I was wondering why I need two years cash plus an emergency fund as well? 

I said i was going for 2 years, not for the OP.

A years outgoings in cash is sensible for an emergency fund for many.  But i wouldnt convert a DB pension income into a TFLS if you havent been sensible enough to save the cash up before retirement.  The conversio factor tends to be poor.

That makes more sense then. And yes I agree. I’ve been in receipt of my DB pension for a few years now and the conversion rate was only 21:1 which is dreadful (for context I was 51), so I didn’t bother. 

I’m still working and building up a SIPP as is my wife. She also has two DB pensions, one has an automatic lump sum but the other doesn’t and it’s 12:1 so also pretty poor. 

We have some cash savings and are still building them, and we can add the SIPP TFLS if necessary, along with the DB lump sum and a derisory Friendly Society Savings (tax free allegedly) plan that she took out when we were young and didn’t know any better. Will give us around three years outgoings in cash with the rest left invested in the SIPP, so that is maybe too much. 

Albermarle

But i wouldnt convert a DB pension income into a TFLS if you havent been sensible enough to save the cash up before retirement.  The conversio factor tends to be poor.

Although many public sector schemes seem to be poor on this issue , from other threads on the forum if you have a private sector scheme and you retire on the NRD , it normally looks better . Usually the commutation rate is above 20 and assuming you benefit from the tax free status then around 25. If you were 65 this looks like a good bet . At 60 probably a bit more 50:50.

Albermarle

BritishInvestor said:

Audaxer said:

scdandem said:

jimi_man said:

atush said:

A min of one year cash, i'm going for 2.  Plus an emergency fund.  Most of this is outside of pensions, intend to keep them invested and harvest income.

Hi. Could you explain your rationale for this please? The OP states that the majority of his income is DB pension (I’m in a very similar situation) so I was wondering why I need two years cash plus an emergency fund as well? 

As the OP - I'm actually a woman but don't hold it against me - this is the crux of my query, how do you know how much cash you need?
DH is already semi-retired and drawing 2 DB pensions with a 3rd due in 1.5 years and SP due in 2.5 years. I have a paltry DB from way back but a DC fund currently of £250k but my SP doesn't kick in for another 10 years after DH.
Net pension income will be between £30-40k ish depending on age, and I'm leaning towards thinking we should aim for a cash pot of £100k plus extra for any specific big buys we can knowingly budget for (eg motorhome).
This is actually 2 years plus an emergency fund so maybe on the same lines as jimi_man's thinking.

As even £30k per year is deemed to be a comfortable pension income for most retired couples, I would think you are in a healthy position as to be able hold as much cash as you want to cover specific big buys.  

https://www.lboro.ac.uk/media-centre/press-releases/2019/october/retirement-living-standards/
For a couple, comfortable might be a tad higher.

Hmm - £50K a year for a comfortable lifestyle for a couple. Assumes no mortgage/rent and it is after tax. So probably around £55K before tax . 
Although I agree £30K is a bit low , this looks a bit high , although of curse the definition of 'comfortable ' is a bit nebulous.
Certainly would be a big ask even for a reasonably affluent couple wanting to retire at 55 etc many years before SP and any DB;s kicked in.
Plus of course would probably be out of reach of >90% of the population at any age .

westv

Not really nebulous. They provide a detailed breakdown somewhere on one of the web pages of how the figures are arrived at.

Albermarle

westv said:

Not really nebulous. They provide a detailed breakdown somewhere on one of the web pages of how the figures are arrived at.

Perhaps the wrong word . Yes there is a detailed breakdown of what the researchers regard as a comfortable lifestyle. What I meant is that one couple could look at that list and see  a life of almost decadent luxury in their eyes, whilst another couple may consider it to be a pretty humdrum existence with no safaris, no marina costs for the yacht , only one car etc
The word 'comfortable ' can mean different things to different people. 

enthusiasticsaver

scdandem said:

I can find a lot of advice about how to work out how much you're going to need as an income in retirement (which I think we've got sorted) but can anyone give, or point me to, any advice on how to work out what cash pot to aim for? I appreciate some things are very specific, like perhaps saving an amount for maybe a holiday home etc, but I'm wondering if there have been any studies that give an idea of what cash-in-the-bank figure to aim for? 
We're at a point where one of us is semi-retired and has maximum 3.5 years to state retirement age and the other 14 years but with a good flexible business income that can easily carry on. We are lucky (but have worked really hard) to now have regular surplus income but are unsure whether to keep adding that into pension funds (and get the tax relief and hopeful decent return but will then have tied it up except for 25% TFLS) or stick it in the (fairly cautious) investment ISA and risk a loss but ultimately have access to all the cash).
Just as a figure, we're on target for retirement income of between £30k and £40k net pa (depending on the stage), but have not accounted for taking any TFLS. We currently have £80k in cash and investment ISAs. An IFA friend says we're cash poor. So, other than the big personalised costs, I'm looking to figure out what is a comfortable figure to have in the bank to see us out!
Thanks in advance.

We kept part of our TFLS in cash to subsidise the pension for big one offs like holidays, replacement car and home improvements and also to reduce tax in retirement as we will be over the PAs.  As a guide we receive £38k  in DB pensions (so similar to you), £50k in uncrystallized DC pensions and £80k in cash and £220k in Stocks and Shares ISAs and we have 4 and 6 years until state retirement age when the pensions then rise to £55k when state pensions kick in.  I would not feel comfortable with any less than £50k in cash on the grounds that the early years of retirement are the most expensive usually for travel and we have two cars which will need replacing in about 5 years. I am not sure why your IFA says you are cash poor given you may get TFLS if you take them and are still earning anyway.  How does the income split out between DB pensions and state pension and how big are any DC pots? 

I think how much you have in cash is very individual depending on lifestyle, pension provision and retirement plans.  If you have DC pensions you would need to have more in cash to avoid cashing out in a downturn.  Similarly if you need to do lots to your house or have debt or big travel plans/replacement cars then keeping a substantial amount back is a good idea.  If the pensions are mainly DB then £80k seems adequate cash to me if you can survive on the £30-£40k