Spouse pension etiquette?

Everythingbysea

I've found the posts here really useful.

One thing I haven't been able to elicit via pension company calculators or this forum is; what would be the average joint annual income needed lead a moderate lifestyle in retirement as a couple?

All calculators declare a desirable  annual income for an individual - but I suspect it would be overkill to simply double this for a couple?

I ask as I'm approaching 40, work full time, and my wife is a full time Mum for the foreseeable future. I'm paying into my private pension - but she's not paying into hers as she has no income.

What's the best way to ensure we have enough irrespective of what the future might hold?

Should make contributions into her private pension as well as mine? (Financially sensible? Morally right or common practice as she's unable to work due to looking at the kids?)

Or....

Should I be putting twice as much as recommended for an 'individual' into mine to cater for both of us?

Is the individual salary plus....20% .... actually enough for a couple in reality?

Appreciate more information might be required to give sound advice  here - but really all I'm after is a bit of a steer for now.

Thanks 

El_Torro

It really depends on various factors.

If you are paying 40% income tax then generally speaking it makes sense to pay enough into your pension to get you down to a 20% tax payer. If your wife has no income then it might be worth paying £2,880 a year into her pension, getting her up to £3,600 contribution, which is the maximum allowed when someone has no income.

Ideally when you retire both your pensions will be more or less the same size. This isn't always easy to achieve though, and depends a lot on how much tax relief you have gained getting to that point.

Retireinten

In terms of how much you need, take a look at The Numbers thread. It's fairly active at the minute so you should be able to find it on the first or second page of this forum. 

Your 'number' is your annual retirement income, often quoted as a net figure and its personal to you and your wife.  Ours is £36k net for a couple.  This will be a lemonade budget for some and a champagne budget for others... for us it should result in a comfortable retirement, alongside a lump sum savings pot for any big spends.

Our number is based on what we spend now as a family of four, plus a contingency, less debt repayments, pension savings, work costs, professional fees etc etc. 

Everythingbysea

El_Torro said:

It really depends on various factors.

If you are paying 40% income tax then generally speaking it makes sense to pay enough into your pension to get you down to a 20% tax payer. If your wife has no income then it might be worth paying £2,880 a year into her pension, getting her up to £3,600 contribution, which is the maximum allowed when someone has no income.

Ideally when you retire both your pensions will be more or less the same size. This isn't always easy to achieve though, and depends a lot on how much tax relief you have gained getting to that point.

So just to confirm my understanding...

I'll pay 2880 into her private pension a year, and the state then contributes 720? Even though she isn't working so there's no tax available on an income for them to redirect to her pension?

Simple as that? I pay 2880, the state tops it up.

Everythingbysea

Retireinten said:

In terms of how much you need, take a look at The Numbers thread. It's fairly active at the minute so you should be able to find it on the first or second page of this forum. 

Your 'number' is your annual retirement income, often quoted as a net figure and its personal to you and your wife.  Ours is £36k net for a couple.  This will be a lemonade budget for some and a champagne budget for others... for us it should result in a comfortable retirement, alongside a lump sum savings pot for any big spends.

Our number is based on what we spend now as a family of four, plus a contingency, less debt repayments, pension savings, work costs, professional fees etc etc. 

This sounds like a good approach I'll try and apply your thinking to come up with my own numbers. Thanks for the ballpark too! 

El_Torro

Everythingbysea said:

El_Torro said:

It really depends on various factors.

If you are paying 40% income tax then generally speaking it makes sense to pay enough into your pension to get you down to a 20% tax payer. If your wife has no income then it might be worth paying £2,880 a year into her pension, getting her up to £3,600 contribution, which is the maximum allowed when someone has no income.

Ideally when you retire both your pensions will be more or less the same size. This isn't always easy to achieve though, and depends a lot on how much tax relief you have gained getting to that point.

So just to confirm my understanding...

I'll pay 2880 into her private pension a year, and the state then contributes 720? Even though she isn't working so there's no tax available on an income for them to redirect to her pension?

Simple as that? I pay 2880, the state tops it up.

Yep, that's pretty much it

Alexland

If your wife is also under 40 she might also want to consider a S&S Lifetime ISA as it's the same 25% top-up (on up to £4k of contributions per tax year) but no tax on withdrawal. Still if her total pension in retirement is small enough she might not pay tax on that either.

dunstonh

One thing I haven't been able to elicit via pension company calculators or this forum is; what would be the average joint annual income needed lead a moderate lifestyle in retirement as a couple?

Look at what you spend now.   Then remove any expenditure that you will not make in retirement (probably only the mortgage).   

For most people, when they are working, they spend very little money. Lunch and travel to and from work.   When you are retired, you will have those 7-10 hours a day as free time.   If you are likely to fill it with activities that cost money, then factor that in.

Don't forget capital expenditure in retirement.   If you are going to live 25-35 years in retirement, then chances are you will look at several cars, possibly two boilers, refurb and maintenance etc.

DT2001

I’d suggest you read sea-shell’s thread as well as the numbers ones. She gives a detailed breakdown of their expenditure (low)
I started from current expenditure, took off what I knew would stop in retirement and then guesstimated for food etc as at the moment all of our children are at home. Lockdown showed how little was needed as a bare minimum. I utilised a suggestion to split expenditure into various levels - basic, basic+ and ideal. I am continually tweaking the process as I read about more ideas on here. I’m looking to preserve capital so will just take natural income which will fluctuate however I know I’ll have some funds for holidays etc and will adjust accordingly.
We’re aiming for £18-20k as the base and then up £20k extra (long hols when/whilst we can). Another reason for tweaking plans is that expenditure will hopefully drop after 75-80(?).

When you have your figure you can start to look at how much you need to have saved to produce that, how much the SP might be, when you want to retire (as you’ll need more to fund gap between early retirement and SPA). Your ‘fund’ could be created by pension pots, ISA’s, downsizing etc. Ideally your OH needs a pension pot so she can utilise the full personal allowance. It is difficult as rules (pension, tax etc) change so plan, review, adjust and you’ll be in a better position than most.

hugheskevi

You can take a look at the Pensioner Income Series.

This shows median net income before housing costs of a couple where the head of the couple reached State Pension age within the last 5 years is £538 p/w (£28,053 p/a). Amongst older couples income is a bit lower, at a little above £25,000 p/a on the same basis.

pensionpawn

We're aiming to both be able to draw down our personal allowances in retirement. That's £25k tax free pa, or if accessed via UFPLS, £33k3 pa. As mentioned above salary sacrifice down out of the 40% tax band (if there) ensuring you trigger your employers maximum contribution. Also as mentioned above, if you still have spare ensure your contribute £2880 into a SIPP for your wife as the government will top up to £3600 pa. My wife spent 7 years contracting out into a pseudo pension, then 10 years of maternity leave and now shes been working for the last 15 years most of which matching her employers 10% contribution into her company scheme. Coupled with contributing into a SIPP in parallel for the last three years and throwing all of her final 3 years into her pension(s) we should just about get there. It dawned on me, later than I would have wanted, that rather than keep on topping up my pension, boosting my wife's was more advantageous in retirement due to her personal allowance. It can be done!
Regarding how much you need in retirement, well how long is a piece of string? As your kids move out your regular outgoings go down. I can see this happening, so you won't need as much money as you do now. 60% - 70% of your current take home pay should give you a happy retirement. However, live in the moment as well as planning for the future. Today is here, tomorrow isn't promised.