How much to live on

Nebulous2

Organgrinder said:

I totally agree. I see little benefit to retire at 67 with pensions of £70k between us when it possibly means we're too old to enjoy it. I'd rather go at 60/61 with savings of say £120k to drawn down on and pensions of about £30k with then an uplift to £50k at SPA.

And to be honest, we don't need this amount either.

We've been pretty much a one income household throughout. I've never been a higher rate tax payer. I've always seen us as frugal, but looking at some of the other posts, I've concluded that we aren't frugal, but we are actually very good at getting the most from what we have. 'Getting a quart from a pint pot.' 

In 2018 we bought a second house, as a holiday home, with the intention of doing it up to retire to it. We never did it up, but fitted secondary double-glazing, a new boiler and repaired the roof. 

In 2021, mainly due to dealing with the results of covid on a daily basis, I made a snap decision to retire. We sold our main house and moved to the non- refurbished holiday house. 
 
I'm now over two years in. I'm working 1-2 days a week. We've had 3 foreign holidays, we are running two vehicles (would only be one if I wasn't working) and have had about 80 nights in our caravan. We are doing that on £40k gross, almost all in my name, which means a lot of it is taxed. Our nest egg from selling our primary home has increased, though possibly not enough to beat inflation. We didn't expect an increase at all though, we expected to draw quite heavily on it until SPA.

So far we are ahead of our fairly basic planning.....  

GunJack

Nebulous2 said

While a DB pension is a luxury that many people don't have, its a double whammy. You lose out in the actuarial reduction, but you also lose out by having less years and less pension than you would have later. That's one of the reasons why - one more year - becomes so attractive. At the same time that physical clock is ticking and those could be extremely valuable years if your health later takes a turn for the worse. 

I've been banging on about this for a while, seeing as I have 2 DB pensions (1 Civil Service, and then company one) I'm very affected by this. Some people who only have DCs just don't seem to get it, and others keep banging on about "well it's ok to take it early for less as you get same/more out of it over time" but that's NOT the thing with a DB - it's can you afford to live on the reduced income if you take your DB actuarily reduced, and the answer to that for many is NO.

My current employer is closing the DB next April, replacing it with a (pretty generous) DC. My CS pension has done better since being in deferment than if I'd have stayed in and I will take it at NRA 60 whilst still working for a couple of years. The new DC will allow me to retire fully whilst leaving the company DB until it's NRA of 65 so again no early payment reduction, and then full SP 2 years later.

If I'd had a DC-only pot of the values banded around by some who keep saying your DBs are equivalent to a pot of £xxxk I could fully retire a few years earlier than I'll really be able to, and that's what a lot of DC-only people just don't seem to get...  

Organgrinder

Ultimately this in effect was also true of DC pots when you had to buy an annuity. You contributed for fewer years and you had to spread the pot over a greater number of years.

The game changer has been the pension reforms.

That said it's always worth looking at commutation rates. The teacher's pension is rubbish at 12. My other DB schemes had commutation rates over 20.

For some people the reduced DB pension plus the state pension is fine. This in effect will be my position. So something to consider for many is to fund the gap between when you want to retire and SPA by reducing your DB pension and taking a lump sum to make up the shortfall.

Albermarle

If I'd had a DC-only pot of the values banded around by some who keep saying your DBs are equivalent to a pot of £xxxk I could fully retire a few years earlier than I'll really be able to, and that's what a lot of DC-only people just don't seem to get...  

I fully get your point ( actuarial reduction etc ) but on the above point, the DB is worth £xxxk because the income is guaranteed and usually with annual increases. In some cases full inflation linking.

A DC pot of the same value, is more flexible in how you use it and most likely will produce a bigger income, but the key phrase is 'most likely'. There is also a small possibility that the value will crash indefinitely, or a bigger possibility that it will just perform generally poorly, or inflation will be persistent, and not produce the income you want.

In the last 18 months most DC pots are somewhere between break even and down 20% . If you take account of inflation over the last 18 months, then in real terms  an average  pot will be down over 20%. Some more.

In the meantime real  income from DB pensions is up 5 to 15%.

I have both by the way, and can see both sides.

[Deleted User]

I am for one am so glad I do not have to worry about pension pots and investments in retirement. My DB pension on its own (even after maximising the lump sum) is sufficient for me to live a decent retirement (and the lifestyle I want). When my state pension begins next July I will feel very comfortable. The index linking also makes inflation less of a worry.
I know that I didn't save as much as I could have done but life events got in the the way somewhat. I certainly didn't intend to begin a phased retirement at 55 but the early death of my sister leaving behind 4 children meant we all had to step up. This I do not regret, as all 4 of them have grown up into wonderful adults making the most of their opportunities after such a terrible loss.

Pensions_matter_2

I decided to maximise income from DB and annuities as I value a steady guaranteed income more than having extra capital to invest or earn interest. The sums involved will leave me fairly comfortable and at least save me from over worrying. I see my SP as a buffer should inflation erode my DB pension significantly (which is very likely since it is subject to capped indexation), but if I find I have more than enough by that time, it will be time to gift the excess to family. I will enjoy that!  

Silvertabby

Organgrinder said:

One of the not so wonderful things about retirement planning for me has been that awful realisation that as a couple our income at 67 is boosted by £21k pa to a level which if we both stayed until the bitter end would mean a joint income that leaves us significantly better off than we are now. It's a shame you can't take a reduced state pension by retiring early. It seems crazy to me that as we approach (early) retirement we see income potentially drop massively only for it then to be boosted at 67.

For me I'd happily take £6500 at 60 instead of £10600 at 67. Maybe some insurer will start offering something where you give up your rights to your state pension at 67 and they provide you with an income!!!

This was considered some years ago, but discarded due to our minimum income guarantee at SPA.

It would work for those of us with other pensions, but not for those who would only have the State pension in retirement.  Using your figures, the £6500 you opted to take at 60 would be for life - but the minimum income guarantee would have to top that back up to the means test pension credit limit of £10500 at SPA.  

The option of taking an early State pension would therefore have to be limited to those of us with enough pension income to prove that we would never need to claim a pension credit top up.  Cue screams of 'one law for the rich, another for the poor' 

The only way round this would be to abolish the minimum income guarantee......

NannaH

How many of you have done the figures for the scenario of being widowed and losing an income stream?
I would be approx. £4k a year worse off than DH would if one of us died due to losing half his military pension plus the loss of one State pension.  I would have approx £18k income , he would have £22k. 

Jointly we will have £32 - £35k , £29k guaranteed,  variable drawdown makes up the rest. 

We have life insurance of £100k to age 65 and £60k from 65-70 which would go a long way to replacing the other person’s lost income for a few years, should one of us die young. 

Jointly,  our living expenses to replicate our current standard of living in retirement will be £18k (once the mortgage is paid in 2026 and we are no longer paying into our Sipps)  ,  that includes car leasing at £250 and around £300 monthly for non essentials like weekends away etc.   Essential bills and food/petrol are a smidge under £1000 a month. 

We will have lots of spare cash as a couple once 2 State pensions kick in, easily £10k for travel etc. 

On our own, £15k would cover things. 

We will future proof our house over the next 5 years with a new roof, 3 new windows  and a new boiler plus perhaps new sofas and mattress, whilst DH is still working.
We’ve already done the kitchen and bathroom and replaced a few windows. 

hugheskevi

NannaH said:

How many of you have done the figures for the scenario of being widowed and losing an income stream?
I would be approx. £4k a year worse off than DH would if one of us died due to losing half his military pension plus the loss of one State pension.  I would have approx £18k income , he would have £22k. 

Jointly we will have £32 - £35k , £29k guaranteed,  variable drawdown makes up the rest. 

We have life insurance of £100k to age 65 and £60k from 65-70 which would go a long way to replacing the other person’s lost income for a few years, should one of us die young. 

It is a key consideration, and more complicated than it may appear at first.

If either myself or my partner were to die whilst still in employment we would get a death-in-service lump sum as well as an enhanced survivor pension. The survivor would therefore have their own DB pension, their State Pension, their DC pension as well as inheriting the other's DC pension and enhanced DB pension - this would leave the survivor very well-off.

If however either of us dies after leaving employment and before or shortly after commencing the pension,  there is no enhancement and the death lump sum is only 2 times final earnings (adjusted for inflation). Our DB survivor pensions are not good, at just 37.5% of the original pension. Fortunately, the survivor pension is not reduced by taking pension early which we plan to do. Therefore the survivor benefit will be a much higher percentage of the reduced pension in payment, something more like 47%.

Therefore, even in the worst-case scenario, the surviving spouse would have 65% of our combined net pension income (plus remaining DC pension and any lump sums paid), which would leave them at a comparable or higher standard of living compared to our combined resources having to support two people. 

Note that inheritance is a key strength of DC pension, whereas it is usually a weakness of DB schemes.

shabbychic12

This senecio could happen at any age as with me at 50 losing my husband, lve made what l would say are good investments with the lump sum we received,he retired due to ill health, l now receive a 1/3 of his pension plus critical illness payed of the mortgage but it’s not always about the money. I’m 58 now and just stopped working if you can call it that (12hrs a week) l will have more than enough money to see me till my pension and if l don’t so what? Life is too short for what ifs. I’ve made my will and my daughter will be a very rich women unless l spend it all. My parents gave me nothing, my father is in a care home which was £1100 week which we funded and is now in a home £3000/week - luckily we Have CHC funding now, but this is where your money will end up caring for yourselves in later life no matter what you have. Life’s for living no pockets in shrouds .