How much to live on

DT2001

Elenaa said:

Estimating retirement expenses varies, but a rule of thumb is 70-80% of per-retirement income. Consider basic needs, healthcare, hobbies, and travel. Prioritize a comfortable safety net. It's about financial peace, not excess. Share insights, learn, and plan wisely.

I agree with providing financial peace however IMO there is no rule of thumb as we are all unique. My reasoning for suggesting this is the number of variables which can affect the % of expenditure to pre retirement income - level of pension/saving contributions, work costs, income variation (especially self employed/one person or small limited companies, whether you phase your retirement by reducing hours, downsizing, children leaving home etc.
Everyone needs to draw up their own budget when planning (utilising some very helpful threads on this forum) and work from there.

Albermarle

Another rule of thumb is that to get two thirds of pre retirement income, you may only need around half the gross income. That is because of paying less income tax, no NI and no pension contributions.
However as said it will vary a lot from person to person. Someone struggling on a low income may effectively need the same income after retiring to keep their head above water. Whilst someone on a higher income who had never spent it all, may easily manage with less than half pre retirement income.

barnstar2077

I have been hanging out on the pensions board for a while, especially in the paupers thread, but having read through here in the last week I can see that there are other cool places to hang out on the MSE forums! :   )

I am 46 and a bit, currently working a four day week, and aim to retire at 55.  My bills, including food and a small mortgage, come to £6k a year (I don't drive, drink or smoke.)

I salary sacrifice money into my works pension (and receive a surprisingly generous amount from the company), but also add £80 to a SIPP and £333.34 into my ISA at the moment.  When I hit my ISA target I will switch to putting everything into my pension.  I currently give myself about £400 a month spending money.

I have a pretty high risk/high reward strategy of 100% equities for my pension and ISA as I am flexible as to when I stop, and I don't mind adjusting my outgoings a bit, or thinking outside the box after I am retired (if I have to.)

My current aim is to have £70k in my ISA and £200k+ in my combined pensions at 55 in order for me to pull the trigger.   I stress that this is my current plan, as it seems to change every week (I am obsessed! :   )

I am calling 55 to 57 my Party Years, as I plan on using £40k of my ISA to bridge the two year gap until I am able to access my pension.  These two years will be a celebration of completing my goal and finally retiring.  This will leave me £30k in my ISA that will be used for one off big purchases, like new boilers etc, while my pension will provide me with a monthly amount to get me to state pension age, with hopefully enough left over to supplement SP into my seventies.

If I run out of my personal pension after the age of 75 I will have had twenty years of great memories to look back on, and my £30k should still bring me peace of mind in case of needing a new roof etc.  I am painfully aware that not everyone makes it to 75 so plan on enjoying myself in my 50's and 60's (God willing!)

I currently have £40k in my ISA and £130k in my combined pensions. 

To be honest I could write pages (obsessed! :  ) but will leave it there for now.

<Edited to clarify that when I talk about my pension past the age of 55, I mean my two current pensions combined.)

[Deleted User]

Barnstar2077 I find it  amazing that your bills come to just £6000 a year! That also includes paying a small mortgage too! My council tax, energy, water bill and broadband come to almost that without anything else! I drive but also don’t drive or drink alcohol. Posters on here would be very interested in how that breaks down.

A £200000 pension pot would give you about £7000 a year with a 3.5% withdrawal rate assuming you take don’t the 25% tax free amount as one sum.
I suppose another alternative would be to take the tax free amount ( about £50000)  at age 57 and live on that for several years leaving the rest invested. I am not expert and just thinking aloud.
I assume your mortgage will be paid off by the time you retire.
Do you have an emergency fund and savings for extras? (Apart from the ISA)
I do not have very high savings or investments but my retirement income from July 2024 will be just over 4 times your possible £7000 and I will  continue to budget.
By the time you retire will you have paid enough NI to qualify for a full state pension?
What about spending on clothes and trips? Sorry about all the questions!

Best wishes.

barnstar2077

[Deleted User] said:

Barnstar2077 I find it  amazing that your bills come to just £6000 a year! That also includes paying a small mortgage too! My council tax, energy, water bill and broadband come to almost that without anything else! I drive but also don’t drive or drink alcohol. Posters on here would be very interested in how that breaks down.

A £200000 pension pot would give you about £7000 a year with a 3.5% withdrawal rate assuming you take don’t the 25% tax free amount as one sum.
I suppose another alternative would be to take the tax free amount ( about £50000)  at age 57 and live on that for several years leaving the rest invested. I am not expert and just thinking aloud.
I assume your mortgage will be paid off by the time you retire.
Do you have an emergency fund and savings for extras? (Apart from the ISA)
I do not have very high savings or investments but my retirement income from July 2024 will be just over 4 times your possible £7000 and I will  continue to budget.
By the time you retire will you have paid enough NI to qualify for a full state pension?
What about spending on clothes and trips? Sorry about all the questions!

Best wishes.

I have rounded somethings up or down for ease of reading.  I pay my council tax over twelve months instead of ten, which reduces the monthly amount a bit.

Water:	£14.00
Gas:	£25.00
Electric:	£40.00
Council Tax:	£96.00
Home Ins:	£8.50
Broadband:	£28.00
EE Mobile:	£16.00
TV Licence:	£13.25
Misc:	£5.00
Union:	£15.00
Netflix:	£11.00
Mortgage:	£70.00
Total DD:	£341.75
Lottery:	£12
Food:	£150.00
Total total:	£503.75

BooJewels

Gosh @barnstar2077 you do live cheaply, I thought my figures were quite low, but yours are even lower. 

How do you heat your home - you're only spending £780 per year on gas and electric - that's perhaps my biggest single outgoing, other than Council Tax.  That'd only last me about 3 and a bit months.  Granted, I don't go out to work and rarely leave the house and the nature of my old cottage means that I have a lot of lights on all day and it's inefficient to heat etc. 

Presumably other items come out of your £400/month spending money?  In which case, it brings you closer to my own monthly spend - I have about £550 of DDs and allow myself £350 per month for food and other debit card spending (bird food, toiletries etc) and I fund holidays, repairs and other capital stuff from other budgets.

barnstar2077

[Deleted User] said:

Barnstar2077 I find it  amazing that your bills come to just £6000 a year! That also includes paying a small mortgage too! My council tax, energy, water bill and broadband come to almost that without anything else! I drive but also don’t drive or drink alcohol. Posters on here would be very interested in how that breaks down.

A £200000 pension pot would give you about £7000 a year with a 3.5% withdrawal rate assuming you take don’t the 25% tax free amount as one sum.
I suppose another alternative would be to take the tax free amount ( about £50000)  at age 57 and live on that for several years leaving the rest invested. I am not expert and just thinking aloud.
I assume your mortgage will be paid off by the time you retire.
Do you have an emergency fund and savings for extras? (Apart from the ISA)
I do not have very high savings or investments but my retirement income from July 2024 will be just over 4 times your possible £7000 and I will  continue to budget.
By the time you retire will you have paid enough NI to qualify for a full state pension?
What about spending on clothes and trips? Sorry about all the questions!

Best wishes.

I plan on taking the 25% of the pension as soon as possible, then taking the £12,570 personal tax allowance every year.  This will allow me to remove £175,700 from my pension in ten years without paying any tax, which would give me a very comfortable ten years as my outgoings are low (I probably won't even be able to spend it all!)

Then, at 67/68 I will subsidise my state pension by a few grand (amount to be determined) from the remainder of my pension until the money runs out.  Hopefully this will take another ten years or so, as £200k at 55 for my pension is the minimum I am expecting.

I extended the term of my mortgage a few years ago to maximise the amount of pension and ISA investments I could make, it is due to finish near enough on my 67th birthday.

My ISA is my only emergency fund.  If I am only going to take money out of it in an emergency then I personally don't see a reason not to keep it invested.  Meanwhile it will hopefully grow enough that when I do need a new boiler etc it will effectively be free.

As of a year from now I will have a full state pension, which I have verified on the government gateway.

Clothes wise I am a simple man, so mainly wear inexpensive jeans and t shirts, which I just pick up whenever I need new ones (which currently comes out of my £400 spending money.)

As for holidays, I like days out and recently have started going on camping trips by public transport, which has been a lot of fun.  My partner loves these as well, so that is a bonus!

The biggest potential problems are government interference, and if I do eventually move in with my partner it will no doubt increase my expenditure a lot more, as I am reasonably frugal and look for value for money in everything that I do, where as she is a weapon of massive consumption! :  )

My plan is high risk high reward as I said before, but I value my time over anything else and I have the confidence in myself that I know that I will adapt as needed.  I have the ability to drop down further in days to start my retirement later if I need to, reduce my spending money mid retirement, or even do a bit of seasonal work if I am desperate, but I don't think it would ever come to that.

You can't take it with you!

barnstar2077

BooJewels said:

Gosh @barnstar2077 you do live cheaply, I thought my figures were quite low, but yours are even lower. 

How do you heat your home - you're only spending £780 per year on gas and electric - that's perhaps my biggest single outgoing, other than Council Tax.  That'd only last me about 3 and a bit months.  Granted, I don't go out to work and rarely leave the house and the nature of my old cottage means that I have a lot of lights on all day and it's inefficient to heat etc. 

Presumably other items come out of your £400/month spending money?  In which case, it brings you closer to my own monthly spend - I have about £550 of DDs and allow myself £350 per month for food and other debit card spending (bird food, toiletries etc) and I fund holidays, repairs and other capital stuff from other budgets.

I don't like the way the air in a room changes when it is heated by central heating, as apposed to naturally from the warmth of the sun.  I feel the same way about having the aircon on in cars too, sometimes it is necessary on a hot day, but it affects my throat and eyes something terrible.

Many people seem to heat their house up for an hour in the morning before going to work, which seems like a waste of money to me, if like me it only takes twenty minutes to half an hour to get up and out the door (I wash and get everything ready the night before.)

So I usually put it on for an hour or so in the evening, then use an electric fire in the bedroom for ten minutes when I go to bed.

I do not sit here shivering though, I just think that as an outdoors kind of person I just don't notice the cold the same way that some people might do.  I am aware this may change as I get older though.

littleboo

Regarding earlier posts and the effect of not paying into a pension, NI etc. Surely the only way to look at this is using net income? Its quite possible/likely that a retiree's income tax band can change during their retirement - when the state pension is drawn, if they become the beneficiary of a deceased DC pension etc. All my planning is based on what we actually spend now and how much net income we will have from different scenarios at different phases of retirement. Pre-tax income seems irrelevant unless you are looking to manage income to avoid crossing an income tax threshold. 

GunJack

littleboo said:

Regarding earlier posts and the effect of not paying into a pension, NI etc. Surely the only way to look at this is using net income? Its quite possible/likely that a retiree's income tax band can change during their retirement - when the state pension is drawn, if they become the beneficiary of a deceased DC pension etc. All my planning is based on what we actually spend now and how much net income we will have from different scenarios at different phases of retirement. Pre-tax income seems irrelevant unless you are looking to manage income to avoid crossing an income tax threshold. 

That is how I approach it - nett income. Too often on here you see people too hung up on minimising tax, rather than maximising income. I look at it like this - if your income goes up and you pay a bit more tax, so what?? as it means your nett income has gone up by more than the extra tax you're paying