How much to live on

Organgrinder

Interesting article in Guardian about using the NI cut to bolster your pension.

https://www.theguardian.com/money/2024/jan/13/divert-national-insurance-cut-bonus-to-a-uk-pension-experts-say

However, what annoys me about articles like this is they talk about the sum it could grow to using growth of 5% pa. Is that real terms growth?

There are so many people who don't factor in inflation.

For the examples given if inflation were 2.5% then for the 25 year old that £134,000 pot ends up at less than £50,000 in real terms.

Anyway rant over! ;-)

Kim1965

Anyone with a pension pot has been left significantly poorer with this last episode of high inflation. Some who have contributed to this thread with modest dc provisions may be feeling the squeeze? 
 I think it helps to make projections using smaller nett growth percentages. Perhaps using a 2 per cent growth in real terms, helps make sense of the numbers. 

Nebulous2

Organgrinder said:

Interesting article in Guardian about using the NI cut to bolster your pension.

https://www.theguardian.com/money/2024/jan/13/divert-national-insurance-cut-bonus-to-a-uk-pension-experts-say

However, what annoys me about articles like this is they talk about the sum it could grow to using growth of 5% pa. Is that real terms growth?

There are so many people who don't factor in inflation.

For the examples given if inflation were 2.5% then for the 25 year old that £134,000 pot ends up at less than £50,000 in real terms.

Anyway rant over! ;-)

Long term growth of equities is about 5% over inflation, so for someone with a long timescale prepared to go all in that would be about right.

It is a rollercoaster however, and many people don't have the stomach for the drops, so they temper it with bonds to reduce volatility. 

KittyS

Interesting comments and was told to pop over here.  I'm in the middle of redundancy consultation and have had ill health since I was 21.  I took my company pension out at 55 and if I get made redundant will have another small pension pot I will be given.  I was wondering if I could give up work for a little while at 56.  Have full payments to NI etc.  No mortgage and will have just over £18k per year to live on without dipping into my saving which are £155k.  I went to free financial advisor who said I need £2k a month.  Which I thought was a bit lavish, as currently not having holidays aboard as got a camper!!  Do you think I could live on this or even dip into my savings and spend £4k a year.  I don't have any one to leave it to and want to spend most of it and enjoy it x

Organgrinder

KittyS said:

Interesting comments and was told to pop over here.  I'm in the middle of redundancy consultation and have had ill health since I was 21.  I took my company pension out at 55 and if I get made redundant will have another small pension pot I will be given.  I was wondering if I could give up work for a little while at 56.  Have full payments to NI etc.  No mortgage and will have just over £18k per year to live on without dipping into my saving which are £155k.  I went to free financial advisor who said I need £2k a month.  Which I thought was a bit lavish, as currently not having holidays aboard as got a camper!!  Do you think I could live on this or even dip into my savings and spend £4k a year.  I don't have any one to leave it to and want to spend most of it and enjoy it x

A few things to maybe consider. 

At 67 you will get your state pension. This will give you almost £30k pa. After taking off tax it leaves you £26.5k so more than 2k a month.

This leaves you in a position where you need to fund any shortfall between 56 and 67. Your pensions of £18k will give you £1.4k per month so you need to fund £7.2k pa to give you your desired £2k.

Your savings "should" be more than adequate to cover this even accounting for inflation. I would have thought you could invest it and get it to generate around £4k - 5k whilst still keep the capital relatively safe.

I would definitely consider keeping some savings safe for any unexpected major expenditure. Eg house repairs.

BooJewels

KittyS said:

Interesting comments and was told to pop over here.  I'm in the middle of redundancy consultation and have had ill health since I was 21.  I took my company pension out at 55 and if I get made redundant will have another small pension pot I will be given.  I was wondering if I could give up work for a little while at 56.  Have full payments to NI etc.  No mortgage and will have just over £18k per year to live on without dipping into my saving which are £155k.  I went to free financial advisor who said I need £2k a month.  Which I thought was a bit lavish, as currently not having holidays aboard as got a camper!!  Do you think I could live on this or even dip into my savings and spend £4k a year.  I don't have any one to leave it to and want to spend most of it and enjoy it x

I'm older than you, but below state pension age and am living comfortably on less than that - but not currently running a vehicle - but also mortgage and rent free.  Your savings are enough to earn you around £600 per month in interest (although interest rates are now starting to fall, but you should be able to secure around 5% for a while), so that would be a nice top up to your £18k - so that would take you well over the mentioned £2k per month.  I suspect that figure allows for repairs and contingencies to allow you to live and cover anything that crops up.  Like I broke a tooth a few months ago and the resulting treatment and crown were well over £600 once I added 3 taxi trips to the dentist - so you need a buffer beyond daily living expenses for such eventualities.

Only you can really know if you can manage - you'll need to spend some time in either a spreadsheet or with a pencil and calculator and do some workings out.  I like a bit of spreadsheet action and when I first did the same exercise, I coloured items in my budget differently, depending on whether they were essential, desirable, contingencies or luxuries etc.  So I could see what would be do-able for me at different levels. 

Because interest rates rose considerably after I'd done that exercise, I've actually found myself way ahead of my original plans and re-worked it last year with a 5 year plan, factoring in inflation and drops in interest rates and a reduction in my savings as I spend some etc.

[Deleted User]

PersonaIly, I feel you have more than enough to retire fully. You will have £18000 a year plus substantial savings to get you through to state pension age. At state pension age at current values you will have another £11500(including April 2024 rise) a year to add to the £18000 a year pension. You will probably also have sufficient savings left as a financial back up. These figures will place you very much in the comfortable category compared to many others.

Organgrinder

I see the rumour mill is saying another 2% off national insurance in the budget. 

On the one hand I'd prefer an income tax cut but as I'm still putting into my pension pot it means I lose virtually whatever I gain.

I suppose this way I still benefit for the time being.

Personally however I'd rather pay taxes and have better public services. 

Albermarle

Organgrinder said:

I see the rumour mill is saying another 2% off national insurance in the budget. 

On the one hand I'd prefer an income tax cut but as I'm still putting into my pension pot it means I lose virtually whatever I gain.

I suppose this way I still benefit for the time being.

Personally however I'd rather pay taxes and have better public services. 

Although the majority of the voters want better public services and pay less taxes. Hence the reason the politicians duck and dive so much, as this circle can not be squared, but they have to pretend it can. 

Another NI cut will not help retired folk, who are supposed to be big Tory supporters. I am sure they would welcome an increase in the £12570 personal allowance more, as that would prevent people just living off state pension income not to have to start paying tax in the near future.

Organgrinder

Albermarle said:

Organgrinder said:

I see the rumour mill is saying another 2% off national insurance in the budget. 

On the one hand I'd prefer an income tax cut but as I'm still putting into my pension pot it means I lose virtually whatever I gain.

I suppose this way I still benefit for the time being.

Personally however I'd rather pay taxes and have better public services. 

Although the majority of the voters want better public services and pay less taxes. Hence the reason the politicians duck and dive so much, as this circle can not be squared, but they have to pretend it can. 

Another NI cut will not help retired folk, who are supposed to be big Tory supporters. I am sure they would welcome an increase in the £12570 personal allowance more, as that would prevent people just living off state pension income not to have to start paying tax in the near future.

The way things are going, unless the govt change tack, pensioners will be taxed on the new state pension.

Cutting NI is pretty discriminatory imo, as anyone not working sees no benefit.