How much to live on

Best_Auntie

Hi,

I've been a lurker here for quite a while. I've managed to read through quite a lot of the 350+ posts but not all so forgive me if I have missed something.

I hope this is the right place to post if not perhaps someone can kindly send me in the right direction. I chose to post here because this thread seems more sensible, rational and welcoming than over on the pensions section where its all million pound ISAs and 500K pension pots.

I've never earned pots of money and can't quite believe that I might have got myself into a position where I think I might be able to retire a few years early. I'm really looking for your opinions and reassurance (or not) that my figures are realistic and I'm not kidding myself.

I have a DB pension of around £13k pa with a lump sum of £35k that came into payment when I turned 60 last year. I currently work part-time 2 days pw earning £15,700 pa in local government and pay into the LGPS CARE pension. If I took this now, it would pay out £1,700 pa, with the option to take a lump sum in return for a reduced monthly payment. The NPA is 67 (in 2032) for this pension and if I worked until then it would pay £4,500. I will qualify for a full state pension at that time (checked and double checked the forecast). My husband currently receives full state pension as his only income.

Currently:

We live quite simply. we don't have expensive holidays, big TVs etc.

We live in a small one-bed flat with no mortgage. So no opportunity to downsize but no dependents or descendants to worry about. So, possibly equity release as a fallback, but I must admit I don't like that idea.

Our joint day-to-day living expenses come to £1,100 per month to which we each contribute 50%. Hubby spends the rest of his pension on beer and motobikes :-) I allow myself £400 spending money (although I usually only spend £200 to £300 of that. then I put £130 pm away for car insurance and one offs. We both own older cars but drive so little now that we will probably cut down to one eventually. So roughly we need £25K per year to cover all our expenses . Or £18k if one of us goes before the other.

The lump sum went straight into ISAs and fixed bonds. We had a small insurance payout when hubby was seriously ill a couple of years ago, I had some small existing savings and have managed to save some since the pension came into payment. I manage to save around £1k per month currently into ISAs and premium bonds and currently have around £56k which I feel is a comfortable amount for emergencies, replacing white goods and repairs.

I've been offered an extra half day at work which would give me an extra £200 net pm. But I am a carer for my Dad and don't know if I can spare the extra hours.

Once I reach 67 with our 2 state pensions, my DB pension and LG pension we will be very comfortable. But if I retire early I would need an extra £4-5K per year to bridge the gap, ideally to take my income up to £18k per annum.

I had an idea that I would aim to retire in late 2028. But things at work are changing and I don't want to stick around for that long if I can help it. If I take the extra half day I reckon I could retire sometime in 2027. But the idea of working extra hours in a job I now have no enthusiasm for and struggling to care for Dad doesn't appeal either.

My plan is to pay £300 to £500 per month in AVCs to the LGPS as this would reduce income tax and NI on my salary down to 0, and to continue saving into ISAs until I can afford to bridge that gap. I'm thinking that with the AVCs I could build up enough of a pot with the LG pension so that at some point I will be able to leave work and take that straight away along with some savings to bridge that gap. LG pension would be at a reduced rate but long term after I reach state pension age the LG pension amount won't make much difference to our lifestyle compared to the state and DB pensions.

Sorry this has turned into a very long post but if you have been kind enough to read this far I would really welcome your thoughts, Am I being realistic? Are there any options or pitfalls I've not considered?

Many Thanks

Organgrinder

https://forums.moneysavingexpert.com/discussion/comment/81964869#Comment_81964869

Just a thought here. But you say you have a shortfall of £4-5k pa. I assume this is for 6 years.

You could use your savings for this. Broadly speaking your £56k would shrink to say £30k considering it will still be earning interest. Then you get the state pension. You could replenish your savings in 5 years or so.

This is what I'm going to be doing and it is quite a mindset change to think of savings as a source of income instead of a nest egg.

Smudgeismydog

I appreciate you say £56k feels comfortable as an emergency fund for things like replacement of white goods etc, but actually that seems quite a large figure.
I would agree with @Organgrinder in terms of paying yourself the top up income from your savings. I am currently paying myself a monthly income from my cash savings, and in 4.5 years time, will top up my cash savings once I can access my pension.

It sounds like you have a lot on your plate with work and caring for your Dad, and work is no longer providing enjoyment. If you can free up the work time, this might provide an opportunity to have some time for yourself (and your hubby), to do some of the things you would like to do.

jackieblack

https://forums.moneysavingexpert.com/discussion/comment/81964967#Comment_81964967

I agree, this is broadly my plan as well (although my numbers are not as much as yours and I'm single.

Having lost both my parents in the last 2 years (8 1/2 months apart), I wish I had had fewer work commitments while they were still here…

Best_Auntie

https://forums.moneysavingexpert.com/discussion/comment/81964946#Comment_81964946

Thanks, Organgrinder, yes, that would be £4-5k per year for 6 years.

You are correct, it is a change of mindset to think of savings as income after squirrelling it away for so many years. Watching that total come down is something I will definitely struggle with, no matter how much I have put away.

I can't quite believe I am now at the point where I can consider giving up work.

Best_Auntie

@Smudgeismydog. Thank you for your reply. It's reassuring to know others are thinking along the same lines. It gives me some confidence to believe I can do it.

@jackieblack I'm so sorry to hear about your parents. Losing both in such a short space of time must be hard to handle. After Hubby's battle with cancer 2 years ago we have definitely learned the value of enjoying the here and now. Even the small things, like listening to Popmaster together, are to be cherished.

Albermarle

OP - There is something in the figures I do not quite follow, although I may have got lost in all the detail.

You say that -

So roughly we need £25K per year to cover all our expenses .

You currently get a £13Kpa DB and your husband gets the SP, which is presumably a similar figure. So you are covered?

But then you say -

But if I retire early I would need an extra £4-5K per year to bridge the gap, ideally to take my income up to £18k per annum.

Is that £4-£5K actually a necessity , or it would just make you feel more comfortable ?

 over on the pensions section where its all million pound ISAs and 500K pension pots.

There is some truth in that, but there are also many new posters who are totally confused about pensions, or just not sure about all the rules about tax relief, drawdown, annuities, tax, SP entitlement, changing legislation; difference between DB and DC pensions etc etc . In these cases the forum is valuable source of advice for those not so well off, as well those with a few bob stashed away 😉

helensbiggestfan

Hi Best Auntie.

Welcome to the thread. I think you are very wise to consider early retirement - especially given your circumstances. You have a lot on your plate and the last thing you need to do is reach burn out. Don't ask me how I know……lol.

It can be difficult psychologically to get into drawn down mode when we have been conditioned all our lives that we must always think about the dreaded "rainy day" and keep stashing money away. . However, the figures you quote look good, you should be fine.

I gave up work as an emergency measure to care for my husband when I was 56. Financially I was no where near ready but I survived. Where there's a will, there's a way. There are always options and opportunities. I never did go back to work after my husband died even though I was offered a couple of quite lucrative jobs. Instead I decided to look for sideline businesses to top up my pension income. I'm now 74 and of course am in receipt of both state and private pensions. My private pension isn't large but it's enough and I can live quite comfortably on the combined pensions.

I still like to "dabble" a bit when the mood takes me, always on my own timescales. Any money I earn is an extra, usually adding to my savings or perhaps the occasional splurge. It all works out very well.

One thing I have learned is that once I had retired my expenses seem to reduce quite naturally, without much thought or effort on my part. I haven't had to skimp or make sacrifices.

This morning I have been reviewing a few bits and pieces and making a few tweaks, something I usually do at the beginning of the financial year. Cancelled a couple of subscriptions. Still undecided about Denplan, whether to keep or pay as I go. And I still haven't approached HRMC yet to claim a tax rebate.

It's on my to do list. But not today. 😉

Best_Auntie

Hi @Albermarle Thank you.

Yes, you are correct, £25k would cover living expenses for both of us together, and in that respect, we are covered now. I was probably not clear about why I am aiming for £18k, and that is my fault for the long, waffly post.

I've calculated that £18k would be the amount either of us would need to live comfortably on our own, i.e. if one of us passed before the other. Hubby would have his state pension, plus half of both my DB pension and LG pension, plus if I die in service, he gets a large lump sum. So he would be fine financially.

However, if I leave work and if he went first, before I reach SP age, I would only have my DB and LG pensions, which would fall £4k to £5k short. Morbid but realistic. I was taught by my Grandmother, an independent, single mother and successful business woman, never to be dependent on anyone. My husband's cancer battle has not only taught us to enjoy the moment but also that none of us knows for sure what will happen tomorrow. Hence the £18k figure.

The pension's section isn't all scary stuff, I will admit that I did a lot of reading there on AVCs.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81965682#Comment_81965682

In that case your savings should be sufficient back up,( as suggested by other posters), as hopefully you will not have to draw on them anyway.