How much to live on

Madrick

"After paying council tax, you live on £3,800 pa or £73.00 per week?"


I spend more than that on food & drink and there's only two of us..
let alone the utilities bills, insurances, TV licences, running a car etc
Think the calculations may possibly  be slightly out somewhere. 🤔

DairyQueen

missile said:

GunJack said:

drummersdale said:

GunJack said:

sheslookinhot said:

Make sure you are maximising contributions to yours and your wife’s pensions before you make additional mortgage payments 

This isn't usually an option if you're in a DB/CARE scheme.... plus, when you know what your income is going to be in retirement, it's better to get the outgoings down beforehand, which for many is the mortgage.

For example, I know at 60 my income will be £21k (not including the PCLSs), so to have regular monthly outgoings of £6K rather than £15.6k inc. mortgage is a bit of a no-brainer..... people without DB pensions seem to overlook this all the time, and tend to assume everyone has nothing but DC. 

...and the mortgage overpayment would not produce enough, if put into a DC pension, to pay off the mortgage with the 25% TFLS by the time I get to 60...

Is that annual outgoings of £6k rather than £15.6k?  I think from a personal perspective I would be happier paying off my mortgage - using my own circumstances I would be c£700 a month better off which I could then add to a savings account.

yes, with no mortgage annual outgoings £6k (council tax, utilites, insurances, sky, phones, etc. - our CT is £2200 pa), if still paying mortgage it would be £15.6k pa. So, for me to pack it in at 60, I need to overpay to clear the mortgage by then.

After paying council tax, you live on £3,800 pa or £73.00 per week?

I thought that Sea_Shell's £15k p.a. budget (no mortgage, inc CT) was pretty frugal but £73p.w.? This is below the breadline for the vast majority of people.

GunJack: is this figure only covering your utilities? What about all of your other expenses? 

SuperSecretSquirrel

I think it's a figure for fixed "direct debit" style expenses - "council tax, utilites, insurances, sky, phones, etc". Food, entertainment, petrol, gifts, etc would be on top.

GunJack

SuperSecretSquirrel said:

I think it's a figure for fixed "direct debit" style expenses - "council tax, utilites, insurances, sky, phones, etc". Food, entertainment, petrol, gifts, etc would be on top.

Exactly!!  ...and just so you know, I ain't retired yet - over 50, but still got a few years to go!! 

The point I was making is that I'm overpaying our mortgage now so when I hit 60 I know that I'll be able to go at any point from thereon as the mortgage will be paid off, as those of us with 2x DB pensions won't have the luxury of a large 25% TFLS from a reasonable DC pot to pay it off at 55. I will have PCLSs from both the DBs, but not £150k's worth. The overpayments to the mortgage, if put into a SIPP, wouldn't generate enough in the time left to clear it, so I'll overpay and have no mortgage by 60.

When you've got DBs you're kinda stuck much closer to the NRAs of the schemes you're in, mine are 60 (the deferred one) and 65 (the current one, not that I'll be staying that late, if I'm not out of there by 61 something's gone drastically wrong 

..... and at 60 I know that our joint income (Mrs.G-J's income is NOT included in any of those previous figures) will be 1. guaranteed and CPI-linked, 2. will be plenty for all the fixed costs and lots of fun on top and 3. will still give us pretty much all of my PCLSs on top to play around with 

..oh, and I forgot the 2x full SPs to come at 67 & 68 when we REALLY party!!

GunJack

Jeez, I've edited that last post 5 times now and there's a bit of it that STILL won't display correctly.... I give up!!!

edit:- 6th time lucky  

hugheskevi

GunJack said:

those of us with 2x DB pensions won't have the luxury of a large 25% TFLS from a reasonable DC pot to pay it off at 55. I will have PCLSs from both the DBs, but not £150k's worth. The overpayments to the mortgage, if put into a SIPP, wouldn't generate enough in the time left to clear it, so I'll overpay and have no mortgage by 60.

When you've got DBs you're kinda stuck much closer to the NRAs of the schemes you're in, mine are 60 (the deferred one) and 65 (the current one, not that I'll be staying that late, if I'm not out of there by 61 something's gone drastically wrong 

I think that there is scope for a lot more imagination with DB pensions. The great thing about DB is that you can easily build up a DC pot alongside it, whereas if your employer offers DC, you cannot build up a DB pension.

The DB and DC combination provides everything - the security and guaranteed nature of DB at a very low Lifetime Allowance useage (albeit at the cost of flexibility) and the flexibility of a DC pension (albeit at the cost of uncertainty). DB and DC are great complements, very much a case of being more than the sum of their parts as just DB or just DC brings additional problems to manage.

Personally I've spent many years merrily contributing more to enhance my wife's and my own DB pensions, only to massively reduce the annual payment by taking them early at age 50. At first sight, that seems a very odd strategy, but taking into account the pricing of the pension and the tax efficiency of taking pension at age 50 and target income needs, it all makes sense.

Then on top of that, DC pension provides a lump of capital to provide resources equal to State Pension for the period between age 55 to 68. It also provides great flexibility should I wish to skew consumption a bit toward the earlier years. Then I can use any left over to defer State Pension, ensuring I don't need to worry about managing investments and risk as I get into my later years.

I think viewing DB as being a great pension, but then thinking about how to build around the DB pension and wider financial position to develop the ideal tax efficient pension outcome is an often overlooked aspect of pensions. Unfortunately, the best outcomes result from consideration and action early in life, before many really engage seriously with pensions.

GunJack

I get where you're coming from hugheskevi however that's great if you can afford to build a DC alongside the DBs....not everyone can due to a wide range of factors. In our case Mrs.G-J health over many years has made it unaffordable to be SIPPing extra as we've had to get by with one salary and a small amount of benefits.....

I am glad I've got the DBs rather than DCs, and if certain other factors had been different then our mortgage would have been cleared earlier (thanks, 2008 financial crisis!!), however we are where we are and are still on course for a comfortable retirement well before SP age. 

Madrick

Repaying the mortgage can be the right or wrong thing to do financially , but for many (myself included) paying it off is mentally the right thing to do.

Handing over that final payment felt so good.
Shutting the front door knowing that you finally own your property 100%... for us was priceless.

Gives you and Mrs GJ the freedom to plan your retirements without that hanging over you 👍

Dizee123

Without really thinking too much about it I ran an AVC contribution alongside my PCPCS pension for many years.  It wasn't much each month as a percentage of salary, but over the years it built up into sufficient to enable 2 years of early retirement at 58.  I now don't need to draw my Classic/Alpha until 60, so won't be hit with an actuarial reduction on Classic, and less on the Alpha component.  I'd like to say that this was down to my brilliant financial planning and advice, but I just forgot about it as it was taken off my wages before I could spend it on other things!  If it wasn't taken off my salary, I would guess that with 2 children I would have found other things to spend it on quite easily.......

I also overpaid my mortgage as we had an endowment that was forecast to have a large shortfall.  In the end, it didn't so we treated ourselves to a new kitchen and cleared the mortgage at age 54.  With hindsight, I might have done better to invest the overpayments, but in these days we were paying about 5% interest on average, so it made more sense and gave a warm, fuzzy feeling of security to know that it had gone.

After the mortgage had gone we lived on our projected income in retirement for a few years until I felt secure in handing in my resignation on 31 Jul this year.  The extra savings has also given us a buffer for replacement cars, new roof and the unexpected (air source heat pumps!) for the future.

I know it is still early days, but my stress levels are very much decreased so I am well pleased with my decision, even though it still feels like I am on annual leave....

Advice to younger self would have been to save more if possible to go earlier, but I can't regret the lovely holidays we have had so I don't regret working past 55 to do more fun things when we were younger.  

blue.peter

GunJack said:

When you've got DBs you're kinda stuck much closer to the NRAs of the schemes you're in

Well, that depends on the rules of the scheme. Most schemes will allow early retirement (possibly only with the trustees' agreement), but with a reduction in the pension payable. The rate of reduction should more or less reflect the effect of taking pension earlier - the shortened investment period, the lack of contributions between ER age and NRA, the poorer annuity rates at younger ages ('cos the fund has to last longer). Having said that, some schemes' early retirement reduction factors are fairer than others. The question is really whether you, as a scheme member, are willing to accept the lower pension payable on early retirement.

But this is, in effect, exactly the same question that arises in relation to a DC scheme: can I live on the benefits that the scheme will pay me now, or do I need to leave it for another year (or five)?