Amount needed vs Amount wanted for retirement

EssexExile

blue.peter said:

 There's no need for a retirement fund of millions if your lifestyle doesn't require it.

But you have a defined benefit pension, like me. Wouldn't we need a big fund behind us if we weren't lucky enough to have that?

mole_man

blue.peter said:

Well, for what it's worth, I've been through it and am now retired, so here's my two penn'orth.

Although my retirement was precipitated by redundancy at 56, I'd always been planning to retire early and had been running a spreadsheet on which I'd been keeping updated estimates of my retirement income for a few years before it happened. I therefore already had a good idea of what regular income I could expect before the axe fell. (I had a defined benefit pension from a company for which I worked for many years and a smaller defined contribution fund with which I bought an index-linked annuity.) All I then had to do was a careful analysis of the last couple of years' bank statements to see what my likely expenditure would be in retirement if I wanted to maintain my existing lifestyle. (My lifestyle is not by any means extravagent, and never has been.) Would income exceed expenditure if I was to retire on redundancy? I concluded that the answer was "yes", and didn't bother looking for another job.

With my mortgage paid off, I own my house (and therefore don't have to pay either rent or mortgage). As others have noted, some expenses fall away at retirement. Also, you don't pay National Insurance contributions on pensions. And, for obvious reasons, no pension contributions are payable. However, I'm finding that I do run my central heating more now, and so that's a cost that has increased.

Everyone has different needs and desires, so a "one size fits all" approach won't work. You might have dependants still; you might still need to pay rent in retirement; you might want to travel a lot; you might want to buy a flash new car every couple of years: none of these apply to me, so I'm living very comfortably on a pension of a lot less than the £60k - £70k mentioned by one poster above. There's no need for a retirement fund of millions if your lifestyle doesn't require it.

Thank you for posting this. Some great points and advice in there. You’re right, everyone has different needs.

eskbanker

[Deleted User] said:

My mother who is now over 80 has a perfectly happy retirement on just over £14000 a year. 

[...]

Maybe those who believe they need thousands and thousands to retire ought to peruse some of the other sections of these excellent forums and realise they should be counting their blessings rather than their money.

You're obviously right that this is very much an individual subject, but perhaps worth noting that those who lived through post-war austerity are inherently more likely to have lower financial aspirations than those who've grown up in later eras with modern 'luxuries' taken for granted.  That's not to say that either perspective is right or wrong, just recognising the generational aspects of the discussion....

[Deleted User]

eskbanker said:

[Deleted User] said:

My mother who is now over 80 has a perfectly happy retirement on just over £14000 a year. 

[...]

Maybe those who believe they need thousands and thousands to retire ought to peruse some of the other sections of these excellent forums and realise they should be counting their blessings rather than their money.

You're obviously right that this is very much an individual subject, but perhaps worth noting that those who lived through post-war austerity are inherently more likely to have lower financial aspirations than those who've grown up in later eras with modern 'luxuries' taken for granted.  That's not to say that either perspective is right or wrong, just recognising the generational aspects of the discussion....

Many thanks for your response. Have to say though my mother doesn't scrimp. She updates iphone and tablet regularly, still drives a newish car and since her retirement at age 58 has travelled quite a bit. And don't get me onto clothes and the number of bags she has!! Obviously less travel now with the exception of the odd trip to Cyprus and European Cruise. She seems to manage well and saves for what she wants. She has several thousand pounds back up which is sufficient.

blue.peter

EssexExile said:

blue.peter said:

 There's no need for a retirement fund of millions if your lifestyle doesn't require it.

But you have a defined benefit pension, like me. Wouldn't we need a big fund behind us if we weren't lucky enough to have that?

It depends what you mean by "big fund" and how great an income you think you need. I don't know what annuity rates are like at the moment*, but I'd guess that it's something like 40:1 for an index-linked one. (Obviously, that depends on age and so on.) That'd mean that you'd need a fund of around £400k to provide an income of £10k/year at outset. That's substantial, certainly, but not unattainable if you and your employer contribute enough from a young enough age. And it's still not the millions of which some people speak.

And the state pension will be payable on top of that once you reach SPA.

Our DB pensions will implicitly represent funds of this sort of order, even though we don't see them directly. Our employers (and we, in the case of contributory funds like mine) will have been making appropriate pension contributions to fund it whilst we worked for them. It's because "balance of cost" DB pensions are so expensive for employers that there are so few of them left open.

*I had a much better idea while I was working - my last job was as the technical specialist in the annuity department of a large life insurance company. I see that I got about 32:1 at age 57 about five years ago, but that'll have changed with interest rate changes and other factors over the time since then.

Xbigman

It's not just about spending money. I'm lucky in that I'm single, no mortgage, don't drink or smoke and I ride an ebike so no car costs. I can live quite comfortably on 6k a year. My problem is I'm going to retire because of various health issues this year and it looks like I'll have about £17.5k to last 9 years on top of a £4k a year pension. Now knock off money for a new boiler, set of white goods, new ebike, a grand for house maintenance and a few other minor bits and pieces and that £17.5k looks a lot smaller. I've also put together a spreadsheet with actual costs on for 9 years allowing for costs going up faster than my pension.That means I've got to get my costs down to around the £5.3k a year area (in today's money). I'm allowing for some dividends coming in and some minimal share price appreciation but its tighter than I'd like. It is however 'doable'.

Back up plans, well the big one is equity release but I'll avoid that if I can. Once I get below £6k in savings I can get a council tax reduction (local council has a hard limit on savings of 6k) so there's potentially a few grand available in the final couple of years that I haven't allowed for on the spreadsheet. I am also in the position that with the state pension I'll have more than double the income I need so in the last year before SP age I would not be averse to jacking a few grand on a credit card knowing I can pay it off within 6 months of the SP arriving. 
Now I am under no illusions this is anything but cheap living but I'm surprisingly comfortable with it and, well, my health comes first.

Darren

ratechaser

[Deleted User] said:

The answer to this is very individual. However, I must say that most forum members who post in the retirement section of these forums are far from typical of the rest of the population. Indeed one or two posters above are extremely above average. I just dont get the need to have to mention having '3 million' in assets and still not retired! Its a bit like the, mine is bigger than yours syndrome.

Time and health are the most important things in my view.

My mother who is now over 80 has a perfectly happy retirement on just over £14000 a year.  Myself, at the age of 62 manage very well on just over £19000 pension income a year and manage to save several hundred pounds a month too.(For annual bills and hopefully, future travel) I have some savings and investments but certainly not loads!  I currently work a few hours a week (casual contract zero hours) because I enjoy the work, not because I have too. I dont earn much but the money goes towards wants rather than needs. I probably won't do this for much longer, as I have other things to occupy my time.

From age 66 my income from pensions, both work and state will be just over £28000 a year, which is more than enough.

Meanwhile, I will contine to visit the 'Over 50s' and 'How Much Have You Saved' sections where the real world continues to exist.

Maybe those who believe they need thousands and thousands to retire ought to peruse some of the other sections of these excellent forums and realise they should be counting their blessings rather than their money.

Best wishes and keep safe.

Well I can see how my comment could have been interpreted but it's not how it was intended - in fact I was trying to make a similar point to you in that time and health are the most important things, and that does sometimes get forgotten, regardless of how much or little you have. I've seen too many people in my industry continue working far longer than they really needed or wanted to because they didn't know what on earth else to do. 

And now I'm approaching 50, I can understand why - it's far easier to let inertia take over and just carry on with the status quo rather than properly plan for the next stage of their life. Some people are so institutionalised after a career in 'the city' that they don't have a lot more to their life - their friends, interests, social life, even their OH, are derived from their job. Hopefully I'm not in that boat myself, but it's really hard to make the break, even if there is no good reason to just 'carry on'...

So while many people will say that they wish they could have a 'problem' like this, it is a challenge nonetheless to put that focus back on your health, for whatever time you have left...

Eco_Miser

Some people have big salaries and lifestyles to match. They will need big amounts stashed away to continue those lifestyles.

Other people have small salaries, and lifestyles, and only need relatively small stashes to continue their lifestyle.

I stopped working full time at 30 and finally stopped work at 58. I'm 70 now and in all that time my 'normal' yearly spending has been under £5k, with occasional extra spendings of several thousand such as house deposit, new roof, new kitchen, new bathroom, averaging maybe £3k a year.  Since my SP started, I've effectively been living on less than that, meaning that the money I'd put by (about £200k for comparison), and the income from it is no longer being used.  I'd just convinced myself of that, and that I could afford to splash out when a certain virus arrived, and everything shut down.

OP, if you have modest needs and wants, then you probably only need to put hundreds of thousands aside, rather than millions.

ratechaser when (and before) I retired I got involved with local groups (community newspaper, heritage, in bloom, civic improvement, art) and never have been short of things to do.

[Deleted User]

'Since my SP started, I've effectively been living on less than that, meaning that the money I'd put by (about £200k for comparison), and the income from it is no longer being used.  I'd just convinced myself of that, and that I could afford to splash out when a certain virus arrived, and everything shut down.

OP, if you have modest needs and wants, then you probably only need to put hundreds of thousands aside, rather than millions.'

Eco_Miser Are you  referring to a pension pot of £200000? For a typical person to save that amount outside of a pension is well, not typical or possible.

Also curious how you paid a mortgage and saved so much by working part-time for so many years. Thank you.

blue.peter

ratechaser said:

...the only reason I'm still working is because I've still not worked out what the hell I'm going to do in retirement! Need to come up with an exit plan...

When I was made redundant five years ago, it was as part of a mass cull of staff. The employer gave us access to a career support programme run by an outside firm. Inter alia, that firm provided some assistance for those of us who were retiring as a result of our redundancy. In my case, that took the form of an afternoon spent with one of their counsellors. I found that discussion very useful in forming ideas (in addition to those that I already had). We started with a discussion of my personality, hobbies and interests, and developed from that. He had some very good ideas, some being things of which I wasn't previously aware. It turned out to be one of the most useful afternoons I've ever had. It shaped a lot of my life since then. If you can find someone like that counsellor to talk to, you might find it helpful. Of course, I don't expect you to be able to get it at your employer's expense, but it might be worth paying a bit for.

(That outside firm's main focus was on helping people to find new positions, but they offered the retirement stuff as well. As I recall, the retirement stuff is generally done as an all-day seminar, but they didn't have one planned for a couple of months, so they gave me a shorter 1:1 session instead. I also went to an afternoon seminar on financial planning, though that turned out to be less useful to me.)