Amount needed vs Amount wanted for retirement

Eco_Miser

[Deleted User] said:

'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.

Not strictly a pension pot, as the pension rules were different back then and I didn't want to be buying an annuity at 65. (If I'd known that my pension would be getting 10% annuity when the market rate was 5% I might have acted differently).

The £200k was, and is, mostly in ISAs, with some unwrapped investments from pre-ISA days, and a chunk of cash in high interest accounts. Sold the last of the unwrapped last year, and the high interest has evaporated.

I'm not typical. I've saved all my life. When I finished full-time work there was a nice redundancy payment involved. When I bought the house (Band A for council tax) I could have paid cash, but that would have left me with nothing for furnishings, improvements or emergencies, so I got a low LTV mortgage, and eventually paid it off early.

Actually I was wrong about the £200k. That's its current value, so includes a decade of bull market growth, plus some extra contributions, post retirement.

How I actually saved what I saved? By not spending, mostly. For me, that's not difficult. I want very little, and what I buy, lasts or is very inexpensive. Not cheap quality, but bought when reduced.

ETA:

Regarding the possibility of a typical person saving £200k over a working lifetime.

£200k over 40 years is only £5k per year, less if you include the interest/dividends/capital gains generated.

There are well-supported threads on here titled "Save £12,000 in ...". Anyone who saved the headline amount in each of the nine years so far would have £108k plus returns already.

Mustbeananswer??

Resurrecting this thread to make it more current.

Its an important thread and was started in the Brexit and Covid period and has now survived a Cost of Living Crisis...Food Banks and Soup Kitchens.



So how do things look now for everybody and i'd like to attach a new question??


What are the options if the calculations and spreadsheets you raised got it wrong and you are now slipping into an untenable position.Would you consider Equity Release...Second Mortgage....getting a new job later in life(I cant see many doing this??).

Im not in that situation myself...but wondered what the get out jail card might be??  

boingy

Equity release has always been our contingency. We don't have any kids so it's an easy choice, not that I think we'll ever need to use it. We've always been pretty good at living well within our means.

One of my close friends is planning to have a significantly higher income in retirement than his employment pays him now! The only way he can do that is to carry on working until at least 70. It's his choice but I think it's a bad one...

Nebulous2

Mustbeananswer?? said:

Resurrecting this thread to make it more current.

Its an important thread and was started in the Brexit and Covid period and has now survived a Cost of Living Crisis...Food Banks and Soup Kitchens.



So how do things look now for everybody and i'd like to attach a new question??


What are the options if the calculations and spreadsheets you raised got it wrong and you are now slipping into an untenable position.Would you consider Equity Release...Second Mortgage....getting a new job later in life(I cant see many doing this??).

Im not in that situation myself...but wondered what the get out jail card might be??  

There are several pertinent threads on MSE. The 'what is your number thread' in the pension forum, and the 'how much to live on' thread in the over 50s moneysaving forum being two of them. 

However - many people do engage in some form of work after state pension age. I've read articles from Australia where people have blown their pension pot and gone back to work. That was predicted here with pension freedoms, but hasn't happened, or hasn't hit the headlines if it has. There have been a few headlines around recently, where people have said they will never be able to retire, and are still working beyond state pension age. I've posted several times about people I know of working well into their 70s although they don't need to financially. 

I took a part-time job on retiring, and that has lingered on longer than I intended, or expected. With every pay day the gap between now and  SPA age gets shorter, and I'm still enjoying it, while having a lot of free time. 

Having moved to a cheaper area, which freed up some capital I wouldn't have a great deal of equity to release- you can't take it twice - but fortunately I think its unlikely we will ever need it. 

Organgrinder

If Equity Release ever became something I needed to consider, I would do it via downsizing in order to protect the remaining capital.

We live in a relatively cheap part of the country. Our house is worth approx £300k. Two bed bungalows go for about £200-220k. So even with costs I think we could free up £50-60k.

How Carol Vorderman can advertise such products is beyond me.

As for pensions, we're on target for just over £50k between us at 67 with planned retirement at 61 with approx £30k pa from DB schemes. To cover the shortfall we should by then have personal pension pots of £150k plus savings of £30k. That's at today's rates. Any real term growth would push this up.

The 6 years between retirement and state pension should be fine - indeed it's fairly likely we'll still have most of our savings given our spending habits.

hugheskevi

Mustbeananswer?? said:

What are the options if the calculations and spreadsheets you raised got it wrong and you are now slipping into an untenable position.Would you consider Equity Release...Second Mortgage....getting a new job later in life(I cant see many doing this??).

Im not in that situation myself...but wondered what the get out jail card might be??  

At the highest level, the choices for any person and their retirement income are:

• Work longer
• Save more (reduce consumption now)
• Be poorer in retirement (reduce consumption later)

Assuming someone has fully exited the labour market and is slipping into an untenable position, saving more wouldn't be possible. So the options mostly focus around working longer and reducing consumption.

The options for more work would largely be returning to part-time or full-time work, the gig economy, or more traditional self-employment (eg use of past skills if relevant, gardening, cleaning, etc)

A variant of the above would be to indulge in the various ways of making money without working, eg, the things detailed on the Boost your Income forum on this site, bank account switching incentives, exploiting 0% credit card lending (ie stoozing), matched/arbitrage betting, putting £3,600 into a pension each year, maybe attending market research sessions for reward, etc.

Selling goods, eg clothes, unwanted goods, etc, could give a short-term boost but is unlikely to result in meaningful gains. Some may have more valuable jewelry, musical instruments, etc, which could give a useful boost but these may often have sentimental value, eg engagement rings, so there may be an unwillingness to part with these.

Ensuring receipt of all benefit entitlement would be prudent (including associated schemes, such as energy efficient housing improvements that may be available) as someone owning their own home in receipt of all benefit entitlement that is slipping into an untenable position should either have debt to service (and if unable to service can look to the various default options available to them) or else should be able to reduce expenditure (ie their untenable situation is a desire to consume beyond their means rather than an actual untenable situation). Transport, entertainment, pets, and food/drink may well be the likeliest categories for savings. 

The question implies a home-owner, so renting out a room or more, if available, may be an option (either long-term or AirBnb). Selling house and moving to a cheaper property might be an option, but often wouldn't result in many savings after expenses. However, many elderly people would benefit from moving to a more suitable property as they reach older ages and become physically less able, so it might fit well with that. For example, moving from a traditional 3 bed semi-detached house to a 1-bedroom ground-floor flat might release equity (especially if renting new home) and set up appropriately for final stages of life, and would also reduce ongoing utility bills. Equity release may be an answer for some if they do not wish to move home.

Some might rely on children gifting them resources, one way or another.

Nebulous2 said:
I've read articles from Australia where people have blown their pension pot and gone back to work. That was predicted here with pension freedoms, but hasn't happened, or hasn't hit the headlines if it has. 

I think it is far too early to make any conclusions about pension freedoms. We are still a long way from most people reaching retirement solely reliant on Defined Contribution pensions, and we are only a decade into pension freedoms whereas life expectancy at 65 is around 20 years or so.

Even with the Defined Benefit pension shift accelerated in the 1990s, it was normal for companies to close to new entrants, at least initially, with closure to future accrual happening sometime later if it happened at all. So we are probably another 10-20 years away from large-scale reliance on Defined Contribution pensions without support from Defined Benefit.

The PPF Purple Book shows there are still almost 5 million private sector Defined Benefit pensions yet to be put into payment (compared to just under 9 million currently in payment), and most of these undrawn entitlements will be for older individuals. So Defined Benefit provision still has a lot to deliver for newly retired individuals in the years to come.

ian1246

I've just come out of a divorce, so all my financial planning the last several years has gone down the drain.

Fortunately, I m still relatively young (I turn 35 this week!) and I've managed to hold onto 82% of my Police Pension which I've accrued so far (9.5 years service so far, albeit 18% of its transfer value will go to the ex-wife). The downside? I walked away with only 41% of the Family Home's Equity (which was sold), meaning for me to afford a modest 3 bed semi in the same village I've only managed to put down £25,000 deposit (keeping the remaining equity back in reserve) and have a £225,000 repayment mortgage until I'm 74 years old. The overall split of the marital assets was 50/50.

The other good news, though, is I was able to transfer the 2.52% Joint Mortgage (Still another 6+years fixed on it) into my name (the ex-wife decided to go into rental and we faced a 6%+ Early Repayment Charge), so I have ended up with a 2.52% £187,5000 Mortgage and a 6.69% £37,500 Top-Up Mortgage.

Basically, my retirement prospects are now directly tied up with my mortgage - if I can pay it off 14 years early ready for when I retire at 60, I'll have a reasonably comfortable retirement. Chucking all available income at overpaying the mortgage is the battle plan - however I'm currently heavily limited in that capability since I have £350+ a month childcare fee's (even with the government's new scheme and splitting the cost 50/50 with the ex-wife), for my 2 year old son who I co-parent equally 50/50.

The good news is I think I can get the Top-Up Mortgage (£220 a month currently) paid off in the next 6 years before my "main" mortgage comes off its fix, so when it jumps by a couple of % in interest (which if it goes up to 6.69%, will be an extra £420 a month. A 4.5% interest, due to a better LTV, would be only an extra £185 a month), the £220 which was previously going on the Top-Up Mortgage will hopefully cover most of that interest rate increase, allowing my own housing costs to remain relatively modest (£840) in the long-run, allowing me to plough significant funds into overpaying the mortgage and getting it gone.

A major aspiration is to be in a position to be able to afford to overpay the mortgage sufficiently to ensure its paid off when I'm 60 and to have enough spare income to grow a nest egg in a stocks & shares ISA, which I can then one day transfer to my son when he is an adult (25years old or so) for a deposit for a house of his own.

That's the plan - however if I were to stick my head in the sand and ignore my financial situation and chuck any disposable income at other "luxuries", in 6 years time when that low-interest fix comes to an end I could end up stuck with a £1260 a month Mortgage (compared to £840 currently) and a mortgage continuing until I'm 74 years old - both of which would be potentially catastrophic for myself on a single income, and with such a high mortgage, it would be significantly harder for me to dig myself back out.

I think, therefore, the amount needed for retirement is directly linked to financial commitment... and therefore financial prudence and planning. Those who can plan and manage well, will probably need far smaller funds for retirement than those who are less financially literate.... which is problematic, given the less financially literate will also be more likely to have smaller retirement funds!

Zanderman

Mustbeananswer?? said:

Resurrecting this thread to make it more current.

Its an important thread and was started in the Brexit and Covid period and has now survived a Cost of Living Crisis...Food Banks and Soup Kitchens

How important this thread is, in the banking and budgeting section, is questionable because it's out of place here.

The forum is wide-ranging and has discussion on pension needs in other places, where there will be better and fuller coverage.

This was pointed out many times earlier in this thread (and Nebulous2 has too in a recent reply). It would, surely, be more sensible to discuss these issues in those those sections rather than resurrect this outlier.

The key forum section is this: https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning   

A relevant thread, right at the top of that at present is this: https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number/ but there are many other very useful and relevant threads there. 

Well worth looking there if you're looking for general info on pension options, needs, issues etc than here.

artyboy

Ah, this thread again. Well, someone I once knew posted here so I'll add my 2c.

...which is that if I NEED 2c for retirement, I'm going to do my damndest to ensure I actually HAVE $2 - yes some would say I've been fortunate in life, but it's self-made and a big part of the reason for the rat race slog is that I don't want to have to eke out a subsistence lifestyle in my 60s (heating a tin of value beans over a candle etc etc).

So far, so good. Hopefully there's not a gargantuan market crash around the corner 

Bigwheels1111

I have a way to go yet, I will get a state pension only.
But live a frugal lifestyle as only get carers allowance of 4k a year to live on.
I only spend half of that a year mostly on gifts for Christmas and birthdays.
Plus a few holidays around the country in caravan parks.
Off season for price, plus less kids.
The joke is, I live well.
I need for nothing.

All my housing and food, car insurance etc is covered my friend who I care for.
I have a large savings pot from selling my house.
The interest from this for the next 5 and 7 years will top it up nicely.
Looking forward at retirement, State pension will be £15k ish or a bit more.
I plan to have enough saved to double this for 25 years and still have an emergency fund.
30k a year will be far more than I need a year.
Plus my parents went a bit ga ga by 75, I probably won’t know or care by then.