This is money, how much you need in retirement

jamesd

Bravepants said:

...for example, he seems to suggest that annuities pay better than 4% (when comparing with the "safe withdrawal rate")

They can, depending on a combination of country and personal factors including age and health. Before that in the UK often comes state pension deferral, though not for those with the worst life expectancies. The catch is loss of capital that can put people off, combined with worst case SWRs being more pessimistic than likely outcomes, so sticking with recalculated SWRs may pay more.

[Deleted User]

Bravepants said:

pip895 said:

I would find it depressing to think I had factored in reduced funds after a certain age (particularly when I was approaching that age!) so have kept my budget requirements flat.  A separate pot of money put aside for early retirement “treats” would seem a better way to go.  

Predicting requirements far into the future is virtually impossible so it’s best to keep it simple.  

I just bought a book called "Die with Zero" for Kindle: https://www.amazon.co.uk/gp/product/B07T5LSF1J

Though I take some of what the author says with a pinch of salt...for example, he seems to suggest that annuities pay better than 4% (when comparing with the "safe withdrawal rate"), but it gives a good perspective.

Annuities do pay more than 4%. Standard level annuity in Britain pays 5% for a 65 year old.  Even a 60 year old gets more than 4%.  

pensionpawn

segovia said:

SouthCoastBoy said:

kuratowski said:

bostonerimus said:

So do your own detailed budget and then figure what items will be different in retirement: you might not have a mortgage payment or commuting costs. 

The other data I have observed to test my adjustments is the rate at which my parents have slowed down in their late 70s; and I'm not saying that it will be the same for me, but things like going out in the evenings, travelling more than 100 miles away from home, etc, do not appear to be costs that are likely to persist into very old age.

I think this is the key, retirement spending won't be linear, my 89 year old father in law, goes hardly anywhere and doesn't want to, he gets too tired, however in his 70s he was very active. Generally (not the same for all) I think it is a fair assumption that at 80+ expenditure will decrease. Personally in my plan I have front loaded spending at 3k/mth until 80, then a gradual decrease from there. 

The only piece of decent advice I got from an IFA, was "who needs 000's when they are in their 80's and 90's", take your money and enjoy it in your 60's and 70's. This was from an initial conversation about a DB transfer many years ago. In his case it was sadly true, he got cancer and died in his late 50's. 

My thoughts exactly. I'm planning to semi-retire next April (56) and fully retire within a couple of years of that. The wife has already started down that route. We want more time (end energy) together now and after bringing up three daughters (the youngest is now 20) we don't need the the same level of income in retirement, and hence we don't need to keep our noses pressed to the grindstone to achieve LTA threatening pots. We're not getting any younger and want to do and see plenty before the ageing process really slows you down (from 70 looking around my family). No point being the richest person in the graveyard. From 80 onward, I'll be content if I can wipe my own !!!!!!, wash, clean and feed myself and just potter around enjoying the garden, reading, my family etc. Not exactly activities to burn through the cash. What spare wealth I have I fully intend to drip feed to my children. I firmly believe that we can have a very comfortable retirement on 2 x personal allowance and if you're not planning on taking your pot to the grave that's very achievable over the average working lifetime. 

Notepad_Phil

segovia said:

SouthCoastBoy said:

kuratowski said:

bostonerimus said:

So do your own detailed budget and then figure what items will be different in retirement: you might not have a mortgage payment or commuting costs. 

The other data I have observed to test my adjustments is the rate at which my parents have slowed down in their late 70s; and I'm not saying that it will be the same for me, but things like going out in the evenings, travelling more than 100 miles away from home, etc, do not appear to be costs that are likely to persist into very old age.

I think this is the key, retirement spending won't be linear, my 89 year old father in law, goes hardly anywhere and doesn't want to, he gets too tired, however in his 70s he was very active. Generally (not the same for all) I think it is a fair assumption that at 80+ expenditure will decrease. Personally in my plan I have front loaded spending at 3k/mth until 80, then a gradual decrease from there. 

The only piece of decent advice I got from an IFA, was "who needs 000's when they are in their 80's and 90's", take your money and enjoy it in your 60's and 70's. This was from an initial conversation about a DB transfer many years ago. In his case it was sadly true, he got cancer and died in his late 50's. 

I think Mrs Notepad's mother might disagree with your IFA. She's in her nineties and is only too happy to still have her 000's as it allows her to pay for the necessary supports that means she can continue to live her independent life to the fullest extent possible.

Our intention is to live comfortably throughout our retirement and that unfortunately is going to mean needing access to 000's in our later life as we only have a small amount of DB pension to look forward to (and mine has a very poor indexation and so is probably going to pay peanuts when I hit my nineties).

I much prefer living my life thinking I'll live to 100 and planning how to make that comfortable life happen - if that means that we don't go on that Round the World cruise until we get to our eighties then that's fine

Linton

segovia said:

SouthCoastBoy said:

kuratowski said:

bostonerimus said:

So do your own detailed budget and then figure what items will be different in retirement: you might not have a mortgage payment or commuting costs. 

The other data I have observed to test my adjustments is the rate at which my parents have slowed down in their late 70s; and I'm not saying that it will be the same for me, but things like going out in the evenings, travelling more than 100 miles away from home, etc, do not appear to be costs that are likely to persist into very old age.

I think this is the key, retirement spending won't be linear, my 89 year old father in law, goes hardly anywhere and doesn't want to, he gets too tired, however in his 70s he was very active. Generally (not the same for all) I think it is a fair assumption that at 80+ expenditure will decrease. Personally in my plan I have front loaded spending at 3k/mth until 80, then a gradual decrease from there. 

The only piece of decent advice I got from an IFA, was "who needs 000's when they are in their 80's and 90's", take your money and enjoy it in your 60's and 70's. This was from an initial conversation about a DB transfer many years ago. In his case it was sadly true, he got cancer and died in his late 50's. 

This seems poor advice to me.  Apart from some extra expenses as you get older you run the risk of living too long when the unhappiness of having to leave your home because you can no longer afford it will outweigh any happiness from the barely remembered extravagence of 25 years previously.

Dying early isnt a financial problem - you will be dead and so in no position to care.

My approach is to budget on a steady normal ongoing expenditure with known future large expenses - eg a new car every n years up to my 80's.  Real major discretionary expenditure is treated separately.  An expense such as an luxury holiday is taken from capital and so the decision can be based on one's financial situation at the time.

A related factor comes from prudent planning.  Ones plans should be based on ensuring one can manage even in the face of extreme financial events.  Most people most of the time will accumulate significantly more wealth than planned during say the first 5-10 years of retirement because the planned-for events dont happen.  At that point one would be in a position to increase expenditure.

If you spend too much too early and an extreme event does occur you could be left very exposed.

Thrugelmir

Deleted_User said:

Bravepants said:

pip895 said:

I would find it depressing to think I had factored in reduced funds after a certain age (particularly when I was approaching that age!) so have kept my budget requirements flat.  A separate pot of money put aside for early retirement “treats” would seem a better way to go.  

Predicting requirements far into the future is virtually impossible so it’s best to keep it simple.  

I just bought a book called "Die with Zero" for Kindle: https://www.amazon.co.uk/gp/product/B07T5LSF1J

Though I take some of what the author says with a pinch of salt...for example, he seems to suggest that annuities pay better than 4% (when comparing with the "safe withdrawal rate"), but it gives a good perspective.

Annuities do pay more than 4%. Standard level annuity in Britain pays 5% for a 65 year old.  Even a 60 year old gets more than 4%.  

20 to 30 years of inflation compounded at 2% erodes the value. If inflation spikes higher as is being forecast. Then those who bought fixed rate annuities more recently are going to see their buying power reduced considerably. 

[Deleted User]

There is some research showing that people do tend to spend more during the early years of retirement.  Quite likely its because they are capable of travelling and spending on  costly hobbies which become impossible as retirement progresses. However, we don’t know for sure. It’s possible people spend less later on, on average, because many start running out of money. After all, there are good but costly options for housing and care later on, and many can’t afford them. What happens to our longevity and health is a key unknown. 

Sea_Shell

Deleted_User said:

There is some research showing that people do tend to spend more during the early years of retirement.  Quite likely its because they are capable of travelling and spending on  costly hobbies which become impossible as retirement progresses. However, we don’t know for sure. It’s possible people spend less later on, on average, because many start running out of money. After all, there are good but costly options for housing and care later on, and many can’t afford them. What happens to our longevity and health is a key unknown. 

I'm sure I've read somewhere about the "U" shaped spending curve in retirement.

You start off with high spending needs (wants) whilst "young" and then it starts to tail off, but then can start to increase again, quite dramatically, in later life. 

Albermarle

Sea_Shell said:

Deleted_User said:

There is some research showing that people do tend to spend more during the early years of retirement.  Quite likely its because they are capable of travelling and spending on  costly hobbies which become impossible as retirement progresses. However, we don’t know for sure. It’s possible people spend less later on, on average, because many start running out of money. After all, there are good but costly options for housing and care later on, and many can’t afford them. What happens to our longevity and health is a key unknown. 

I'm sure I've read somewhere about the "U" shaped spending curve in retirement.

You start off with high spending needs (wants) whilst "young" and then it starts to tail off, but then can start to increase again, quite dramatically, in later life. 

I do not know the statistics , but it is clear that most people will have more money spent on their health needs in the last few years of life than the rest of their life put together . If you lived in a country ( US ) where you have to pay then I can see why there would be a U curve. Maybe not for UK though due to free NHS treatment.

Sea_Shell

Albermarle said:

Sea_Shell said:

Deleted_User said:

There is some research showing that people do tend to spend more during the early years of retirement.  Quite likely its because they are capable of travelling and spending on  costly hobbies which become impossible as retirement progresses. However, we don’t know for sure. It’s possible people spend less later on, on average, because many start running out of money. After all, there are good but costly options for housing and care later on, and many can’t afford them. What happens to our longevity and health is a key unknown. 

I'm sure I've read somewhere about the "U" shaped spending curve in retirement.

You start off with high spending needs (wants) whilst "young" and then it starts to tail off, but then can start to increase again, quite dramatically, in later life. 

I do not know the statistics , but it is clear that most people will have more money spent on their health needs in the last few years of life than the rest of their life put together . If you lived in a country ( US ) where you have to pay then I can see why there would be a U curve. Maybe not for UK though due to free NHS treatment.

I didn't think it included NHS care, more like needing cleaners, gardeners, all "DIY" type small jobs, private home care, or private residential care or home adaptations etc.