What should the pension pot of a couple that hit 40 should be?

izawa

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

Our life style we would like to maintain post retirement:
2 intl holidays a year - £6000
2 UK domestic holidays - £2000
Electricity + Gas bill - £1600 pa
Council tax 1600 pa
1 car

Food habits - Average , happy with Tesco supermarket. Approx 4 restaurants a month.

I have two questions:
What should our pension pot at 40 be? (current age)
What should our pension pot at 60 be? (retirement age)

barnstar2077

izawa said:

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

Our life style we would like to maintain post retirement:
2 intl holidays a year - £6000
2 UK domestic holidays - £2000
Electricity + Gas bill - £1600 pa
Council tax 1600 pa
1 car

Food habits - Average , happy with Tesco supermarket. Approx 4 restaurants a month.

I have two questions:
What should our pension pot at 40 be? (current age)
What should our pension pot at 60 be? (retirement age)

Only you know what your annual spend is at the moment.  If you can say how much money you think you will need to live on for the both of you at 60 then people will be able to help.

It also depends if you are happy to eat into your capital, or if you would prefer a safe withdrawal rate instead? (which would require a much larger pot.)  

Thrugelmir

Paid off your mortgage yet? 

Marcon

izawa said:

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

Our life style we would like to maintain post retirement:
2 intl holidays a year - £6000
2 UK domestic holidays - £2000
Electricity + Gas bill - £1600 pa
Council tax 1600 pa
1 car

Food habits - Average , happy with Tesco supermarket. Approx 4 restaurants a month.

I have two questions:
What should our pension pot at 40 be? (current age)
What should our pension pot at 60 be? (retirement age)

Impossible to answer. You're over a quarter of a century from retirement and there are simply too many variables. What's your attitude to risk?

The old maxim of 'save as much as you can, as soon as you can' is about as close as you'll get to a sensible approach - provided that you don't tie up so much cash in your pension that you have to borrow to sustain your current lifestyle.

What other provisions will you have apart from your pension? e.g. https://www.express.co.uk/finance/personalfinance/1526072/property-pension-equity-release-equity-homeowners-retirement-income-house-prices

QrizB

izawa said:

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

That sounds a lot like the Which? luxury retirement to me, around £41k pa. You'll need something like a £1.25M pot, or two full UK state pensions plus £650k.

Secret2ndAccount

QrizB said:

That sounds a lot like the Which? luxury retirement to me, around £41k pa. You'll need something like a £1.25M pot, or two full UK state pensions plus £650k.

Bear in mind that if you save every year, and invest wisely, you should be able to get to those numbers by paying in something like half the amounts. The rest will come from returns and compounding.

Alexland

QrizB said:
 Which? luxury retirement to me, around £41k pa. You'll need something like a £1.25M pot, or two full UK state pensions plus £650k.

As the OP wants to retire at 60 then that's 8 years before their SP age so I would provision £160k (2 people x 8 years x £10k) to give that foundation of circa £20k pa then the extra £21k at a 1/30th drawdown rate would require a further £630k so £790k total to give them £41k pa. Maybe worth accumulating a bit more to give a margin for error or cover for poor market performance.
Obviously that target will increase each year with inflation and there will likely be some tax to pay depending on how evenly balanced the couple's pensions are.
In terms of how much they should have in their pots now at about 40 that depends when they intend to make their heavy contributions but the earlier the better.

LV_426

Also depends on the type of your pensions. If you have a DB (final salary) scheme, that's a huge bonus.

As stated above though, it's impossible to give a definitive answer because there are too many variables. You need to build a financial plan - collect all the information about your current pensions, and list all your income/expenditure. Put them into categories such as basic needs and luxuries. Then think about your desired lifestyle when retired.

Albermarle

QrizB said:

izawa said:

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

That sounds a lot like the Which? luxury retirement to me, around £41k pa. You'll need something like a £1.25M pot, or two full UK state pensions plus £650k.

The Loughborough study says you need a bit more - £45K and in both cases is after tax .Retirement living standards | Loughborough University (lboro.ac.uk)

As debated on this forum before - A real proper LUXURY lifestyle would cost a lot more . 

Audaxer

barnstar2077 said:

izawa said:

Hello,
Both me and partner are turning 40 this year. What should our pension pot collectively be in order to live a above average life style post retirement.

Our life style we would like to maintain post retirement:
2 intl holidays a year - £6000
2 UK domestic holidays - £2000
Electricity + Gas bill - £1600 pa
Council tax 1600 pa
1 car

Food habits - Average , happy with Tesco supermarket. Approx 4 restaurants a month.

I have two questions:
What should our pension pot at 40 be? (current age)
What should our pension pot at 60 be? (retirement age)

It also depends if you are happy to eat into your capital, or if you would prefer a safe withdrawal rate instead? (which would require a much larger pot.)  

I think a safe withdrawal rate can still use up some capital throughout retirement. The main thing is you plan it so you don't completely run out of money.

With a very safe withdrawal rate of maybe under 3%, your pot will probably still increase over time, maybe significantly, which will be important if the aim is to leave a large inheritance.

jamesd

Audaxer said:

barnstar2077 said:

It also depends if you are happy to eat into your capital, or if you would prefer a safe withdrawal rate instead? (which would require a much larger pot.)  

I think a safe withdrawal rate can still use up some capital throughout retirement. The main thing is you plan it so you don't completely run out of money.

With a very safe withdrawal rate of maybe under 3%, your pot will probably still increase over time, maybe significantly, which will be important if the aim is to leave a large inheritance.

All studies involving what are termed "safe withdrawal rates" assume that you are willing to have none of the capital designated for income left at the end of the number of years you're planning for if you experience a repeat of the worst case experienced when designing the rules and determining the safe withdrawal rate.

Since safe withdrawal rates are based on a worst case they are very conservative and a large amount of capital is normally available at the time of death unless the spending rate is increased. In the US only a couple of percent of cases using the 4% rule would have ended up with capital at the end of the planned number of years lower than capital at the start (just number amounts, inflation lowers the real value of what is left). While not a guarantee - you could experience the worst case or worse still - those are pretty good odds of leaving a very substantial inheritance.

The "designated for income" words mean that sometimes people do have a very high commitment to inheritance and set aside some money that they don't plan to touch, not using this money in their income calculations.