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

Audaxer

jamesd said:

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.

So if you put aside a large amount of investments that you didn't want touch, I'm assuming you would work out your safe withdrawal rate on the remaining portfolio that you are planning to use for income. However, as you say, if you take a fairly safe withdrawal rate from the overall portfolio, you would probably end up leaving a good inheritance anyway.

cloud_dog

Fidelity have a useful retirement guidelines maths tool.

Obviously this is generic but may give you a feel.

marlot

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)

Rather than fixate on the size of the pot, I'd suggest downloading your bank statements for the last few years and creating a spreadsheet of your real expenditure.

I separated mine into three:
Spend on everyday items which will continue into retirement
Spend on big items (eg car replacement, house repairs) needed every few years
Spend which stops when I get to retirement/ starts at retirement - commuting, new hobbies etc

So far, my annual spend is within about 1% (adjusted for inflation).

[Deleted User]

Ok I will stick my neck out (based on the fact I am early recently retired), all based on personal assumptions and the fact the last 5 years of working I was putting in 30-40% of salary/ employer contributions into the D.C. pot

At 40, anything close to 500k is doing very well

At 60, with mortgage paid off, and assuming no LTA problems, a joint pension pot of 1.2+ million would be good enough for a very comfortable lifestyle, with a downsize at some point 

The way we did it was to establish a lifestyle that we were comfortable in, then every payrise/bonus above inflation.. into the pension (ie promotion etc)

[Deleted User]

marlot 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)

Rather than fixate on the size of the pot, I'd suggest downloading your bank statements for the last few years and creating a spreadsheet of your real expenditure.

I separated mine into three:
Spend on everyday items which will continue into retirement
Spend on big items (eg car replacement, house repairs) needed every few years
Spend which stops when I get to retirement/ starts at retirement - commuting, new hobbies etc

So far, my annual spend is within about 1% (adjusted for inflation).

I didn’t actually do this, but from the past year, my spend is 30% of my previous spend when I was employed.
Caveat.. I worked in the SE but live in the Fens, even though most of my expenses were covered by my employer, I find that I am actually struggling to spend.. and that’s just not Covid 

granta

Deleted_User said:

Ok I will stick my neck out (based on the fact I am early recently retired), all based on personal assumptions and the fact the last 5 years of working I was putting in 30-40% of salary/ employer contributions into the D.C. pot

At 40, anything close to 500k is doing very well

At 60, with mortgage paid off, and assuming no LTA problems, a joint pension pot of 1.2+ million would be good enough for a very comfortable lifestyle, with a downsize at some point 

Are your figures for a couple or one person?

[Deleted User]

granta said:

Deleted_User said:

Ok I will stick my neck out (based on the fact I am early recently retired), all based on personal assumptions and the fact the last 5 years of working I was putting in 30-40% of salary/ employer contributions into the D.C. pot

At 40, anything close to 500k is doing very well

At 60, with mortgage paid off, and assuming no LTA problems, a joint pension pot of 1.2+ million would be good enough for a very comfortable lifestyle, with a downsize at some point 

Are your figures for a couple or one person?

For us , a couple. And assuming full state pensions at 67-68

bostonerimus

The OP should do a really detailed budget and then apply sensible growth to their investments to see if they are on track.

I have no debt and no mortgage and I live comfortably on $30k/year (~20k GBP). So if we use the much misused and abused 4% rule for a 30 year SWR that implies a drawdown pot of 500k GBP is needed for an index linked 20k GBP for 30 years, but if we assume 9k GBP state pension is available that brings the pot down to 275k GBP as I'd only need to generate 11k GBP. If you were to buy an index linked single life time annuity at age 65 to generate the 11k GBP you'd need a pot of 400k GBP - you'd get longevity insurance, but you'd also lose your capital.

So work back from appropriate numbers for you assuming a rate of return and including your contributions.

Pablo7474

I would think £500k at 40 is unusually high as if you stopped contributing and achieved just over 4% per annum you would hit £1.2m at 60 

1980ds

At 40 I’d say the following:

100k = ok
200k = reasonably good
300k = very good
400k = awesome
500k = sorted given the % interest that it will gain over next 20 years

thoughts? Obviously depends on earnings and many other factors, e.g. if someone’s earning 30k and has a 300k pot at 40 they’ve done very well.