Standard of living - minimum, moderate or comfortable figures released today (12 January 2023)

DT2001

Albermarle said:

michaels said:

DT2001 said:

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps Accordingj to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

The report assumes buying an annuity at 6.2%. They do state that rates vary etc etc.
From a quick look it wouldn’t be too far off for a 67 year old in some parts of the country.

I think the report is a starting point. As has been said we are all different so need to adapt/create our own budget and decide how to generate income - use an annuity, BTL, SWR from a pot, ISA’s etc

If you can get a fully indexed 100% spousal annuity paying more than the 'swr' then unless you are worried about inheritance it sounds like a no brainer.  Last time I looked annuity rates were in the 2.x% range.

AFAIK, fully inflation linked annuities are not that popular, as they are expensive. So it could be the report is looking at ones with a cap, which of course brings the price down.

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps According to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

I looked at the 3% capped annuities and they were quoting 5.7% at 65.

They could be used to cover ‘essential budget items’ for peace of mind and the balance of your pot flexibly withdrawn depending on returns.

If the report is aimed at those with little investment knowledge expecting them to manage a SWR or a Guyton-Klinger adjustable up and down is unrealistic?

If the reports encourage saving for retirement it is better for the country (as less reliant on benefits and future tweaks to SP) and most retirees.

Nurse2047

can I ask when we find our pension number do we need to factor in inflation? 

https://www.in2013dollars.com/uk/inflation/2023

zagfles

DT2001 said:

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps According to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

The report assumes buying an annuity at 6.2%. They do state that rates vary etc etc.
From a quick look it wouldn’t be too far off for a 67 year old in some parts of the country.

I think the report is a starting point. As has been said we are all different so need to adapt/create our own budget and decide how to generate income - use an annuity, BTL, SWR from a pot, ISA’s etc

It looks like they're using a flat annuity!! The irony of putting out a new report with significantly increased amounts due to inflation and then quoting flat annuity rates

zagfles

eastcorkram said:

@Albermarle

Do you know, roughly, what it would cost to buy an annuity which would pay £185 per week, linked to inflation? 

I've tried using annuity calculators, but they always want to start from the other way round, and also always seem to mention a lump sum, which is not what I'd like to know.

Just do it the other way round and work it out.

Eg say a £100k pot with a £25k TFLS, so £75k used to buy the annuity, if that gives £2000 a year, then to get £185 a week or £9620 a year you'd need 4.81x as much ie £75k x 4.81 = £360,650.

zagfles

JoeCrystal said:

Haven't checked the website yet but the whole spreadsheet they make up what they spend in makes me laugh! Especially the comfortable ones with a silly amount of pounds on buying clothes and so on. Just waiting for them to upload the data for 2022 but 
I have sent an email to them to fix the issue with data for 2022 is from 2019.

2019 can give a taste on what a comfortable couple will spend on.

£1,400 per year on Birthday and Christmas and other gifts.
£1,000 per year on family support, such as paying for grandchildren's hobbies.
£650 per year on the female haircut
£120 per year on the male haircut
£1300 per year on gardeners, cleaners and windows cleaners 
£300 per year on the gardening
£1000 per year on female clothing
£500 per year on male clothing

You can see why I think that it is just plain stupid. 

Plus £5200 on eating out! And £500 just on footwear

And that was last time, wonder how much these have inflated? But I think it's safely ignored, unless you want a laugh!

Previous discussion here https://forums.moneysavingexpert.com/discussion/6282632/actual-spending-in-retirement-against-expectations/p7

zagfles

eastcorkram said:

Thanks for that. Odd that you say it's unusual to not take the lump sum. There's so many posts on here when people say it's better not to take it unless there's a pressing need for it. Though maybe that's more important with DB schemes.

With DB it'd depend on the commutation rate, with drawdown you'd nearly always take the TFLS but may phase it eg taking it with each withdrawal or crystallising the pot in chunks.

But if you buy an annuity you can't do that, if you don't take the tax free cash you lose it. So people will almost always take it.

michaels

DT2001 said:

Albermarle said:

michaels said:

DT2001 said:

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps Accordingj to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

The report assumes buying an annuity at 6.2%. They do state that rates vary etc etc.
From a quick look it wouldn’t be too far off for a 67 year old in some parts of the country.

I think the report is a starting point. As has been said we are all different so need to adapt/create our own budget and decide how to generate income - use an annuity, BTL, SWR from a pot, ISA’s etc

If you can get a fully indexed 100% spousal annuity paying more than the 'swr' then unless you are worried about inheritance it sounds like a no brainer.  Last time I looked annuity rates were in the 2.x% range.

AFAIK, fully inflation linked annuities are not that popular, as they are expensive. So it could be the report is looking at ones with a cap, which of course brings the price down.

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps According to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

I looked at the 3% capped annuities and they were quoting 5.7% at 65.

They could be used to cover ‘essential budget items’ for peace of mind and the balance of your pot flexibly withdrawn depending on returns.

If the report is aimed at those with little investment knowledge expecting them to manage a SWR or a Guyton-Klinger adjustable up and down is unrealistic?

If the reports encourage saving for retirement it is better for the country (as less reliant on benefits and future tweaks to SP) and most retirees.

Inflation on essentials like food and energy is running at about 12% and 100% respectively - 3% capped increase doesn't cut it.

Just ran a quote age 67 for self and spouse, no adverse health, 100% spousal benefit and the best rate was 3.5% so 3% after basic rate tax with state pension using up the allowance - anything less wont reliably give you the income they mention. 

zagfles

michaels said:

DT2001 said:

Albermarle said:

michaels said:

DT2001 said:

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps Accordingj to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

The report assumes buying an annuity at 6.2%. They do state that rates vary etc etc.
From a quick look it wouldn’t be too far off for a 67 year old in some parts of the country.

I think the report is a starting point. As has been said we are all different so need to adapt/create our own budget and decide how to generate income - use an annuity, BTL, SWR from a pot, ISA’s etc

If you can get a fully indexed 100% spousal annuity paying more than the 'swr' then unless you are worried about inheritance it sounds like a no brainer.  Last time I looked annuity rates were in the 2.x% range.

AFAIK, fully inflation linked annuities are not that popular, as they are expensive. So it could be the report is looking at ones with a cap, which of course brings the price down.

michaels said:

eastcorkram said:

Kim1965 said:

A comfortable life style for a couple is derived from 2 x full sp, plus each having £325 dc sipps According to the research. 
 Most on this board would consider this level of assets to be inadequate. 

Do you mean £325 a week, month? Or did you mean a SIPP of £325k at retirement?

325k pot which they think will allow an SWR of 6%.....

I looked at the 3% capped annuities and they were quoting 5.7% at 65.

They could be used to cover ‘essential budget items’ for peace of mind and the balance of your pot flexibly withdrawn depending on returns.

If the report is aimed at those with little investment knowledge expecting them to manage a SWR or a Guyton-Klinger adjustable up and down is unrealistic?

If the reports encourage saving for retirement it is better for the country (as less reliant on benefits and future tweaks to SP) and most retirees.

Inflation on essentials like food and energy is running at about 12% and 100% respectively - 3% capped increase doesn't cut it.

Just ran a quote age 67 for self and spouse, no adverse health, 100% spousal benefit and the best rate was 3.5% so 3% after basic rate tax with state pension using up the allowance - anything less wont reliably give you the income they mention. 

Indeed - IMO fully index linked annuities are the only type of annuities which make any sense. The whole point of an annuity is to get a safe guaranteed income for the rest of your life. If you get a level annuity, you get an income which will reduce every year by an unknown amount. If you get a capped inflation annuity you get an annuity which will likely fall permanently at random times by unknown amounts. If you're happy taking that sort of risk, then why not just drawdown. Probably safer - I have more faith in equities maintaining real value over the long term than the pound!

If you'd bought a level annuity in 1970 paying £1000 a year, that would have been easily enough to live on, around the average wage at the time. 10 years later it would be nowhere near enough, it would be worth about a quarter of what it started at, and that's just after 10 years! A 3% cap would be worth about a third and a 5% under half.

I don't think equities have ever fallen by so much in real terms over 10 years. So what is more risky, a level/capped annuity, or drawdown invested in 100% equities?

Albermarle

I think you can get annuities with an automatic fixed increase every year, regardless of inflation. 3%, 5% etc
So you would probably win some years and lose others, although it could swing either way.
I think these are a bit cheaper than a full RPI link, as the provider is not dealing with unknowns. 
Presumably though they are more expensive than RPI with a cap.
Maybe a good compromise ?

zagfles

Albermarle said:

I think you can get annuities with an automatic fixed increase every year, regardless of inflation. 3%, 5% etc
So you would probably win some years and lose others, although it could swing either way.
I think these are a bit cheaper than a full RPI link, as the provider is not dealing with unknowns. 
Presumably though they are more expensive than RPI with a cap.
Maybe a good compromise ?

No, a rubbish compromise. What's the point, the risk is still there. As above in 1970's a capped or a fixed 3% would have lost 2/3rds of its value and 5% over half its value. Capped or fixed made no difference as inflation was never below 5%.

There is no extra risk to the provider with index linked annuities. They simply use index linked gilts instead of ordinary gilts.