Retirement income and drawdown.

Pat38493

Also worth noting the ONS reports above are using data from before the high inflation we saw in 22/23.

NoMore

@Pat38493 Although it doesn't explicitly state it, the PLSA is after income tax. Its because the way they calculate it, they define a list of 'things you need' to have a certain standard of living and then add up how much that would cost to buy. So therefore this has to come from your post tax income.

Although I also think numbers they come up with a largely useless, I think its the only way to come up with a number that makes any kind of sense. If you tried to calculate a pre tax income required, there is so many ways people could be paying different amounts of tax based on their drawdown strategy and available tax wrappers and still have the same post tax income that it would just be totally meaningless.

dunstonh

The problem with the 4% rule and other 'mericanisms is that it doesn't take into account state pension, property downsizing in later years etc. One of my biggest bugbears are FA's (not necessarily IFAs) who fail to take into account the value of the state pension pot as a cash equivalent. At £10,600 a year, that's as good as having at least £200k in an inflation proofed investment.

You would expect an IFA to use cashflow modelling software (pretty much the default nowadays).   That allows you to put in other sources of income.  So, you would always expect the state pension to be factored in.

You would also expect planning to be done jointly with a couple.  That is two state pensions, two personal allowances etc.

And, you would expect "what ifs" to be modelled.  i.e. what if a spouse died and one state pension stopped along with potential annuity or DB pension stopping or reducing

A lot of IFA clients retire before state pension age.  So, "funding the gap" is a common model scenario.   As are those that plan to spend the early years spending more than later years (in real terms).

Pat38493

dunstonh said:

The problem with the 4% rule and other 'mericanisms is that it doesn't take into account state pension, property downsizing in later years etc. One of my biggest bugbears are FA's (not necessarily IFAs) who fail to take into account the value of the state pension pot as a cash equivalent. At £10,600 a year, that's as good as having at least £200k in an inflation proofed investment.

You would expect an IFA to use cashflow modelling software (pretty much the default nowadays).   That allows you to put in other sources of income.  So, you would always expect the state pension to be factored in.

You would also expect planning to be done jointly with a couple.  That is two state pensions, two personal allowances etc.

And, you would expect "what ifs" to be modelled.  i.e. what if a spouse died and one state pension stopped along with potential annuity or DB pension stopping or reducing

A lot of IFA clients retire before state pension age.  So, "funding the gap" is a common model scenario.   As are those that plan to spend the early years spending more than later years (in real terms).

Yes and the useful data quoted by old scientist below - in the detailed tables, the retired income data is for individuals not couples, and it's for a different nominated dates.  Of course it's still useful but we should still be aware of the differences.

Edit - on the first point I am actually not sure about those charts - they are labelled as retired income for "INdividuals", but I think it is actually for households - the title is a bit strange.

Albermarle

Edit - on the first point I am actually not sure about those charts - they are labelled as retired income for "INdividuals", but I think it is actually for households - the title is a bit strange

I always found this is an issue, when looking at this type of income/wealth data, or reports of the data in the media. Often ( not always) it is less than clear whether the figures refer to individuals or households, and/or they change from one section to another.

Although it doesn't explicitly state it, the PLSA is after income tax. Its because the way they calculate it, they define a list of 'things you need' to have a certain standard of living and then add up how much that would cost to buy. So therefore this has to come from your post tax income

Yes it is after tax and the latest figures include recent high inflation.

As said many people live a 'comfortable' life on significantly less than the figures mentioned.

On the other hand if you wanted a true luxury retirement, you would need a lot more than that. Maybe five times as much.