Half to 2/3rds of your last salary just doesn't work

Cus

I've been one of those people that seems to be able to easily spend whatever I earn, so when I got pay rises I just spent more.(but also saved more)

When planning for retirement, I keep reading suggestions that you will need 50 to 66% of your final salary.  Seems to go down to 50% if you earn more.

Is there anything out there that's much better at really assessing what you spend versus what you need, bearing in mind that I find it easy to justify spending ( and fortunately can do so)

I mean, taking it to silly extremes, if you earn £5mn a year, is really realistic to say you must have £2.5mn a year pension??? Does someone like that start going through their budget and working out that they can 'get by' on only £1mn a year?

lisyloo

What I’ve done is record all my spending into categories
e.g. Gifts, car, dog etc.
it’s not that hard each month to add up what is spent in each category on debit and credit cards.
I know exactly what I’ve spent over the years and exactly what I need to live on.

the ball park is based on the fact that in retirement you would expect not to be paying a mortgage (the idea being you’ve paid it off) and you also wouldn’t be expecting to contribute to a pension or long terms savings as you’ve entered a decumulation stage.

however it’s a ball park.
the simple answer is work out your own spending,
I’d suggest categorising it in an excel spreadsheet.

eskbanker

Cus said:

When planning for retirement, I keep reading suggestions that you will need 50 to 66% of your final salary.  Seems to go down to 50% if you earn more.

Is there anything out there that's much better at really assessing what you spend versus what you need, bearing in mind that I find it easy to justify spending ( and fortunately can do so)

There's no right or wrong answers to something like that, and there's certainly an argument that it's not particularly valid or helpful to correlate retirement spending to final salary, but if you don't feel able or willing to create a budget yourself, you could always review (with caution) models with stated assumptions, such as:

https://www.lboro.ac.uk/media-centre/press-releases/2019/october/retirement-living-standards/

Edit: more recent one at https://www.lboro.ac.uk/media-centre/press-releases/2023/january/rising-prices-add-20-percent-cost-retirement/

Pat38493

I think generally you need to analyse your own budget and spending and see what you actually need.

Personally I have been tracking my spending in a software called Money Dashboard for almost a year now and I can then get detailed reports of spending by category.  They can then be downloaded to Excel and put in pivot tables.  I can then exclude items which I won’t have after retirement (e.g. mortgage payments).

My analysis so far which I update each month is heading towards a retirement budget or between 50 and 60% of our prior joint net income when we were both working.  However this is probably more like 40-50% or less on a gross level as we also won’t have a lot of gross deductions for pension and NI anymore.

We do spend a lot on holidays and eating out so there would also be plenty of scope to reduce it further if times were really tough.

p00hsticks

Don't forget that these reports are usually referring to gross salary.
You'll still potentially be paying income tax on a pension, but you won't be paying National Insurance, making Pension contributions and on a reduced income will be paying less (or no) higher rate tax. 
So the reduction in your take-home probably isn't as large as you might think.  

If you own your own home, it's also probable that you'll have paid the mortgage off by the time you retire, so that's another big expense that you have to pay in your working life that you won't face during retirement. There are also other potential savings - commuting, work clothes, etc...

You have to do your own sums depending on how you expect to spend your retirement - those determined to go on world cruises will need considerably more than those just looking forward to spending more time pottering in their allotments,  There are a number of long running threads on the subject on this board, but in general most people find that they don't need as much pension income as you did when working to maintain the lifestyle they are used to. 

Silvertabby

Assumes that you will no longer have to pay:

Mortgage
Commuting costs
NI
Pension contributions
Work clothes/other expenses (those collections add up!)

Will pay less:

Tax

Flugelhorn

I retired and paid no NI, no professional subs (££££££), no indemnity, no 4x4, no superannuation, no CPD - definitely much better off than when I was working 

Cus

I suppose it really comes down to a judgement of how much you want to stop working versus how much extra (nice but not needed) spend you want in retirement. But if you have got used to a larger amount as a salary, it's not so easy.

Maybe a budget type spreadsheet that grades the items in terms of how nice but not needed it is

chubsta

For the last few years I have recorded every outgoing on a spreadsheet so I know exactly how much money I have been spending, and have a million calculations worked out which show my expected income once retired from pension, investments etc. I also have an 'anticipated costs' sheet as mentioned by someone else which has all of my current work-related expenses, such as travel costs etc taken off as they will not apply when retired.
I then save everything I earn above what my pension will be (building up a nice pot in the process of course which can be accessed once retired) and attempt to live each month on what my expected post-retirement income will be. Each month I still manage to save a decent sum out of this as well.
So I have proven to myself that I can live on less than what my pension will be without dipping into my reserves, which of course will be able to be dipped into for emergencies should that be required.
Everyone is different in terms of their requirements once retired - some people like to go on big foreign holidays, that doesn't factor at all for me, so there is no catch-all formula which works.

The only thing which works for everyone is plan your retirement years in advance, and be honest with how much you will need - perhaps it would be worth working that extra couple of years so you can afford a new car every 5 years once retired if that is a priority to you, but there is no point working that extra couple of years if the money is just going to sit there and never be used.

But.... plan, and try to live off the amount of money you will get in retirement for a couple of years before you retire if you possible can, PROVE you will be ok, it gives peace of mind.

theoretica

I look at what you spend now, not what you earn - then work out what is likely to change in retirement - eg no mortgage, more holidays.  Are you savings on track to allow your spending to continue the same?

Cus

chubsta said:

For the last few years I have recorded every outgoing on a spreadsheet so I know exactly how much money I have been spending, and have a million calculations worked out which show my expected income once retired from pension, investments etc. I also have an 'anticipated costs' sheet as mentioned by someone else which has all of my current work-related expenses, such as travel costs etc taken off as they will not apply when retired.
I then save everything I earn above what my pension will be (building up a nice pot in the process of course which can be accessed once retired) and attempt to live each month on what my expected post-retirement income will be. Each month I still manage to save a decent sum out of this as well.
So I have proven to myself that I can live on less than what my pension will be without dipping into my reserves, which of course will be able to be dipped into for emergencies should that be required.
Everyone is different in terms of their requirements once retired - some people like to go on big foreign holidays, that doesn't factor at all for me, so there is no catch-all formula which works.

The only thing which works for everyone is plan your retirement years in advance, and be honest with how much you will need - perhaps it would be worth working that extra couple of years so you can afford a new car every 5 years once retired if that is a priority to you, but there is no point working that extra couple of years if the money is just going to sit there and never be used.

But.... plan, and try to live off the amount of money you will get in retirement for a couple of years before you retire if you possible can, PROVE you will be ok, it gives peace of mind.

One difficulty I have is doing the budgeting with a partner and kids who have no interest in the idea of my retirement