How did your pre-retirement calculations compare to reality once you had retired ?

Albermarle

Pat38493 said:

MEM62 said:

I am totally in this mindset at the moment, having decided to pull the trigger next year when I will be 62.  The anxiety, albeit modest, kicked in a soon as I committed myself to the decision.  There are days when I second guess whether I will have enough and there are days when I tell myself to stop worrying.  Having a good IFA helps to offer some assurance. 

My position is that, with interest rates where they are at the moment, my first five years of income will come from cash.  So that is fixed and not reliant on the markets.  (Leaving circa £300K in my DC port at the point of retirement)  This will cover all essential expenditure with excess cash for fun.  We are mortgage and debt-free.  On top of that I intend to work a couple of days a week as I don't want to go from having a full-time high pressured job to not working at all.  Apart from work being healthy the extra money will pay for additional travelling and fun stuff.  

When the five year period is up I will re-assess.  By that time I will have a DB pension paying out £4K pa, my  state pension (Currently £10,600) in payment and whatever my DC will be sitting at in five or six years time.  

My OH is five years younger than I and she will retire two years after me as she needs an exit plan from her business.  Her circumstances are similar to mine albeit that her DC pot is a little smaller. 

I really need to stop over thinking the finances and just embrace what is coming.     

Based on what inflation rate?  If you want to keep 5 years in Cash, you can either assume that you can find savings accounts that keep up with inflation (unlikely over 5 years) or you have to save up enough to cover 5 years of anticipated inflation as well.

Although there does seem some possibility that if you put money now into a long term savings account, then by next year sometime you may be keeping up with inflation. In 2 or 3 years time you may be even ahead of it.
There have been periods in the past when cash has beaten inflation( albeit not for a long time ), although whether it will really happen or not, only time will tell.

badmemory

CPI does not seem a realistic calculation of inflation if you are retired.  I think based on my figures for the last 2 years I think it is about 50% of reality.  Even though I have been retired over 10 years & have plenty of savings I still struggle to actually spend those savings even when I know I must.  I just need to pull my finger out & accept that I need to spend (make that must) over £10k in the next 3 months.  Then there is having to have workmen in the house.  That gets a harder issue every year.  Then of course I have to hope that is not dementia, oh the joys.  But then a couple of days ago I did one of those things where they say they will tell you your education level.  It would seem I have a masters degree.  Well A levels anyway.  I suspect it must have been American.  Life can still be a giggle a day.

Beddie

I've been pretty much retired for about 10 years, apart from a couple of fixed term jobs I've taken in the time. I'm in my 50s and rely on income from investments and property. I don't draw a pension yet and don't have anything massive to fall back on either.

I had to leave work, as I just couldn't cope with it. I was also feeling unwanted and "past it" - never really achieved much in my career and knew it wasn't going anywhere.

My "plan" was to live off investment/property income and top that up with saving if necessary. And if I had to go back to work I would. So far I've not had to and my position looks much better. I plan to start taking my £10k DB pension from 60 as I won't pay any tax on it, then state pension from 67 making me better off than I've been for years.

A very important point is that I'd not set a particular lifestyle goal like many do - 3 hols per year etc. As long as the bills are paid and I have money left over I'm happy. I don't need or want the latest car or phone etc. Enjoying a simple life is a great benefit.

Other fallback options are downsizing my house or taking equity release - I've no family to leave any money to. Or move to a cheap country like Vietnam to see out my days!

MEM62

michaels said:

Cash has lost 10%plus in real terms in the last 2 years, being in cash rather than index linked bonds sounds extremely risky to me.

Risky?  All plans carry risk and this one is hardly extremely risky.  The income is assured during the first five years.  No investment risk and inflation would need to run at more than 6% before that erodes my spending power.  Three years in my income increases by £4K per year with my DB pension.  Five years in my SP commences.  By the time I am reliant on the markets again my DB and SP pensions will comfortably cover my basic expenses leaving whatever comes from my DC pot, that would hopefully have seen some growth, for the extras / fun money.  It is a plan I am comfortable with.  

Pat38493 said:

MEM62 said:

I am totally in this mindset at the moment, having decided to pull the trigger next year when I will be 62.  The anxiety, albeit modest, kicked in a soon as I committed myself to the decision.  There are days when I second guess whether I will have enough and there are days when I tell myself to stop worrying.  Having a good IFA helps to offer some assurance. 

My position is that, with interest rates where they are at the moment, my first five years of income will come from cash.  So that is fixed and not reliant on the markets.  (Leaving circa £300K in my DC port at the point of retirement)  This will cover all essential expenditure with excess cash for fun.  We are mortgage and debt-free.  On top of that I intend to work a couple of days a week as I don't want to go from having a full-time high pressured job to not working at all.  Apart from work being healthy the extra money will pay for additional travelling and fun stuff.  

When the five year period is up I will re-assess.  By that time I will have a DB pension paying out £4K pa, my  state pension (Currently £10,600) in payment and whatever my DC will be sitting at in five or six years time.  

My OH is five years younger than I and she will retire two years after me as she needs an exit plan from her business.  Her circumstances are similar to mine albeit that her DC pot is a little smaller. 

I really need to stop over thinking the finances and just embrace what is coming.     

Based on what inflation rate?  If you want to keep 5 years in Cash, you can either assume that you can find savings accounts that keep up with inflation (unlikely over 5 years) or you have to save up enough to cover 5 years of anticipated inflation as well.

BOE predictions, for what they are worth, forecast that inflation will be around 5% by the end of this year falling to reach 2% in 2025.  This may be the way it pans out or it may not.  Nobody has a crystal ball but I am banking on inflation not staying near 10% for the next five years.  (Even if it does, I have the leeway to cope with that)  My cash has been put in a number of fixed term deposits.  The aggregate return on my deposits is 6%.  

Linton

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Nebulous2

I'm more a wet finger in the air type person, than an obsessive planner. Never a high earner. We were fortunate in that we pushed the boat out to buy a house in the 90s and I had a decent DB. I stopped 2 and a half years ago, after doing my sums, and deciding I could. Before stopping we got some of the heavy lifting out of the way, new vehicle, decent caravan, new boiler and a roof repair. We moved home, released a bit of cash, invested half and kept half in cash, mostly premium bonds. My DB meets our basic needs for food, utilities etc. 

We had expected to draw down the cash we have to keep us going to state pension age, which is why we had it in premium bonds. A few things intervened to disrupt that. I wasn't ready for retirement, and took a part-time job, currently doing 1 day a week. We decided we liked having a financial cushion and didn't want to spend it. We decided we didn't need as much as we thought. We also scaled back our ambitions to renovate our house, we had some ambitious plans, but decided we didn't see the point. The end result is we have added to our resources, rather than drawing them down. 

In my view that is typical of people in retirement. Ambitions fade, horizons narrow and costs reduce. Many people continue to acquire wealth in retirement despite having a reduced income. People decide travel is bothersome and over-rated. I once did a long-crossing to Bilbao with my caravan. The boat was full of people with homes in Spain, who had spent the summer in the UK. They were almost universally moaning about the journey, indicating they were fed-up doing it, and wanted to find a way out of doing it regularly. 

Albermarle

People decide travel is bothersome and over-rated.

Especially if you have had a lifetime at work doing it !

MK62

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

michaels

MK62 said:

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

RPI sort of assumes you don't change what you consume in response to rising prices - for example a lot of us may be using less central heating and more heated throws/oodies in response to the gas price increase which is cpi behaviour rather than rpi.

AlanP_2

michaels said:

MK62 said:

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

RPI sort of assumes you don't change what you consume in response to rising prices - for example a lot of us may be using less central heating and more heated throws/oodies in response to the gas price increase which is cpi behaviour rather than rpi.

Sorry. I don't get that.

If I use less of the more expensive electricity / gas to heat my house then my inflation rate hasn't reduced even though my payments may have done.

Same as if I buy 6 bananas a week instead of normal 8 my inflation rate hasn't reduced.