Does my retirement plan make sense?

flapflaps

I’m very new to thinking about pensions and retirement planning. I wanted to know if there is anything obvious I’m missing out in my workings out below.

Background

We’re a couple (39 and 41 years old). I’m fairly clueless on pensions; my partner is completely clueless.

Me -  I have one DB pension from a job I’ve been in well over a decade and likely to remain in it my whole working life. No other pensions. I will have paid enough NI contributing years to get full state pension at age 68 (I know that what the state pension is and when it is accessed might change by the time I get there). I earn around 50k (I’m a basic rate tax payer) and don’t anticipate any major pay rises or promotions, but my job is very secure. 

Partner - Several small DC pensions from different jobs (about £40k in total). Gaps in their employment, and paying the bare minimum into their pension. Changes job a lot. Is about to be unemployed - we are hoping not for long but who knows. They will probably still just about pay enough contributing years of NI to get full state pension, or at least very nearly full amount.

Plans

We hope to be mortgage free by late 50s. We may retire abroad (we are dual UK-EU citizens) where the cost of living is likely to be lower than what it is for us now (we live in London). 

From what I’ve read, I need to have an idea in mind of what we need in terms of annual salary in retirement and then work backwards from there. As a ball park figure, I’ve taken the PLSA’s estimate of a couple needing a salary of £43k between them to retire at the “moderate” level (it has three levels, minimum, moderate, and comfortable). I know I need a more bespoke figure that’s specific to our circumstances than that, but it’s what I’m using for now to get started. 

I’d like to figure things out for retiring at age 60. 

Working out

For me, the most likely scenario is that I remain in my job with the same DB pension. If I carry on contributing with it as I am now and do nothing different, and take early retirement at age 60, I would draw a pension of £20k a year (in today’s money). That includes the reduced amount for taking the pension early. After withdrawing it, it rises inline with CPI capped at 2.5%. 

So we need a salary of £43k at age 60 but we’re only getting £20k. So we are missing £23k for the 8 years until we reach state pension age (68 for me currently). 8 x 23 = £184k. 

When we reach age 68 and include hopefully bothn of our full state pensions with my DB pension, we should be hitting just about £43k. 

So, all we need is an extra £184k (in today’s money, I realise it will be more by that time because of inflation) to retire at “moderate” level. 

Questions

Is there anything obvious I’m missing? I always thought we were completely f****** when it came to retirement, but when I consider the above, even if it’s very ballpark, it actually looks not that bad at all? 

Strategy moving forward - we have just become first time home owners so recovering from that (and my partner is about to be out of a job - that’s why I’m trying to calculate the above under absolute worst case scenario of my partner having nothing pension wise. This of course won’t be the case, but it is reassuring to me to work out the worst case scenario and then build from there). Moving forward when my partner is in a job the strategy will be for them to pay more than the bare minimum to get as much free money from employer contributions as possible, and once I / we have recovered from house purchase, to attack spare cash into out S&S ISA’s to help fund our 60s (possibly SIPP in the mix if my partner gets a job in the higher tax rate band  which has been the case previously). 

What have I not thought about / thought about incorrectly? 

Thanks for getting this far!

Cobbler_tone

I admire your strategy but IMO you are a long way away from nailing down your exact plan, although it is of course good to plan! 
A couple of 'risky' assumptions. Firstly that you will stay in the same role, coupled with the fact that they will maintain a DB pension to retirement. Your 68 year old state pension may be pushed out.
Then look at what you would actually need to support your desired lifestyle, with no mortgage in today's money. 

I would look at the exercise of net affordability. I would look at the mortgage and pensions in conjunction and if the motivation is to retire as early as possible, maximise contributions whilst paying off the mortgage.
Having said that, I always think there needs to be a balance of living for now during the best years of your life.

I think you will have a lot of life changes to come over the next 20+ years but investing in a pension is certainly a sensible option that so many neglect until it is too late. 

badmemory

I think you also need to take a look at what will happen when, as it normally does, only one of you is left.  You I suspect will be fine but your partner may not.

tacpot12

badmemory said:

I think you also need to take a look at what will happen when, as it normally does, only one of you is left.  You I suspect will be fine but your partner may not.

You should check your pension scheme rules about spouses/partners pensions. Some are quite generous and some require you to be married to get them. 

You are thinking along the right lines - there is nothing too much wrong with your strategy, other than how to save £186k over the next 20 years. This is quite possible if your partner can return to work, and gets an employer contribution to their pension. Time and compounding growth will do a lot for them IF they save.