Is it realistic to retire on a monthly income of £2000 per month with no rent or mortgage to pay?

[Deleted User]

All these figures are adjusted for the average UK inflation rate of 2.82% per year for the next 20 years.

I've been messing around with some investing calculators and just trying out some numbers but based on my personal calculations, assuming an average 8% market return per year, I could retire at 55. 

Then if I withdraw 4% of my investment per year that would give me £2,000 per month to live on. 

• I won't have any kids or a wife, will be living alone.
• I will be living in a 2 bedroom bungalow with a cat and a dog.
• I don't have any desires to travel or go on holidays.
• I don't have any expensive hobbies.
• I don't smoke, drink or use drugs.

So that £2,000 per month has to cover the following:

• Council tax - £200?
• Groceries - £900?
• Home Insurance - £35?
• Internet - £70?
• Gas & Electric - £260?
• Water - £70?
• Car Insurance - £90?
• Fuel - £50? (very little driving)
• Pet Insurance - £100?
• Entertainment subscriptions - £90?

That's a total of about £1,865 per month. I can't really think of anymore expenses for now, but that's a guesstimate of a monthly spend 20 years from now given my personal living expectations.

So £2,000 per month does seem like it would be enough but only just, I'd be cutting it close. 

However there is a potential lifeline, and that is the state pension (assuming it'll still exist) when I'm 68. For 13 years from age 55 to 68 I could withdraw from my ISA at a 5% rate instead of 4%, giving me £2,500 per month instead of £2,000 per month. This should give me enough to cover everything quite easily.

Then once I hit 68 and start receiving my state pension, I can drop the ISA withdrawal to 3% to offset the 5% withdrawals and hopefully maintain the longevity of the fund.

Am I overlooking anything, are my figures wrong? Like I said nobody can predict 20 years into the future but this is my best shot. 

masonic

Using 8% as your average market return and 2.8% for inflation is not very conservative. You haven't mentioned anything about asset allocation, but I'd think there would be a not insignificant risk of running out of money if your sequence of returns is unfavourable during the early years. What capacity would you have to cut your spending or re-enter the workforce if you are unlucky with investment returns or inflation?

You haven't budgeted anything for maintenance of your property or vehicle. These can be big ticket expenses, even though they come around infrequently. Would you not need to budget something for leisure activities, eating out, etc? You will presumably be doing something to fill the time freed up by retiring, and often that will have a cost. Though on the other hand, £900 per month seems a lot to spend on groceries for a single person.

Nebulous2

For some people £2000 a month is beyond their wildest dreams. For others it wouldn't cover their clothes bills. 

Where you have question marks in your post above you need to firm it up. Food for instance looks very high. There is a regular contributor on the over 50s forum who feeds a couple on £250 a month. 

Have a look at the pension forum. 

https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning


The top pinned post is about the number - it's very long, but read some of it. It is all about people calculating what they need in retirement and shows how people vary. 

Keeping a record of what you spend now would give you a start.

Do you already have the bungalow? Then you should have the running costs for that. 

Stargunner

If you live alone without any wife or kids, don’t drink or smoke, I would like to know how you can you be spending as much as £900 per month on groceries. You should easily be able to reduce this figure considerably.

[Deleted User]

masonic said:

Using 8% as your average market return and 2.8% for inflation is not very conservative. You haven't mentioned anything about asset allocation, but I'd think there would be a not insignificant risk of running out of money if your sequence of returns is unfavourable during the early years. What capacity would you have to cut your spending or re-enter the workforce if you are unlucky with investment returns or inflation?

You haven't budgeted anything for maintenance of your property or vehicle. These can be big ticket expenses, even though they come around infrequently. Would you not need to budget something for leisure activities, eating out, etc? You will presumably be doing something to fill the time freed up by retiring, and often that will have a cost.

The car is optional, could easily live without it as I'd only be using it to drive into town or to the supermarket, I guess the bus would suffice for travel into town and supermarkets deliver food so it wouldn't be a big issue really. 

No leisure activities except playing video games, movies, tv shows etc all covered by the entertainment subscriptions cost.

Not really a fan of eating out, if I do it's usually just a mcdonalds or subway once or twice a month.

Nebulous2 said:

For some people £2000 a month is beyond their wildest dreams. For others it wouldn't cover their clothes bills. 

Where you have question marks in your post above you need to firm it up. Food for instance looks very high. There is a regular contributor on the over 50s forum who feeds a couple on £250 a month. 

Have a look at the pension forum. 

https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning


The top pinned post is about the number - it's very long, but read some of it. It is all about people calculating what they need in retirement and shows how people vary. 

Keeping a record of what you spend now would give you a start.

Do you already have the bungalow? Then you should have the running costs for that. 

I don't think you read that these costs are calculated based on the estimated price 20 years from now. A £250 shop per month now only be worth a £140 shop 20 years from now. Good luck with making that work.

So a full grocery shop right now including cat and dog food, cleaning stuff, loo roll etc is about £500 a month. I like to buy fish, steaks and other fairly expensive foods.

I don't have the bungalow right now, it will be paid off fully by the time I plan on retiring at 55.

[Deleted User]

Stargunner said:

If you live alone without any wife or kids, don’t drink or smoke, I would like to know how you can you be spending as much as £900 per month on groceries. You should easily be able to reduce this figure considerably.

Read the first line of my post. 

masonic

[Deleted User] said:

Stargunner said:

If you live alone without any wife or kids, don’t drink or smoke, I would like to know how you can you be spending as much as £900 per month on groceries. You should easily be able to reduce this figure considerably.

Read the first line of my post. 

So what exactly have you done to the figures and what are they in today's money? £2000 per month could be rather low if it is supposed to be in 2045 pounds.

The normal way of adjusting for inflation is by indexing future years back to today's money, rather than indexing today's cost to the value of the currency in some future year.

[Deleted User]

masonic said:

[Deleted User] said:

Stargunner said:

If you live alone without any wife or kids, don’t drink or smoke, I would like to know how you can you be spending as much as £900 per month on groceries. You should easily be able to reduce this figure considerably.

Read the first line of my post. 

So what exactly have you done to the figures and what are they in today's money? £2000 per month could be rather low if it is supposed to be in 2045 pounds.

The normal way of adjusting for inflation is by indexing future years back to today's money, rather than indexing today's cost to the value of the currency in some future year.

I just took what I spend monthly now, and applied a compounding 2.82% interest rate to it. 

Currently after my mortgage is paid, I spend £1,150 per month, on the things listed above. 

But every year the cost of goods and services rises by the average inflation rate which since 1989, has been 2.82%.

So I just increased the value of £1,150 per month by 2.82% for 20 years.

For example my internet at the moment costs £40 a month but it sure as hell isn't still going to be £40 a month in 20 years time. It'll probably be somewhere around the £70 mark.

Stubod

Yes £2,000 is enough, (about what we spend, and there are 2 of us). But your inflation and return percentages seem a little optimistic?

Dp you also have a pot to cover the occasional 1 off "big/unplanned" spend, eg new boiler, dentist etc?

masonic

Hmm, then your £600k retirement pot is only going to be worth £340k in today's money, and you're hoping to live on £14-17k per year in today's money? The problem with doing as you have done with inflation is that your income and investment returns will likely be affected by inflation too, and that will impact the amount you end up with in your pot. So it is better to use inflation adjusted investment returns and keep everything in today's money.

It's potentially doable, but it wouldn't be a very comfortable retirement. 

As mentioned before, you've yet to budget for maintenance costs for your home. The old rule of thumb was to allow 1% of the value of the property per year, although with house price inflation, this is probably overly generous. Say your bungalow was worth £250k in today's money, then perhaps you'd put aside a reduced £150 per month (or £250 in 2045 pounds) to allow for this.

[Deleted User]

Stubod said:

Yes £2,000 is enough, (about what we spend, and there are 2 of us). But your inflation and return percentages seem a little optimistic?

Dp you also have a pot to cover the occasional 1 off "big/unplanned" spend, eg new boiler, dentist etc?

Yeah, I have a decent emergency fund sitting in a high interest ISA 

masonic said:

Hmm, then your £600k retirement pot is only going to be worth £340k in today's money, and you're hoping to live on £14-17k per year in today's money? The problem with doing as you have done with inflation is that your income and investment returns will likely be affected by inflation too, and that will impact the amount you end up with in your pot. So it is better to use inflation adjusted investment returns and keep everything in today's money.

It's potentially doable, but it wouldn't be a very comfortable retirement. 

As mentioned before, you've yet to budget for maintenance costs for your home. The old rule of thumb was to allow 1% of the value of the property per year, although with house price inflation, this is probably overly generous. Say your bungalow was worth £250k in today's money, then perhaps you'd put aside a reduced £150 per month (or £250 in 2045 pounds) to allow for this.

How is £600k in 2045 going to be worth £340k in 2045? 

The amount I have now + my regular monthly contribution compounding at an average rate of 8% per year would give me about £600k in 2045.

4% withdrawal of £600k every year would give me £2,000 per month to live on. 

The other 4% would act as the buffer for on going inflation and stock market fluctuations for the next 13 years. 

Then once I reach 68 I'll not have to worry anymore as I'll be able to add my state pension to my available money.

Unless I'm completely misunderstanding something I'm not really following your logic?