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

Jami74

In today's money me and my husband could live off £2,000 a month without a mortgage to pay. How many months or years before state pension age we can retire will depend on how many lots of £2,000 we can accumulate between pensions and ISAs. The hope is that the pensions and ISAs will keep up with and hopefully even out perform inflation.

On-the-coast

We’re not following your logic because you’re presenting your figures in a way that is opposite to the way most people do.
i mean i do understand your logic but its not easy to intuitively critique it - and frankly im not sure it’s worth critiquing because risk expands as the horizon extends. 

A few observations imo: 
you are very optimistic about growth exceeding inflation by that amount. 

You are very pessimistic about state pension 
maybe those two cancel out. 

It would be much easier to check your figures (provide an alternative viewpoint) if you said how old you are now…. When you want retire, and how much you’ve saved now

jaypers

There is nobody here that can give you a definitive answer. Everyone is so different with this subject, and that’s where an independent financial advisor can be so useful. We are all unique.

One thing you could try is to actually live to those parameters now. Keep a spreadsheet and note down absolutely every single item both in and out. Obvious difference would be those expenses that still exist that would be negated when you retire, but you could set up the spreadsheet to separate those etc. 

One other thing to consider……everyone talks about inflation, which is important. One thing I feel that is often overlooked is the fact that when we get older, and health issues not withstanding, we are likely to spend a lot less. In your 60’s you’re likely to want to go out, socialise and spend money on luxuries etc. Over 70 and it’s a fact of life that those things diminish. 

[Deleted User]

jaypers said:

One thing you could try is to actually live to those parameters now.

This is exactly what I'm doing when I'm taking my calculations into account.

Essentially what I've done is taken my total living expenses in todays money (not including my mortgage which will be paid of in 20 years).

Then I've tried to extrapolate the cost of living 20 years from now when I retire. 

I've calculated that based on an average annual inflation rate of 2.82%, the cost of goods and services in the UK will be approximately 74.4% more expensive. 

So whatever I'm living on now (£1,150 per month). I'll need approximately 74% more, so in my case, £2,000 per month. I thought this was all pretty simple but many people seem to have conflicted opinions. 

And I'm not just making these figures up. Using the bank of England's inflation history calculator, 20 years ago £1 would cost you £1.75 today, implying a 75% price increase over that 20 year period. 

So all things being equal, in 20 years things should cost 75% more.

If you're spending £400 a month on food now, be prepared to spend £700 in 20 years.   

EthicsGradient

So it'd be a lot easier to talk about these figures if we just left everything in today's money, and said "can you currently retire on £1,150 per month?" And we divide all your OP figures by 1.75.

Your figure of 900/1.75= £515 for "groceries" is still quite high - but you didn't allow anything for clothing, so maybe we say it covers that too. As pointed out, you haven't allowed anything for house and car maintenance, or depreciation on the latter. I would say that running a car and replacing it when needed would put you over this amount. But you might feel that, travelling very little, you won't need a car, and could do with public transport or taxis when necessary. 

Hoenir

[Deleted User] said:

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. 

An investment return of 5% above the rate of inflation is optimistically wishfull thinking I'd suggest. Better to err on the side of caution. Enjoy the exceptional moments of good fortune as and when they arise. For historical performance data the Credit Suisse Global Investment Returns Yearbook is worth a read. Helps provide a more realistic perspective. 

masonic

[Deleted User] said:

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?

Based on your own assumptions about inflation over the next 20 years (which are quite optimistic IMHO), then £600k in 2045 would only be worth £340k in today's money. In other words, what you can buy today for £34 will cost you £60 in 2045. That's based on inflation data from 1989-2024, including a period of artificially low inflation due to QE. If you take the 40 year period from 1968-2008, then RPI inflation averaged 6.6% and the corresponding CPI or CPIH figure would have been above 5%. That would leave you needing a pot of around a million for the same lifestyle. There are a range of possible outcomes for inflation, which complicates your model, yet it is possible to use average real returns for investments and assume that wages will rise faster when inflation is higher (you won't be paid less in real terms over the long run), so you can calculate everything in today's money and not worry about inflation.

The assumption you will have access to your state pension at 68 also seems optimistic. Anyone not already in their mid-40s will likely see their state pension age rise to their early 70s based on current plans.

wiseonesomeofthetime

On-the-coast said:

We’re not following your logic because you’re presenting your figures in a way that is opposite to the way most people do.
i mean i do understand your logic but its not easy to intuitively critique it - and frankly im not sure it’s worth critiquing because risk expands as the horizon extends. 

A few observations imo: 
you are very optimistic about growth exceeding inflation by that amount. 

You are very pessimistic about state pension 
maybe those two cancel out. 

It would be much easier to check your figures (provide an alternative viewpoint) if you said how old you are now…. When you want retire, and how much you’ve saved now

At a guess, given that the OP has stated in their initial post that they are wishing to retire in 20 years time at aged 55, I would guess they are 35, or thereabouts, and 2045 be their retirement year.

[Deleted User]

EthicsGradient said:

So it'd be a lot easier to talk about these figures if we just left everything in today's money, and said "can you currently retire on £1,150 per month?" And we divide all your OP figures by 1.75.

Your figure of 900/1.75= £515 for "groceries" is still quite high - but you didn't allow anything for clothing, so maybe we say it covers that too. As pointed out, you haven't allowed anything for house and car maintenance, or depreciation on the latter. I would say that running a car and replacing it when needed would put you over this amount. But you might feel that, travelling very little, you won't need a car, and could do with public transport or taxis when necessary. 

I actually was originally going to say that but I assumed every person reading the post would think "oh he has forgot about inflation!!!" And then started correcting all my figures and going off on tangents about price increases of various things etc. 

So I just thought I'd make it clear in my post it's all adjusted so I'm definitely not overlooking anything.

Hoenir said:

[Deleted User] said:

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. 

An investment return of 5% above the rate of inflation is optimistically wishfull thinking I'd suggest. Better to err on the side of caution. Enjoy the exceptional moments of good fortune as and when they arise. For historical performance data the Credit Suisse Global Investment Returns Yearbook is worth a read. Helps provide a more realistic perspective. 

Why is it optimistic? 

Average UK inflation is 2.8%, the MSCI World Index average return is 10%. 

10% - 2.8% is a post inflation return of 7.2%. And you're saying 5% is optimistically wishful thinking? 

That's the entire point of the 4% withdrawal rate after retirement, it's designed to keep your pot from declining in value. 

10% - 2.8% - 4% = 3.2%

So in theory your pot should still continue to grow at a rate of 3.2% despite inflation and despite withdrawing 4%. 

Of course none of this is guaranteed and I know that, that's the nature of investing but all we can do is try to make the best guesstimates based on historical results. 

Albermarle

So I just thought I'd make it clear in my post it's all adjusted so I'm definitely not overlooking anything.

Maybe not, but as already said your way of presenting the figures is very unusual.

I have seen hundreds of 'Have I got enough?' posts on these forums, and never once seen the figures presented in this way.

It is not a criticism, but the reason for some of the answers you got.