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

MEM62

[Deleted User] said:

• Groceries - £900?

Wow?  Steak and caviar daily then?  

mattywallace121

No employer pension? Why all withdrawls coming from an ISA, seems a waste of tax allowances.

GeoffTF

The OP is optimistic about investment returns and inflation, but he is not strong on cost control. I am a wealthy pensioner living by myself in a three bedroomed detached house. Here are the corresponding numbers for my average monthly outgoings:

Council tax - £127
Groceries - £150
Home Insurance - £12
Internet - £18
Gas + electric - £130
Water - £22
Car Insurance - £32
Fuel - £32
Pet Insurance - £0
Entertainment subscriptions - £0

The OP has not included car servicing or mobile phone costs. There will also be capital expenditure, of course. Recently, new carpets, new windows and dental bills, in my case.

Hoenir

[Deleted User] said:

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. 

To use historical market data you need to put it into context though. Whether it be exchange rates, market bubbles, financial crisises, quantitive easing, quantitive tightening, geo political issues. Investing would be easy if it were just a matter of data extrapolation. Been endless discussions on this forum regarding 4% SWR. No intention of reigniting that now. As would divert attention away from the fact that the markets ultimately have to reflect the real world economy. In 2010 you could have bought Microsoft on a PE ratio of 10.  Yesterday it was 35. Ultimately markets come down to basic maths. Using the Buffett Indicator. Based on the historical ratio of total market cap over GDP. Then the quoted US stock market alone is valued at over 200% of US GDP. Which puts it as seriously overvalued. With the US economy forecast to grow at less than 2% next year. Achieving an 8% investment return appears extremely challenging (not least that the past decade has been over 12%). Unless the £ $ exchange rate moves in such a way as it has done in the period Jan 1988 to yesterday. With a 32% fall. A sizable tailwind along the way in holding denominated $ assets. 

SAC2334

[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. 

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. 

Some of those monthly figures look very high. Is your council tax £2400 a month ?  Mine is £1200 in a band C 3 bed detached . Your groceries at £900 a month are huge , and so is your gas and electric  at £240 a month . ( mine has been around £50 a month since April on Octopus Tracker for gas and Agile for electric )
My total net income is approx just £1500 a month and its a bad month if I don t save at least £800 a month .Last month I banked over £1000 .
I have a very healthy diet but do drink pricey whisky as my main tipple ( Jura ) .I have a pet cat who I spoil with the best food .
Welcome to MSE , you are in the right place to get advice from this and other forum s. I m a little on the tight side but compared to some on here who will not put the heating on all winter , I m a spendthrift .

masonic

SAC2334 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. 

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. 

Some of those monthly figures look very high. Is your council tax £2400 a month ?  Mine is £1200 in a band C 3 bed detached . Your groceries at £900 a month are huge , and so is your gas and electric  at £240 a month . ( mine has been around £50 a month since April on Octopus Tracker for gas and Agile for electric )
My total net income is approx just £1500 a month and its a bad month if I don t save at least £800 a month .Last month I banked over £1000 .
I have a very healthy diet but do drink pricey whisky as my main tipple ( Jura ) .I have a pet cat who I spoil with the best food .
Welcome to MSE , you are in the right place to get advice from this and other forum s. I m a little on the tight side but compared to some on here who will not put the heating on all winter , I m a spendthrift .

You may have missed the part of the discussion where it was disclosed that the OP had used a fudge factor to predict what the cost would be in 20 years time. Divide by 1.75 to get the actual figures in today's money. (assume you mean year and not month when referring to council tax)

CrickJon

£900 a month on groceries?!

We have 2 adult children (age 23 and 17) living with us and we don't spend that much in a month on food.

Our gas and electric is £150.00 a month, £260 seems very excessive.

eskbanker

OP's choice of using inflation-adjusted pricing was always going to cause some confusion but it doesn't really seem unreasonable to expect people to actually read the thread before posting comments like the ones seen on this page!

[Deleted User]

eskbanker said:

OP's choice of using inflation-adjusted pricing was always going to cause some confusion but it doesn't really seem unreasonable to expect people to actually read the thread before posting comments like the ones seen on this page!

I agree I shouldn't have used forecasted inflation adjusted prices but it's actually astonishing the sheer amount of people that are replying with comments who didn't even read the first line.

I even made it the very first line on purpose and in bold so people wouldn't miss it. Seems like most people can't even read on this forum and here's me trying to get advice from them? Maybe I should jump back over to Reddit. It's mostly younger people there but at least they can read.

But I'm almost certain if I asked if £1,150 a month was enough to retire on I would have received comments like "what about inflation, have you taken that into account? Your £1,150 will decrease in purchasing power over time" etc.

Zeyfur2021

[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. 

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. 

You have to think about inflation