Pension vs ISA vs current income

boots_babe

Yes absolutely, we certainly won't be spending more than our income for however long a period I am looking after parents. That £10k spend per month includes things like adding to savings and discretionary spend, so we can fairly easily spend within a single salary for as long as we need to. 

But that doesn't mean I'd want to retire on the lower figure. We'd still want to try to target a higher sum as I value both the flexibility it would give us, plus I am quite risk averse so would feel happier with plenty to play with. Plus we'd ideally want to up the travel once no longer restricted to limited days of annual leave per year.

We definitely won't be taking out any additional mortgage. We will simply pay off the smallish amount that will be left at 57 with a lump sum from pension. I agree it's the 2 years from 55 that will be a pinchpoint, so looks like we need to focus on ISA rather than SIPP from now on to hopefully help with that.

MeteredOut

boots_babe said:

Yes absolutely, we certainly won't be spending more than our income for however long a period I am looking after parents. That £10k spend per month includes things like adding to savings and discretionary spend, so we can fairly easily spend within a single salary for as long as we need to. 

But that doesn't mean I'd want to retire on the lower figure. We'd still want to try to target a higher sum as I value both the flexibility it would give us, plus I am quite risk averse so would feel happier with plenty to play with. Plus we'd ideally want to up the travel once no longer restricted to limited days of annual leave per year.

We definitely won't be taking out any additional mortgage. We will simply pay off the smallish amount that will be left at 57 with a lump sum from pension. I agree it's the 2 years from 55 that will be a pinchpoint, so looks like we need to focus on ISA rather than SIPP from now on to hopefully help with that.

Perhaps I'm misreading, but the message your being given is that your total pot does not guarantee your desired £10K/month lifestyle from 55. You say you're willing to reduce that, but then go back to say you want to keep it.

Moving from SIPP to ISAs will help with cashflow and tax efficiency, but that in itself will not allow you both to retire at 55 with £10K/month spend with little risk.

You should exclude adding to savings from the £10K. That's the polar opposite of spend. Build that into your spreadsheet.

Triumph13

You should also factor in the not insignificant probability of the pension access age having risen to 58 by the time you get to 57 - although that could be mitigated by simply working longer.

QrizB

boots_babe said:

That £10k spend per month includes things like adding to savings ...

As stated above by MeteredOut, it would be quite self-defeating to "need" an income from savings just so you could then save it again. It's a zero-sum argument.

For example, if your £10k a month includes £1k that you plan to save, it's really only £9k a month.

boots_babe

I think 2 separate things are getting a bit conflated here. My comments saying about managing on a smaller amount due to some being put towards savings and discretionary spend, was in reply to the post saying that we can't keep spending £10k right now, now that I have been made redundant. Which of course is absolutely true.

I was replying to that to say that, we will of course only live within the income we have at the moment, and I was just commenting that as some of the current monthly spend is on savings, that it would not be an issue.

But then separately turning to when we retire, I'd still ideally want the flexibility of the income we have been used to, of around £10k per month. I see other posts where people say surely you don't need as much at retirement e.g. no mortgage, less commute costs, etc. But in my OP I was trying to qualify why I was saying we'd want to retain the level of income ideally, it's not because we'd be saving or paying the mortgage any more, but because with all of our time being our own and no longer having to work, we would want to spend more time travelling, which would cost more then our pre-retirement holiday costs.

So all things being equal, we are wanting the flexibility of retaining around £10k monthly post retirement (in reality I doubt we'd spend that every month but the point is we don't want to be having to count pennies!), but for right now with me not working, we will of course change spending habits for however long I am looking after my parents, such that we are only spending what is coming in.

Hopefully that makes sense. I think what with my replying to questions from different people about different aspects (current spend, post retirement spend) it has muddied the waters a bit!

dharm999

One thing I’m confused about, as there are lots of numbers being quoted, is are you comparing apples with apples when you look at what you want to spend and what you’re income is going to be?  As an example, you say you’d like £10k a month, which I assume is in today’s money and you say you’ll have a state pension of c£20k and your pension will pay c£35k, aren’t those figures what you’ll get at the appropriate time, not in today’s money, so not comparable to the £10k/month income you need.  Apologies if I have missed something, and you are comparing like for like, but if you aren’t that could leave you a big hole in your figures.

boots_babe

Yes fair question and it is helpful to have people question what I'm doing . I have been using the Guiide calcs in terms of today's money versus equivalent at retirement based on inflation. This may be way off? But I just don't know a better way.

Using that, ~£120k ish of joint income would be ~£155k at retirement date. And then increase from there YoY with inflation.

My assumption was that the ~£20k state pension figure which Guiide assumes is just the forecasted figure as at retirement, so will be worth a lot less in today's money. 

Triumph13

It might all work.  Probably more likely to be retiring in your early sixties than at 55, but you could get lucky.

QrizB

£10k per month at age 55 will currently cost £2.9M for single-life RPI annuities, per the HL best buy table.

In practice it'll be less than that as you'll have two SPs and the DB, but you're probably still looking at £2M.

And that's all in today's money.

kimwp

QrizB said:

£10k per month at age 55 will currently cost £2.9M for single-life RPI annuities, per the HL best buy table.

In practice it'll be less than that as you'll have two SPs and the DB, but you're probably still looking at £2M.

And that's all in today's money.

Assuming a 2% YoY and a continued contribution of £2500 per month for ten years, would get to £2million I think?