Poll: Pre vs post retirement disposable income (actual or planned)

katejo

I am not retired yet but dropped to working 4 days a week 2 years ago and I  go down to 3 days a week in September. I am practising for the lower income by setting aside money for the 3 months leading to my reduction. Once fully retired i will have my DB lump sum but my pension scheme doesn't have a flexible option so I can't take it yet. I do also have an ISA investment but am not touching it before retirement. 

cantbelieveit23

Partner and I have significantly more disposable income than pre-retirement.  Post tax income is around 40% less, but no mortgage and only one car to run.  We have state and work pensions, plus two small annuities from unused endowments.  We certainly don't waste money, but are comfortable spending on what we really want to do, including a lot of travel.  We will have put more than £30k between us into this year's Cash ISA.
Always seems you have money to spare when you don't really need it so much, and struggle to manage (as we did) when there are dependent kids?

nicknameless

Just retired at 53.  Worked out what we could spend by modelling current day to day spend over last few years (plus a slight bit more for fun), and our big ticket item purchases (cars etc.).  Model said we could go when having suitable probability of not running out of funds over our (hoped for) lifetimes.  Never thought of it in income terms - all about what we need to spend - though suppose they are two sides of the same coin.  Mortgaged till 75 (don't need that reassurance personally whilst investments produce a better return).

Depending on sequence of returns I suspect we'll be able to increase spending over time (models suggest healthy balance at mortality and we don't have a need to consider leaving anything to anyone).

However, having booked 4 holidays already this year I may need to remodel  

Cus

Imo it's likely that the most ideal result would be to have the same income pre as post.  Anything otherwise could suggest either over saving when younger or the opposite and spending too much. Of course on this forum you would probably find more people of the former. The average person not on this forum might feel that forumites should probably have spent some money on that Evoque (well maybe second hand)..

hugheskevi

Cus said:

Imo it's likely that the most ideal result would be to have the same income pre as post.  Anything otherwise could suggest either over saving when younger or the opposite and spending too much. Of course on this forum you would probably find more people of the former. The average person not on this forum might feel that forumites should probably have spent some money on that Evoque (well maybe second hand)..

I think that is the right starting point, but the incentives on offer might lead to different outcomes.

An example I often use is to ask a younger person how much a take-out coffee costs me, and how much it costs them. After the inevitable 'it costs both of us the same' I ask them to consider the counter-factual. If instead of spending £3.50 on a coffee, they instead put it into a pension, get 40% tax free, 40 years of compound growth and then 25% tax free, how much would they have? Whereas an older person would get no tax relief as already maxing out the small amount that they can contribute, no tax-free lump sum, and have very few years of compound growth. Hence the opportunity cost of that coffee is very significantly higher for the younger person than the older person, so the coffee is far more expensive for younger person.

That has led me to skew my expenditure toward later years - not sacrificing the big life event things, but ensuring I didn't spend much on frivolous things in my younger years that I wouldn't get much benefit from. Now as I approach later years I have benefitted from those years of relief and compound growth, but will not do so to anything like the same extent in the future so am far more inclined to spend more on things I don't get so much enjoyment from.

That is just a matter of following the incentives I have been offered through our tax system, resulting in higher expenditure in mid and later life than when young.

michaels

I would also say that post retirement one has much more time and energy to do things that cost money so could want extra spending power to do so.

Also a bit like the coffee example we have flexibility to get better prices. With kids I might have had to take a holiday at peak season and decide 2k per head was not value, retired the same holiday could be taken at a cheaper time at 1k per head which is worth it so again more value to spending money Vs saving it when retired.

Cus

That is just a matter of following the incentives I have been offered through our tax system, resulting in higher expenditure in mid and later life than when young.

Nothing wrong with that approach, and I guess you have to be a pretty clued up younger person to incorporate those incentives in your planning, but perhaps you have to be even more astute to calculate how many younger days coffees you could have versus the incentives to have a smooth stable expenditure throughout your life so you don't have more coffees later on life, or of course too many when young. In some ways the cost is irrelevant 

michaels

Cus said:

That is just a matter of following the incentives I have been offered through our tax system, resulting in higher expenditure in mid and later life than when young.

Nothing wrong with that approach, and I guess you have to be a pretty clued up younger person to incorporate those incentives in your planning, but perhaps you have to be even more astute to calculate how many younger days coffees you could have versus the incentives to have a smooth stable expenditure throughout your life so you don't have more coffees later on life, or of course too many when young. In some ways the cost is irrelevant 

Apparently I am the only one who if they find a tenner see it as 0.1p per day for the rest of my life....

Silvertabby

Everyone is so very different.  We both retired 6 years before our SPAs, and so initially took a drop from our salary incomes.  Neither of us have a penny in DC schemes (2 public sector DBs each) and so have never had to worry about investments or safe withdrawal rates.  Yes, we know that we won't be leaving big 'pots' behind (other than scheme widow's pensions) but as we don't have children that's not an issue either.

Now that our State pensions have kicked in (full nSP for me, £200 per week for him) we are well over our retirement salaries alone.  

We don't go abroad on holiday, but instead spend money on things that we enjoy all year round.  ie, hobbies and living well.  Our 'luxury' is a brand new car every 5 years.  There's nothing like being able to choose exactly the right model, extras and colour.  And knowing it won't have remnants of smokers, wet dogs or car sick kids. 

Going forward, expect our expenses will increase to include paying for cleaners/gardeners/odd jobbers once those tasks become too arduous for us, but won't be a problem.

Just one thing to ask of you number crunchers - have you ensured that when life happens, and one of you is left alone (usually the wife) will she still have enough income to be comfortable?  

michaels

Silvertabby said:

Everyone is so very different.  We both retired 6 years before our SPAs, and so initially took a drop from our salary incomes.  Neither of us have a penny in DC schemes (2 public sector DBs each) and so have never had to worry about investments or safe withdrawal rates.  Yes, we know that we won't be leaving big 'pots' behind (other than scheme widow's pensions) but as we don't have children that's not an issue either.

Now that our State pensions have kicked in (full nSP for me, £200 per week for him) we are well over our retirement salaries alone.  

We don't go abroad on holiday, but instead spend money on things that we enjoy all year round.  ie, hobbies and living well.  Our 'luxury' is a brand new car every 5 years.  There's nothing like being able to choose exactly the right model, extras and colour.  And knowing it won't have remnants of smokers, wet dogs or car sick kids. 

Going forward, expect our expenses will increase to include paying for cleaners/gardeners/odd jobbers once those tasks become too arduous for us, but won't be a problem.

Just one thing to ask of you number crunchers - have you ensured that when life happens, and one of you is left alone (usually the wife) will she still have enough income to be comfortable?  

For us the plan is that the surviving partner is down by a single state pension from the joint income.

With a mix of DC as well as DB we have planned for constant real terms income including state pension so early heavy use of DC scaling back when SPs kick in.