How do you set retirement target?

Bostonerimus1

penners324 said:

A lot depends on how much if any of your pot you want left when you die.

4% will actually leave the pot larger when you die than when you retire

With drawdown there's a high probability of that, maybe 90% to 95%, but that leaves a non-zero chance of you running out of money too. Of course this used historical data and who knows what the future holds.

Veloflyer

olb81 said:

I am 44 and only have about 30k in pensions and 200k in property.
Where should I go from here?
I have no savings on top of this.
Do I need an aim for a total pot?
Is the 4 per cent rule still a target eg 250k gives you 10k a year?
Thanks for any help

Depends what "income" you want at retirement. 4% rule is not a bad place to start as a comparator. Can the property be converted into cash if required? If not, don't count it. 

IMHO - State pension will be means tested or eligibility date will rise in future. Safest thing to do is not to rely on it. Also, pensions will become an increasingly juicier target for HMG as the UK state spend/interest on the debt increases - got to pay for it somehow....Add to all of that, the economic outlook for the UK is not exactly rosy.

Were it me, I'd be putting every spare penny I had into a pension and claiming as much tax back as feasibly possible. Well worth a trip to an IFA and tax advisor to discuss.    

    

Moonwolf

If you haven’t already it is worth looking at the number thread pinned at the top of this forum.

https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number

Work out your target budget, I used three methods and compared them, then mined them to look for the reasons why they might be different, tweaked things until they approached a similar figure.

- What am I earning now (was then) and subtract work costs and other things that will disappear like the mortgage.
- Bottom up, I wrote a budget in today’s money and put down everything I could think of, current utilities and extra for hobbies. There are some ideas in threads on here and online that help you avoid missing anything.
- The retirement living standards already mentioned.

Then I built a spreadsheet with all my pensions, put in some assumptions like I would carry on adding the same until I retire and my pot would grow by 2.5% (adjustable) growth over inflation, I worked in today’s money and basically ignored inflation. Scaled it up assuming I put the same in each year.

Initially I ran a few what ifs and decided I would have enough to retire at 67 but I needed to put more in to retire earlier. 

I ended up with a spreadsheet with a worksheet for retire at 67, at 66, at 65 and so on down to 57. Each worksheet had a column for each year’s drawdown up to 90 years old and rows for drawdown amount and tax etc. I upped my pension payments and updated the spreadsheet twice a year, often good news as it had grown more than expected, sometimes bad like during covid. On average I have done better than I expected.

At first the model was simply drawdown and it was all a bit fuzzy and most of my assumptions were conservative, but over time the numbers firmed up and I found myself doing more variations on drawdown vs annuity vs taking my defined benefits pensions early.

The thing is, if you start, as you learn and read on here you will get more sophisticated in your planning. Just by doing it you will be better than most.

For reference, I retired this year at 59.

Veloflyer

Moonwolf said:

If you haven’t already it is worth looking at the number thread pinned at the top of this forum.

https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number

Work out your target budget, I used three methods and compared them, then mined them to look for the reasons why they might be different, tweaked things until they approached a similar figure.

- What am I earning now (was then) and subtract work costs and other things that will disappear like the mortgage.
- Bottom up, I wrote a budget in today’s money and put down everything I could think of, current utilities and extra for hobbies. There are some ideas in threads on here and online that help you avoid missing anything.
- The retirement living standards already mentioned.

Then I built a spreadsheet with all my pensions, put in some assumptions like I would carry on adding the same until I retire and my pot would grow by 2.5% (adjustable) growth over inflation, I worked in today’s money and basically ignored inflation. Scaled it up assuming I put the same in each year.

Initially I ran a few what ifs and decided I would have enough to retire at 67 but I needed to put more in to retire earlier. 

I ended up with a spreadsheet with a worksheet for retire at 67, at 66, at 65 and so on down to 57. Each worksheet had a column for each year’s drawdown up to 90 years old and rows for drawdown amount and tax etc. I upped my pension payments and updated the spreadsheet twice a year, often good news as it had grown more than expected, sometimes bad like during covid. On average I have done better than I expected.

At first the model was simply drawdown and it was all a bit fuzzy and most of my assumptions were conservative, but over time the numbers firmed up and I found myself doing more variations on drawdown vs annuity vs taking my defined benefits pensions early.

The thing is, if you start, as you learn and read on here you will get more sophisticated in your planning. Just by doing it you will be better than most.

For reference, I retired this year at 59.

A logical approach for sure, but retirement is not just about the pound notes.

Yorkie1

Veloflyer said:

Moonwolf said:

If you haven’t already it is worth looking at the number thread pinned at the top of this forum.

https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number

Work out your target budget, I used three methods and compared them, then mined them to look for the reasons why they might be different, tweaked things until they approached a similar figure.

- What am I earning now (was then) and subtract work costs and other things that will disappear like the mortgage.
- Bottom up, I wrote a budget in today’s money and put down everything I could think of, current utilities and extra for hobbies. There are some ideas in threads on here and online that help you avoid missing anything.
- The retirement living standards already mentioned.

Then I built a spreadsheet with all my pensions, put in some assumptions like I would carry on adding the same until I retire and my pot would grow by 2.5% (adjustable) growth over inflation, I worked in today’s money and basically ignored inflation. Scaled it up assuming I put the same in each year.

Initially I ran a few what ifs and decided I would have enough to retire at 67 but I needed to put more in to retire earlier. 

I ended up with a spreadsheet with a worksheet for retire at 67, at 66, at 65 and so on down to 57. Each worksheet had a column for each year’s drawdown up to 90 years old and rows for drawdown amount and tax etc. I upped my pension payments and updated the spreadsheet twice a year, often good news as it had grown more than expected, sometimes bad like during covid. On average I have done better than I expected.

At first the model was simply drawdown and it was all a bit fuzzy and most of my assumptions were conservative, but over time the numbers firmed up and I found myself doing more variations on drawdown vs annuity vs taking my defined benefits pensions early.

The thing is, if you start, as you learn and read on here you will get more sophisticated in your planning. Just by doing it you will be better than most.

For reference, I retired this year at 59.

A logical approach for sure, but retirement is not just about the pound notes.

Iin principle, no. But this thread is specifically asking about the money side of things.

ali_bear

Short answer: It depends.

It depends a lot on how things go. How well your investments perform in comparison to inflation over the same period. How much you are able to save. Your attitude to investment risk. How much importance you place on living for today compared with saving for tomorrow. 

Unfortunately for you being in the generation who did not gain massively from house price inflation over the last 4 decades, but the generation who are faced with unreasonable housing costs. It used to be that you could get wealthy just by owning the biggest house you could afford, and this is no longer the case.

There is an old rule of thumb approach: Once you have got rid of debts and have stabilised your living costs, look at your disposable income and divide it about equally into three parts, to be spent on living for today, medium term savings (call this a rainy day fund if you will, money to tide you over if for example you are temporarily out of work, or need to fund some building works), and long term savings (mainly pension savings but not necessarily all in a pension wrapper). 

Putting some of your earnings into a pension is the most tax efficient way of saving. The only drawback is that money is locked away until retirement. That is why it makes sense to have a balanced savings strategy. 

Some of us really max out our pension contributions in the last 5 years or so before retirement, because of the tax advantage with the knowledge that we will be accessing that money soon. 

It is never too late to start, the effects of compound growth on good investments does pay off. 

Veloflyer

Yorkie1 said:

Veloflyer said:

Moonwolf said:

If you haven’t already it is worth looking at the number thread pinned at the top of this forum.

https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number

Work out your target budget, I used three methods and compared them, then mined them to look for the reasons why they might be different, tweaked things until they approached a similar figure.

- What am I earning now (was then) and subtract work costs and other things that will disappear like the mortgage.
- Bottom up, I wrote a budget in today’s money and put down everything I could think of, current utilities and extra for hobbies. There are some ideas in threads on here and online that help you avoid missing anything.
- The retirement living standards already mentioned.

Then I built a spreadsheet with all my pensions, put in some assumptions like I would carry on adding the same until I retire and my pot would grow by 2.5% (adjustable) growth over inflation, I worked in today’s money and basically ignored inflation. Scaled it up assuming I put the same in each year.

Initially I ran a few what ifs and decided I would have enough to retire at 67 but I needed to put more in to retire earlier. 

I ended up with a spreadsheet with a worksheet for retire at 67, at 66, at 65 and so on down to 57. Each worksheet had a column for each year’s drawdown up to 90 years old and rows for drawdown amount and tax etc. I upped my pension payments and updated the spreadsheet twice a year, often good news as it had grown more than expected, sometimes bad like during covid. On average I have done better than I expected.

At first the model was simply drawdown and it was all a bit fuzzy and most of my assumptions were conservative, but over time the numbers firmed up and I found myself doing more variations on drawdown vs annuity vs taking my defined benefits pensions early.

The thing is, if you start, as you learn and read on here you will get more sophisticated in your planning. Just by doing it you will be better than most.

For reference, I retired this year at 59.

A logical approach for sure, but retirement is not just about the pound notes.

Iin principle, no. But this thread is specifically asking about the money side of things.

Disagree - the OPs initial post potentially encompassed many more variables than just money - The state of one's health for example can make a huge difference to how much you need, when you retire etc.  

Cobbler_tone

All I know is that at 44 I would have had no clue and certainly wasn't 'pension focused'. I guess the earlier the better but life has a habit of presenting unforeseen change. If you asked me 3 years ago (at 53) I would have said I could retire at 67. With a change in circumstances and being laser focused on my pension I could retire today at 56 but will work to 57. Even then I'm not 100% sure I'll be emotionally ready to call it a day but financially I'll be fine.
You have to look at what you spend today, what you won't be spending in retirement, plus potential additional spend. My main 'risk' is the unknown cost of self funded healthcare and/or reliance on the NHS with the loss of BUPA. I'm confident outside of this we'll be extremely comfortable.

Makes it so much clearer once your housing costs (i.e. a mortgage) is gone, or you have a robust plan to clear it. Then if your life is paying bills, food, vehicles and entertainment, it isn't that difficult to work out. If you intend to go early, then it is the bridge to state pension and you may wish to target a flattish income (with inflationary rises) from x age to the grave.

FatherAbraham

olb81 said:

I am 44 and only have about 30k in pensions and 200k in property.
Where should I go from here?
I have no savings on top of this.
Do I need an aim for a total pot?
Is the 4 per cent rule still a target eg 250k gives you 10k a year?
Thanks for any help

Halio Olb81.

How to start?

You should begin by setting a best-guess date for when you would prefer to stop working and to start living off the income that your assets can generate. Having this rough time-frame will let you make a rough plan.

Now to have a time-frame for accumulating wealth to use to generate income to live on when you no longer earn by working. No-one can make a plan until he or she has a target to achieve. 

The next important part is to decide how much expenditure you will want in retirement.  A rough rule of thumb is: about the same as you spend before retirement. While done employment expenses may vanish, you are likely to want to fill some of your free time with non-free activities.

Now you can look at index-linked pension-annuity prices to work or hire much capital you'll need to have available.  Remember that, because of income tax, you'll probably need more income from your capital than your expenditure needs.

The full UK pension is currently a thousand pounds a month, and your state pension age is, what, 68? 69? Thus, if you retire before that age, you'll need to have the future equivalent of £12,000 per year to use, to fill this funding gap.

Please stay away from the "4% rule", it's mythical nonsense, with many supporting wishful-thinkers.

Best regards,
FA

Bostonerimus1

FatherAbraham said:

olb81 said:

I am 44 and only have about 30k in pensions and 200k in property.
Where should I go from here?
I have no savings on top of this.
Do I need an aim for a total pot?
Is the 4 per cent rule still a target eg 250k gives you 10k a year?
Thanks for any help

Halio Olb81.

How to start?

You should begin by setting a best-guess date for when you would prefer to stop working and to start living off the income that your assets can generate. Having this rough time-frame will let you make a rough plan.

Now to have a time-frame for accumulating wealth to use to generate income to live on when you no longer earn by working. No-one can make a plan until he or she has a target to achieve. 

The next important part is to decide how much expenditure you will want in retirement.  A rough rule of thumb is: about the same as you spend before retirement. While done employment expenses may vanish, you are likely to want to fill some of your free time with non-free activities.

Now you can look at index-linked pension-annuity prices to work or hire much capital you'll need to have available.  Remember that, because of income tax, you'll probably need more income from your capital than your expenditure needs.

The full UK pension is currently a thousand pounds a month, and your state pension age is, what, 68? 69? Thus, if you retire before that age, you'll need to have the future equivalent of £12,000 per year to use, to fill this funding gap.

Please stay away from the "4% rule", it's mythical nonsense, with many supporting wishful-thinkers.

Best regards,

FA

What are your reasons for this statement? Do you mean that 3.5% annual drawdown is right? or that index linked percentage drawdown is inherently flawed?