Help with knowing how much is 'needed' to retire?

B0bbyEwing

Online calculators to me are quite worrying in that it seems to be unless you have a pot of £1million then you're going to struggle in retirement & while some will be fortunate enough to be in that position, I certainly wont.

I doubt many of the people I know either will be fortunate enough for that yet they seem to do fine (obviously I don't have access to their finances, I don't know exactly what they're spending & nobody knows when they're going to die).

On the topic of which, I'm not sure how many years people typically plan for since nobody owns a crystal ball.
My dad lived until 68 which is when health finally got him. Having done my family tree, he was actually one of the eldest in his line, many died before 68. My mothers side seems to be a little different. While not in to their 100s they do seem to live on to 70s, 80s, 90s.

I'm forever told by people older than me - "there wont be a state pension when you retire". 
Again, crystal ballery there. Maybe there wont be but I'd imagine there'd be something. Unless somewhere down the line it gets totally replaced with the workplace pension.

Currently my SPA is 68 which will be in 2051.

As I understand it, the current state pension is £230 a week, so about £920 a month.

I shouldn't have a mortgage come retirement age as this is due to be paid off a few years beforehand.

And as someone who isn't a huge spender I need to be able to bridge from £920 to £xxx-something. Currently we both get paid somewhere around £2k a month (net), give or take (I know, sin sin, don't discuss earnings with people but who cares) and with the mortgage (currently just over £400/mo) coming out of that which it wouldn't do in retirement, I'm hoping the needed pot is actually achievable. I'm just really not sure how to calculate it.

Obviously - if I die the week after retiring then I don't need to save any further, or if I drop dead tomorrow then this is all a pointless wonder.

Currently my pot is just over £100k. That's SIPP, L-ISA & workplace. Wife's is just a tad under £90k but that's because she switched from paying in to a NEST workplace pension to paying in to an NHS workplace pension for the past 3-4 years & that hasn't been noted down in the accounts spreadsheet. She's soon to leave that & return to paying in to a 'normal' workplace pension (please don't hang on the word normal. Wasn't sure how to describe it but I'm sure you know what I mean). Both of us will be basically retiring at the same time or within a year of each other. That's the plan at the moment.

ProcessMatters

Online calculators often look scary because they assume no state pension, high spending, and very cautious withdrawal rates.

A simpler way to think about it is:

• Work out your actual annual spending in retirement (after mortgage ends).

• Subtract guaranteed income (state pension + any DB pensions).

• The remaining gap is what your pension pot needs to cover.

For many people, once housing costs drop and spending stabilises, the gap is much smaller than calculators imply.

Longevity risk is usually handled by planning to ~90, not guessing family history, and accepting flexibility rather than perfection.

The £1m figures you see online are not a minimum — they’re usually for people wanting £40k+ a year before state pension.

QrizB

There's a pinned thread all about how to calculate "the number" you should aim for:

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

As above, a million-pound pot would put you on £40-50k pa plus state pension, which is more than most people earn before retirement. Having £100k in the pot when you're in your early 40s puts you in a better position than many. If you're currently comfortable on £2k a month net of tax and other deductions, you might only need a pot of £250k at 68.

Dazed_and_C0nfused

B0bbyEwing said:

Online calculators to me are quite worrying in that it seems to be unless you have a pot of £1million then you're going to struggle in retirement & while some will be fortunate enough to be in that position, I certainly wont.

I doubt many of the people I know either will be fortunate enough for that yet they seem to do fine (obviously I don't have access to their finances, I don't know exactly what they're spending & nobody knows when they're going to die).

On the topic of which, I'm not sure how many years people typically plan for since nobody owns a crystal ball.
My dad lived until 68 which is when health finally got him. Having done my family tree, he was actually one of the eldest in his line, many died before 68. My mothers side seems to be a little different. While not in to their 100s they do seem to live on to 70s, 80s, 90s.

I'm forever told by people older than me - "there wont be a state pension when you retire". 
Again, crystal ballery there. Maybe there wont be but I'd imagine there'd be something. Unless somewhere down the line it gets totally replaced with the workplace pension.

Currently my SPA is 68 which will be in 2051.

As I understand it, the current state pension is £230 a week, so about £920 a month.

I shouldn't have a mortgage come retirement age as this is due to be paid off a few years beforehand.

And as someone who isn't a huge spender I need to be able to bridge from £920 to £xxx-something. Currently we both get paid somewhere around £2k a month (net), give or take (I know, sin sin, don't discuss earnings with people but who cares) and with the mortgage (currently just over £400/mo) coming out of that which it wouldn't do in retirement, I'm hoping the needed pot is actually achievable. I'm just really not sure how to calculate it.

Obviously - if I die the week after retiring then I don't need to save any further, or if I drop dead tomorrow then this is all a pointless wonder.

Currently my pot is just over £100k. That's SIPP, L-ISA & workplace. Wife's is just a tad under £90k but that's because she switched from paying in to a NEST workplace pension to paying in to an NHS workplace pension for the past 3-4 years & that hasn't been noted down in the accounts spreadsheet. She's soon to leave that & return to paying in to a 'normal' workplace pension (please don't hang on the word normal. Wasn't sure how to describe it but I'm sure you know what I mean). Both of us will be basically retiring at the same time or within a year of each other. That's the plan at the moment.

One small win for you.  State Pension is never paid monthly, so your £920 would be paid 13 times a year not 12.

And it will become £965 every 4 weeks from April.

Two standard new State Pensions will give you, as a couple, a good foundation of £25k year (at 2026/27 rates).

jim8888

Having a solid projection of your likely monthly incomings and outgoings is crucial here. But, speaking from retirement experience, despite having a pretty solid awareness of where my regular monthly expenditures are, I still find I need an additional 20% of spend that goes on "this and that" every month! 

tigerspill

I was concerned about this as well.

A few years before i was planning to retire, I started to record every penny I spent in a spreadsheet.  I recorded every item no matter how small.  I used maybe a dozen buckets (groceries, holidays, gas.electricity, leisure, medical etc.).
This gave me a view of exactly how much I was spending.
Then there a few things that I knew would drop off; And others that I would add in (more holidays).  And then capital items (car, boiler, appliances etc).
This gave me an accurate view of my projected spend.

9 years on, I still do this every day.  Only takes a minute.

Cobbler_tone

If it is any consolation I had no clue at your age. Even in my early 50's I thought I'd be working to 67 minimum. Then life has a funny way of throwing curveballs and I can comfortably retire at 57.
Having focus on your pension pot is always a positive and just contribute as much as you can comfortably afford. You have a good base. 

B0bbyEwing

Thanks. I feel like I started quite late at 28 & even then it was just small amounts (£100pm as we saved for a house also). 

Quite boring maybe but I only really had 2 goals for adult life. 1 was to buy a 1st house I didn't want to move from which I feel I've done. Thr other was retire as early as possible (or work towards making that happen), whatever 'possible' may be. Work isn't for me, I don't like it but obviously we need to do it. There's many other things I'd rather spend my time doing but they don't pay so here we are.

tigerspill said:

I was concerned about this as well.

A few years before i was planning to retire, I started to record every penny I spent in a spreadsheet.  I recorded every item no matter how small.  I used maybe a dozen buckets (groceries, holidays, gas.electricity, leisure, medical etc.).
This gave me a view of exactly how much I was spending.
Then there a few things that I knew would drop off; And others that I would add in (more holidays).  And then capital items (car, boiler, appliances etc).
This gave me an accurate view of my projected spend.

9 years on, I still do this every day.  Only takes a minute.

I actually started doing this maybe 3-4 yrs ago. 

It was supposed to be a budget but it ended up being more of a spend tracker as we ignored budgets & just spent because we wanted & we could. I also would track everything down to £0.01. If money was spent no matter the cost then it got tracked. 

Over time I also categorised probably more than most do so that I could get a more accurate picture of where spends were going (for example buying a load of chocolate would go in its own separate junk food category separate from a supermarket spend). 

This year though with costly holidays paid for we've actually started the year using it properly. For example, I've budgeted 1 coffee out for the month. I fancied one yesterday while I was out but I'd already had it for the month so said no to myself.
Sure, £3.80 isn't going to allow me to retire but I was amazed how all these little 'it's only' spends quickly added up. 

Phossy

The Government publish data on average pension income - this is real data and not projected. 

You might find it of interest - do scroll down to see more detail and breakdowns. The numbers are a lot more 'calming' than what you find on this forum or in calculators.

Pensioners' Incomes: financial years ending 1995 to 2024 - GOV.UK

Roger175

With the best will in the world, the only person in the world who will be able to tell you how much you need to retire is you! I don't mean to sound flippant, but no two people's circumstances and needs will be the same. I strongly recommend you start keeping a spending diary - we do this using one of the phone apps and after a year or two it gives you a very clear picture of where your expenditure goes - you can then start adjusting for things like having cleared your mortgage or travelling to work etc.

I know pretty accurately what our expenditure is going to be and last year we were within about £500 of our budget, but the chances of you having the same house/council tax or car or dog or holiday preferences etc are next to nothing.  Keeping a spending diary using an app gives you all your expenses in a categorised list on a spreadsheet. You can then do some analysis to see what is you core (essential) spending and what is discretionary etc.

At your age you have plenty of time to build-up a really good data base on your actual expenditure, rather than make plans based on somebody else's suggestions or some dubious published figures. You will also find that keeping such a diary is a really helpful way to spot unnecessary expenditure and take action to reduce certain things. 

Finally, if it's of any reassurance, when I was your age, I remember getting quite upset when I started trying to work out how I'd ever retire. The numbers just didn't stack up and I assumed I would be working till 67 and probably then have to rely on some form of state benefit. In the end we retired 58&59 in a very healthy financial position. But, it didn't happen by accident and involved decades of sensible spending, clearing our mortgage early whilst saving and investing in our pensions etc.

kermchem

OP - bear in mind that on this forum you will find people who are only on the state pension and people who have £1M+ pension pots. Some of the discussions can be scary or irrelvant.

One piece of advice is to work out how much money you will need to live in retirement.

I offer an alternative way to get a dose of realism - work out from your current income and deductions, how many of the deductions will not exist when you retire. I have a "salary" of £X, from which my employer deducts Z% by salary sacrifice for the DB pension scheme, then deducts NI at 0%/8%/2% across bands, then Income tax some at 20% and some at 40%, then deducts a small union membership and finally pays me. Each month, I then pay some into a SIPP and some into an ISA, leaving me with £Y to live on each month.

When I retire (soon, taking severance and retirement), I will not pay into DB/DC, SIPP, ISA (lump sums to sort out), NI, union fees, or 40% tax on a portion. To get the same £Y to live on each month needs a far smaller input number.

Don't think that you need the same pension in retirement as salary in employment to have the same amount to spend.

Yes - retirement might be more expensive or cheaper than working.