DB/state pension only - how much contingency kepts in savings/investments?

mrklaw

kind of parallel to my ‘death is expensive’ thread but this is more about day to day stuff. At state pension age I’ve estimated my DB and two state pensions will cover all our needs - essential and discretionary. so our DC funds (and early DB) is focused on the bridge.

after all is said and done we estimate to stop needing to draw on the DC savings with hopefully around 150k remaining - but this would likely all be crystallised as we’d have 200k and release 50k tfc to finish off the mortgage (tbc).

it felt good to be thinking we might have 200k we don’t ‘need’ - can use it for gifts or for one-offs.

felt ok thinking actually more like 150k if we have to use 50k tfc for the mortgage.

felt a bit ‘meh’ realising actually 100k as it would be prudent to put aside 50k to partly fund life insurance to cover income loss on death plus a bit for later life backstop

felt not great knowing thats really 80k after tax.

But I don’t know - if we’ve locked the bridge, if all income including discretionary is covered by guaranteed sources, if I’ve insurced against income loss on death. Thats enough bases covered that any excess is good news. right?

feels low though. Not likely to be doing our dream fancy pergola/glass room connected to a garden office as that’d eat half that easy.. deposits for the kids? barely.

tacpot12

You have some flexibility in retirement, so I wouldn't worry too much. It sounds like you will manage fine. Your DC funds are likely to do slightly better than you expect. I took a cautious approach to drawing down on my DC pension - I retired at 53, so had to start bridge a wide gap. Even so, my SIPP is worth £100K more that it was when I retired and I have had about £150K out of it in income.

I wouldn't start to worry until you retire and see what your income and expenses actually are.

QrizB

Please don't think I'm being rude, but you seem to have "won the game" - you've got a big enough pile of treasure that you can live a comfortable life for the rest of your days and still leave a sizeable estate to your progeny.

You're now fretting over exactly how much icing you can put on that particular cake. (Apologies for the mixed metaphors.)

Dreaming about unnecessary house improvements is how you end up trapped in "one more year" territory.

True story: a workmate of mine always planned to retire at 60. In his very late 50s he became a grandfather, and decided to move house to one with a larger garden where he could spend more time playing with his grandkid(s). This meant putting off his retirement while he paid down the new mortgage.

He died of a heart attack at 62, while still working (and having missed out on two years of retirement with his grandchild.)

Albermarle

However 'deposits for the kids' is a rather open ended expense. Could be anything from a token gesture, to well over £100K, depending on lots of factors.

If it is likely to be at the higher end, then maybe OMY ( or two) might be on the cards………

On the other hand £50K for life assurance seems a lot ?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82101628#Comment_82101628

its a combination of reserving a pot that can backstop income if I die first plus providing some income to support the FIB policy which would be about £1k a year.. alternatively if I just try and self-insure it’d be more like 75k at 67 and slowly releasing that if I died or using it to buy an annuity - perhaps simpler for my wife at that point)

GunJack

This may sound a little controversial, but....

If you die first, will your wife get 50% of your DB? If so, you having £150k left in a DC to inherit and top up her SP and 50% DB (her income will effectively halve) should be better than forking out £50k on life insurance, surely??

Linton

I suggest you keep enough cash in an easy to access pot, replenished when it runs low, to pay for any expensive one-off expenses you may have. You dont want to have to save up for n years to pay for your round the world cruise or new car.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82101921#Comment_82101921

My desire (not plan necessarily) would be to be able to use some of that for the kids or other one-off spending. so a ‘relatively’ affordable insurance plan seems to allow that to be freed up (or at least a decent chunk of it). The 50k isn’t spent on life insurance. its a general buffer for a bit of later life costs, a bit of income protection post 90 (the furthest the insurance goes) and using some of the growth from it to fund the insurance policy.

the actual policy is about 30k overall but is fixed nominally so the real value will drop over time. and if I fund from growth it should be reasonably affordable. or I could buy a 30 year gilt ladder giving £1250 a year for about 16k

Bostonerimus1

If you have enough to comfortably see you thorough retirement it really doesn't matter what you do. The people with the difficult decisions to make are those who need to draw down DC pensions for the rest of their lives. I'm in a similar situation to you and until recently I just kept 10% in cash and almost all the rest in global equity index funds. I'm now at 25% cash as the recent AI run up in equities is a bit too bubbly and sector specific for my indexing philosophy.

Lowtrawler

I'm in a similar position. About to pull the trigger on retirement. All our joint income is provided by DB pensions, State pension or Index Linked ladder and sufficient to meet essential and discretionary needs. My ladder also covers the period until all pensions are in payment and includes elements of large expenditure such as car replacement and child subsidy.

We only have a £50k contingency fund which is really designed to smooth peaks and troughs with no expectation it will be permanently needed. We are comfortable with this because a significant proportion of our planned expenditure is discretionary that could be flexed in the case or a real emergency.

It looks as though you have more contingency than I am planning. You may need it if a significant proportion of your plans are essential expenditure. However, if you have large discretionary expenditure, you can use that as a hidden contingency.

Lowtrawler

What I am finding is a temptation to look at the plans and ask what-if questions:

• What if we decide to double our support to the kids?
• What if we decide to buy premium cars?
• What if we expand our plans for an extra holiday each year?

There will always be something else you could spend money on. Unless you jointly choose an agreed position, you may keep saying just one more year. It is all the more tempting because once you reach the original plan level, every additional £ you make can get you something extra - earn £50k, that's another £50k for supporting the kids, 10 additional holidays, new Mercedes….. In your head, you debate the value proposition - only 6 more months and we can provide meaningful additional support to the kids. Another year and we can get a Mercedes every few years rather than a Ford. I'm sure it is this temptation which prevents people retiring early.