Planning for retirement

Gizmo70 · 12 August 2018 at 1:51AM

Hi,

Just starting to look at my financial position in respect of retirement. I'm 48 and currently earn around £50k p.a. (£27k after taxes and pensions) but in the process of looking for a new job that has less travelling, less stress and gives me more time for non-work activities.

I've already managed to pay off my mortgage, so been trying to put aside extra into pensions / investments. Every month I put about £1.2k into savings / investments, £1.1k into pensions and the rest (£1k) is expenditure.

At the end of 2017 I had:
ISAs (mix of types): £167.6k
Investments (stocks & shares, long term savings, etc): £113.4k
Pensions (mix of types): £192.6k
Liquid (cash, short term savings, etc): £55.2k
Total: £528.8k

Position at end of July 2018:
ISAs (mix of types): £193.0k
Investments (stocks & shares, long term savings, etc): £120.9k
Pensions (mix of types): £199.1k
Liquid (cash, short term savings, etc): £42.6k
Total: £557.6k

My Pension pot consists of:

2 Final Salary Schemes
- one about £79k of contributions (covering 17 years and 8 months) - 60ths scheme
- the other less than £2k of contributions (covering 1 year and 10 months) - probably 60ths scheme
1 Career Average Scheme
- with about £26k of contributions (covering just over 3 years) - 49ths scheme
3 AVCs
- one capital guarantee with about £48k in
- one defined contribution currently valued around £44k
- one defined contribution currently valued around £3k (0.65% charges)

The italicised pension entries are for my current job.

If / when I get a new job, I probably should review at least some of my current pension portfolio.

I am also looking at moving some money from Liquid to ISAs / Investments, as I think I have too much in short term savings. Is there anything else I should be doing to prepare my finances for retirement?

Any other constructive thoughts?

Thanks

bostonerimus · 12 August 2018 at 3:55AM

Do a detailed budget (and I mean every single penny and item) for at least 6 months.....a year would be better to catch seasonal variations. Then compare your spending to your guaranteed income from SP and DB. Then make a plan for your retirement asset allocation. I cover my retirement spending with a DB pension and income from a rental apartment so I keep my DC and other investments mostly in equities.

Linton · 12 August 2018 at 7:23AM

The most important preparation for retirement is financial planning and In principle this is straightforward..
1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.

kidmugsy · 12 August 2018 at 10:06AM

Gizmo70 wrote: »

I'm 48. ... My Pension pot consists of:

Oh no it doesn't. The DB pensions don't have a pot. Instead they have promises of income when you start to draw them. So listing the past contributions is a worthless activity.

What you should ideally do is list out for each:

(i) Scheme retirement age.
(ii) Annual pension at SRA.
(iii) Tax-free lump sum, if any.
(iv) Inflation-protection.
(v) Actuarial reduction i.e. the annual deduction from annual pension for taking the pension early.

There's no need to tell us but you need to be on top of those five issues.

Lesser issues: commutation rate and reverse commutation rate.

NoMore · 12 August 2018 at 10:45AM

As kidmugsy says for your DB pensions listing the contributions is meaningless and has no bearing on your retirement planning. You need to know the income expected from them.

I can't think of any time that keeping track of the contributions to a DB pension is useful, even the AA is not tested against them but rather a 'increased value' calculation of the DB pension.

atush · 12 August 2018 at 11:17AM

You have a lot of cash and investments outside of pensions.

Consider moving some of that to DC pensions.

JoeEngland · 12 August 2018 at 11:47AM

Linton wrote: »

The most important preparation for retirement is financial planning and In principle this is straightforward..
1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.

"1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to."

I think that depends on the person. Some people will be happy to trade money for more free time in being retired.

Linton · 12 August 2018 at 12:18PM

JoeEngland wrote: »

"1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to."

I think that depends on the person. Some people will be happy to trade money for more free time in being retired.

I agree someone could make the decision to completely change their lifestyle when they retire, but it may be a very big step to take. After all they may well have had decades of living in relative luxury. Perhaps they should try living on the reduced expenditure for a year or two prior to retirement before making a possibly irreversable commitment.

Many people seem not to know how much they are spending and create a budget bottom-up. They could then be very disappointed when they discover they can no longer afford the things that they used to enjoy.

This is why I propose ones current expenditure as the starting point for planning but it doesnt have to be the end point.

crv1963 · 12 August 2018 at 1:05PM

Linton wrote: »

The most important preparation for retirement is financial planning and In principle this is straightforward..
1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.

I couldn't agree more with the above, time spent planning is important, something we've been doing over the past year or so in earnest. We worked out our number (needed income), when what would come in (DB, DC and SP), then have made a rough plan and adjustments.

Hence I am now planning working past my scheme NRA, to build the coffers to finance the years before SP starts.

Deciding what you'll do/ want to do in retirement is (according to a pre-retirement course work sent me on) as important as the financial side of things. Being creatures of habit it is difficult to change mind set, from one third sleep, one third work, the commute/ travel eats into the one third leisure per day, to all day without a plan or meaning.

A lot of people are either defined by their job (a particular hazard of my area of work), their income- usually being over budget, so expenditure doesn't match pension income or over frugal so when the pension starts they can't get used to spending, so as they don't know the end date they leave large sums to others rather than spend a bit more on leisure while they still have health/ time/ interest.

It's all about balancing the variables, money saved on commute may end up being spent on heating, money saved on lunches may need to be spent on increased weekly food shop.

The main thing we've planned around is spending staying as it is but no mortgage.

bostonerimus · 12 August 2018 at 1:29PM

Linton wrote: »

I agree someone could make the decision to completely change their lifestyle when they retire, but it may be a very big step to take. After all they may well have had decades of living in relative luxury. Perhaps they should try living on the reduced expenditure for a year or two prior to retirement before making a possibly irreversable commitment.

There's lots to deal with when you retire and adding a drastic change to income could be disastrous. Without work many people suffer depression and boredom.....of course some are very glad to have left work, but most people will go through a grieving process and have to find a new equilibrium so I would not add the challenge of living on a greatly lower income or compromising lifestyle.

Gizmo70 · 12 August 2018 at 1:30PM

Annual Expenses:
Car (inc Fuel, Insurance & Maintenance) : £1,700
Council Tax: £850
Electricity, Gas & Water: £1,090
Food & Clothing (inc Dining Out / Drinks) : £2,160
Household Repairs & Replacements (inc Insurance): £1,200
Healthcare (Optical, Dental, Insurance, Pills & Potions): £870
Leisure (inc Books, Magazines, Music, DVDs, Holidays & Sporting Events): £3,480
Presents (Birthdays, Christmas, etc): £300
Savings & Investment Charges: £150
TV, Phone & Internet: £1,260
Total: £13,060

Estimated Income from Savings & Investments: £9,600

I reckon to address the shortfall, I need to continue saving / investing at the same rate for another 6-7 years to add another about another £100k to them.

Does that make sense?

Thanks

Planning for retirement

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