Sensible income for retirement

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  • NedS
    NedS Posts: 3,615 Forumite
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    I'm a few years off yet, but in a similar boat. We are hoping to retire around 58-59, and are aiming for 25K per year, split evenly over our two tax allowances, so 2 x £12.5K tax free. We are currently living on less than that whilst we save heavily for early retirement.

    One of the issues you have is that the vast majority of your income is to one person (your husband) and not split evenly over your 2 tax allowances so your husband is going to be paying some income tax on his pension income. Of course you can transfer a bit using the marriage allowance. I would be using some of your cash savings/extra income/lump sums to fund a SIPP each year in your name for the tax benefits.

    I think it is possible to live on the levels of income you have but things will be tight and you will probably find yourself dipping into the lump sums for any extras. As others have said, you really need to try living the life for 12 months to see how/if you manage, maybe keeping track of/breaking down costs that you know you will no longer incur once retired (running second car, fuel costs for commuting etc).

    The other thing you absolutely must do whilst you still have a large salaried income is eliminate all debt.
  • DT2001
    DT2001 Posts: 723 Forumite
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    Just seen this thread so sorry if repeating others however I think you are in a good position to retire soon.
    Presuming your savings are from income and the fact that you’ve just paid off your mortgage and are post university you’ll not be spending all of your present income. In addition your ‘work’ costs (commute, clothes, coffees etc) will cease and you can walk your dog. I think you’ll be pleasantly surprised at your budget.
    I, after some excellent advice on this forum, worked out required (basic, pleasant and luxury) income and compared that with expected at SPA. In your case when you reach SPA in 10 years - with full SP for you both you’ll get £17.5k plus your £23/4K gross. £3k + p.m. net

    If that works for you, you then need to fund the shortfall. Remember OH will get SP in 5 years if retiring at 61 so full funding of shortfall is only 5 years (£75k if £3k p.m. is best guess) and then about £32k for last 4 years (assumes you work for another year). You could cover it from savings and expected lump sums.

    Can you increase your pension payments or put into SIPP in next year as any pension income will be tax free at least to 67?

    Do your budget and you’ll know what you can afford to do and that knowledge will help if work continues to cause health issues. Whilst not ideal maybe you continue to work for a short time and your OH retires.

    Good luck.
  • nigelbb
    nigelbb Posts: 3,790 Forumite
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    NedS wrote: »
    One of the issues you have is that the vast majority of your income is to one person (your husband) and not split evenly over your 2 tax allowances so your husband is going to be paying some income tax on his pension income.
    An alternative is to move to France where income tax is based on household income so a couple have two personal allowances & total income gets averaged over both. This is our plan as most couples & especially pensioner couples will be much better off tax-wise if fiscally resident in France rather than the UK.
  • LHW99
    LHW99 Posts: 4,220 Forumite
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    nigelbb wrote: »
    An alternative is to move to France where income tax is based on household income so a couple have two personal allowances & total income gets averaged over both. This is our plan as most couples & especially pensioner couples will be much better off tax-wise if fiscally resident in France rather than the UK.
    I hope this works out for you.
    However, a couple have two personal allowances in the UK too, plus tax-free interest on certain levels of savings & on ISA's. IMO planning retirement finances as a couple is generally sensible, and ensures both tax allowances are used.
    We are also aiming to use drawdown from one SIPP to top up income for the first few years of retirement, adding any spare to the other's SIPP to ensure both of those are more equal by the time there is any potential requirement for care.
  • nigelbb
    nigelbb Posts: 3,790 Forumite
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    LHW99 wrote: »
    I hope this works out for you.
    However, a couple have two personal allowances in the UK too, plus tax-free interest on certain levels of savings & on ISA's. IMO planning retirement finances as a couple is generally sensible, and ensures both tax allowances are used.
    The issue for us is that I am a higher rate tax payer & my current income is many times my partner's & that she is ten years younger so when we retire (long before her SPA) she will have little or no income & I will be receiving sufficient in pensions plus some part-time consultancy work to be paying higher rate tax. In France the income is divided in two & spread across two personal allowances so we will be many thousands a year better off.

    BTW we don't plan on retiring to France purely for tax purposes. I lived & worked in France for 15 years & receive a French pension. We already have a home in the UK & one in France & when I finish full time work in the UK we can opt to spend more than half the year in France & thus be fiscally resident there with the attendant tax advantages.
  • frugal90
    frugal90 Posts: 360 Forumite
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    Advice4sue wrote: »
    frugal90- love your mindset- thanks for the positive view.
    Is 2k net after all your outgoings if you don’t mind me asking?



    This is everything.

    We like the simple pleasures in life. Walking in the mountains, cycling, gardening, cooking etc.
    Early retired in summer 2018 and loving it
  • maximumgardener
    maximumgardener Posts: 299 Forumite
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    To OP

    lots of good pointers already posted and essential you crunch your own numbers on what income you feel you need..

    a point to add perhaps is that its best working back from nett income as you most likely be part 20% tax payers in retirement and not part 40%.

    a useful rule of thumb may be for you to target (in retirement) 2/3 of your nett income now
    you currently have 54k nett household income , so 2/3 of that would be around 40k !

    certainly use savings or better ISA's tax free to supplement pensions etc and you may get close to 40k . ? you may even get away with 30K for a bit and work up to 40k as your spending adjusts in retirement (downwards !) , normally

    good luck
  • maximumgardener
    maximumgardener Posts: 299 Forumite
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    2/3 of 54 = 36 k . even better !!!!
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