Actual costs in Retirement

[MerlinsButler]

Hi everyone

I'm currently doing my 6 monthly review for my SIPP. I'm looking at how much I need to aim for to have a decent income when I retire.

A lot of the sites I've looked at seem to take a blunt approach I.e 50% of your current income should be what you aim for.

For background. I'm self employed and have 20 years until (current) state pension age so have been using that as my target retirement date. Though I'd like to retire earlier maybe.

I was wondering if anyone who has retired found the 50% costs target to be accurate. I won't have any housing costs (rent / mortgage) by retirement and to be honest the 50% figure seems high. But I don't want to lower expectations and live in poverty either.

Thanks @Turmerictolly I will check them out.

There's another newer thread called something like 'for those with not many nuts to dig up' about people who have smaller retirement incomes.

This thread sounds like it will be ideal. But I want to be a super squirrel 🐿 with lots of nuts 🥜 🌰

@Turmerictolly

Money Saving Expert has a Pensions Forum with two useful long running threads. One is called something like 'the number' where people discuss how much they'll need in retirement. The other is those newly retired who are on a thread called 'digging up those squirrelled nuts'. This one shows what people are spending on/whether they needed to adjust etc. Both very interesting reads but be advised that there are some very good planners on there and it can make you feel a bit financially inadequate! There's another newer thread called something like 'for those with not many nuts to dig up' about people who have smaller retirement incomes.

I read those three threads regularly as well! I think The Number thread has been going on for about 6 years if I remember rightly, may be even longer. The thread for those with less pension provision is also very interesting but I find some of the numbers quoted on that thread are scarily low.

Very helpful Turmeric, thank you,

Here is the MSE link in case useful to The Number thread:
forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number/p197

I've just checked on Bank of England website and over last 20 years inflation has average 2.8% per annum and Bank has been independent throughout that period. Only thing that worries me is government has taken on a lot more debt to deal with covid and will they encourage the Bank to let inflation be higher than 2% target though in theory Bank is independent.

It is something I need to consider more though as £13k today at that rate goes to £22.3k in 20 years on their calculator and then obviously continues to rise each year. It should be fine as investments should grow by that.

I wouldn't worry about not knowing exactly how you will spend money in retirement - its just having enough for essentials then ideally having some extra so you have option of doing things.

Just wanted to pop back and say the moneyexpert threads mentioned below were really useful.

Has clarified a lot of my thinking on needs vs wants vs luxuries. Hopefully will help with my 20 year planning.

Thanks to all posters for links advice etc.

My DH and I have just retired. We have pots worth just under 1.4 million. We’re going to take a 50k a year income from that and have allowed 200k for fun stuff so holidays won’t come out of the 50k a year. My DH has contributions for a full state pension and I have 29/35 at the moment but hopefully will get a few more years.

We're early 50s and are retiring next year.
One of our rentals will pay for the basic bills. We have two more rental incomes from our other properties as well as maximum each in premium bonds and our work and private pensions. We have easily got 80% of our full time wage although we both work part-time now so will have plenty.
We have lots of travel plans especially abroad for the next 15 or so years. We love cruises and we plan to go on as many as possible.

Hope you can work out something that works. I just had a nice surprise, I didn't realise that my final salary one goes up each year and the estimates I was using were very old ones so I will get £5k a year at current rates rather than £3k from that and lump sum has doubled as well. And my investments are growing around 6% above inflation.

We've just been thinking about this as we plan to retire in about 9 years time. We're planning on traveling for a couple of years, for a few months at a time and then emigrating to a low cost tropical country. We will have paid off the mortgage by then.

When we emigrate we'll sell the house and give some to the DCs for deposits and invest the rest. I'm guessing we'll have about £600k to invest depending on how much we get for the house and how much we give to the children.

We'll have rental income of approx £24k pa which should be enough to fund the traveling but if not, I'm not sure how to bridge the gap until we get our state pensions. DH will get his 4 years after we retire and I'll get mine 7 years after we retire providing they don't raise the age again. We'll have our private pensions so might have to take our lump sum from those but we don't know how much they'll be worth in 9 years time. When we emigrate we should be able to live very comfortably on around

It's all so complicated and we also have to consider what will happen if we eventually decide to return to the UK to live for whatever reason. We'll need to buy a house/flat and enough to live on which will be more than where we emigrate to.

It's a case of needing to try and plan for it in advance but not really knowing how much you'll need until much nearer the time.

We also don't know whether DH should continue to pay into his occupational pension as I didn't know until recently that pension income is taxable whereas withdrawals from ISAs are tax free. But pension contributions get tax rebates and DH is a higher rate tax payer and his employer contributes a relatively high percentage. He could put the money in an ISA instead but then that is post tax income.

We'll have a significant amount of spare income in 3 years time when DS finishes school and need to know what to do with it.

It's actually really good to write all this down. It's clarified that what we need to do is work out how much income we'll need for each of the different stages we have planned for retirement.

@MerlinsButler

Thanks *@Icequeen01* *@Silkiecats* I will take a look at MoneySavingExpert site.

It is a useful exercise I think. I have run through a number of calculations where you put in the type of lifestyle you want in retirement. Eg Uk break vs European break vs long haul etc and it uses it to calculate a figure. It just seems so unrealistic.

I'm just not sure how I would spend so much per annum.

No kids and not married but co-habiting. So won't have Uni costs etc to think about or house deposits for kids. We are just about to do some major works on house in next 12-18 months - extension / new kitchen / rewire and completely redecorate and then the house is finished so after that it would be ongoing maintenance only.

If anything it has shown me how much money I waste shopping

Which also have information on their website around how much you need for a basic, comfortable or luxurious ( or similar terms) based on current prices. I found that very helpful

@Jerseygirl12 sorry if this is too nosey but may I ask how you'll draw the income from your pension pot? Have you bought an annuity?

[quote Amboseli]@Jerseygirl12 sorry if this is too nosey but may I ask how you'll draw the income from your pension pot? Have you bought an annuity?[/quote]
I imagine (but don't know) that she's probably planning to use drawdown, not many people buy an annuity given the rates are so low. Is your/your DH's pension defined contribution or defined benefit? If DC you should look at drawdown and how to use the tax free amount moneyfacts.co.uk/retirement/how-does-pension-drawdown-work/

I love to idea of spending some time each year when I retire but it's a very long way off sadly so haven't thought about the practicalities. One thing that would worry me with leaving the UK altogether is health care whilst getting older, esp if we were faced with a serious diagnosis. Presumably you wouldn't be able to come back and use the NHS (at least in theory). Do you mind me asking how you plan for that?

Don’t forget that when you do retire, you can contribute £240 per month into a SIPP and get £60 tax relief added, so for a couple that is almost £1500 a year free money.
No need to invest the money, keep it in cash within the sipp ready to withdraw once a year. Far better than keeping it in a feeble low interest savings account. Obviously it’s not worth doing if you have enough retirement income to pay tax

We’ve just retired (DH at Easter, me 6 weeks ago)

We both have full state pension entitlement and 2 partial defined benefit pensions, with normal pension dates between 3 and 10 years away. Once they are all in payment, our combined income will be higher than we have been living on for the past few years.

We are leaving the DB pensions where they are, and taking an “income” from our ISA’s which will give us the same sort of spending money as we are used to. All the maths says we can do this and not run out, even if we both need to go into care when DH is 80 and we live another 10 years.

We never had a target figure. We are both the sort of people who live within our income, so have always saved. We have also taken advice about where to invest. When our financial adviser started asking things like “what are you saving it for?” and “when would you like to retire?” we realised the answer was “soon.”

So we have.

We also don't know whether DH should continue to pay into his occupational pension as I didn't know until recently that pension income is taxable whereas withdrawals from ISAs are tax free. But pension contributions get tax rebates and DH is a higher rate tax payer and his employer contributes a relatively high percentage. He could put the money in an ISA instead but then that is post tax income

Well I’m surprised you can’t do the maths on that