It has come up several times in this thread, that smaller amounts than some think, will fund a comfortable retirement.
Thinking in terms of current salary whilst working isn’t terribly helpful. As mentioned, it is expected people aren’t paying mortgage and childcare, but the crucial big savings people forget are the pension contributions and much of the tax and national insurance….together these amount to several hundred pounds per month for most people and often over £1k per month for a couple.
People do seem to pluck their £35k or £40k figures for a sip gle retirement from thin air or purely related to their salary. Instead, the useful way to do it is to look at your specific spending f on each category and what will be needed, as well as looking at those websites like WHICH or AVIVA which give you realistic figures for singles and couples for basic, comfortable and luxurious retirement and indicate what each would cover in terms of car replacement, short and long haul holidays etc. It is widely thought that £2.5-3k per month (after tax) will give a couple an excellent middle class kind of standard of living…to cover replacement of cars every 4-5 years and several holidays per year and plenty of leisure and eating it. That doesn’t seem much for a working couple, but working couples are often paying mortgages, childcare or child costs in some form, lots of pension contributions etc. People should listen when people say that £35k for an individual isn’t needed for a comfortable retirement.
2 things which probably need to be considered as separate issues to pension provision are leaving an inheritance and care home costs. Neither of these are things which are usually funded out of monthly pension and if people start trying to think about making pension income enough for carehome payments, they usually find it doesn’t work or generates the most ridiculous figures which make it unworkable..,,and knowing that can save a lot of messing around with daft figures.
Regarding leaving an inheritance, generally people are thinking of leaving property which is sold on death. A worry people have is that they might need to go into an expensive care home……well actually a small percentage of people do this, but none of us can know if it will be us. With those fees amounting to tens or hundreds of thousands per year, a pension is never going to fully fund it or make much dent in those fees. If such care is needed for an extended period of time there’s no avoiding the fact that the sale of property will be needed. This of course impacts the inheritance that can be left.
Lots of people really struggle with this. They seem to think that ‘I’ve worked hard’ and are somehow entitled to receive care AND to leave the full value of a property to children. However, the reality is that some people will be unlucky and need care and if it’s extended then it will probably involve selling of the property. Good pension planning probably won’t avert this, as it cannot being in the thousands that can be needed EVERY a WEEK.
People get a bit confused too by looking at US websites and figures. US pension provision needs to cover healthcare insurance costs which are vast. Fortunately for us, the NHS will provide for our healthcare needs, even if not for long term carehome costs, which most won’t need anyway. Because we don’t need to pay hundreds per month for healthcare insurance, £2-3k per month genuinely is enough for people in retirement to pay the bills on a decent sized family house, to eat and to have leisure.
Realise too, that amounts needed do vary across retirement. If you retire early, you’re likely to have more years when you want to travel and spend more. If you don’t retire until close to 70, you are likely to be looking at far less of this than if you retire at 55. Although there will always be those who continue travelling extensively well into their 80s, most people are cutting back on extensive travelling by their early 80s. Lots of people in their 80s need to spend some money on gardening or cleaners etc but this usually doesn’t cost the same as the extensive travelling of early retirement. Lots of retirees like to have a lump of savings/investments too for one off spends…..for things like home maintenance - new boiler/kitchen etc. Many save that lump sum up before retirement or get it via a lump sum pension payment when they first retire, rather than building it through regular pension income. However, many with retirement pension incomes of £2.5-3k also talk of it being sufficient to be saving some money each month and thus building their savings pot more. Lots talk about the difficulty of changing mindset in retirement from saving hard (which is what many do in the few years before retirement) to actually living on the money and spending it…it’s a different mindset to be running down the reserves rather than building up.
Anyway, the point is, that plucking retirement target figures from the air or purely based on working salary income, isn’t that useful. A more careful process is needed. Whilst lots of people are woefully underprepared for retirement and their pension pots will deliver well under £5k per year, those with reasonably paid jobs who look into this in their 30s and 40s and spend some time planning and working things out, a comfortable retirement can be possible and sometimes with less private pension than people imagine. If a couple qualitify for the full state pension x2 then that’s currently £18k in itself.