Interesting seeing what people are aiming for.
I think some people find it difficult to imagine their likely costs of living in retirement compared to today whilst working, paying mortgages and paying families. So often those with above average salaries and perhaps a household income of around £75k-£100k imagine they will need at least £30k each or £60k in retirement.
However, people forget a number of factors which help explain why people need less in retirement and why that Which figure of £26k for a comfortable retirement for a couple is actually enough. These figures are based on the following assumptions (won’t hold true for lots, for those who’ve had professional jobs and bought property a couple of decades ago, they could well hold true)
- mortgage already paid off
- children basically financially independent
- some level of savings
The basic cost of living and running a house is not as much as you think. Much of our salaries when working go on things we will no longer pay;
- tax and national insurance (probably won’t be feee if it altogether but most won’t pay higher rate tax nor nearly so much)
- pension contributions - saves several hundred for most people per month
Paying bills, some maintenance and feeding yourself can be done more cheaply (even when not looking to live frugally) than many imagine….and often they’ve never calculated what they spend on these and might be surprised how little it actually is in relation to their working income. So then people want some money to put aside for replacing the car, household maintenance and things that crop up and cost a lot. And then in early retirement they want to be spending on travel and hobbies etc. Given people can travel at cheaper times of year and are flexibilie, an awful lot of travelling can be done cheaper than people imagine.
And it is true, that spending fluctuates across a retirement. People often spend a lot on travel in the first 10 years or until around 75 ish. There might be care requirements in later 80s or 90s, but decent pensions can usually provide for care at home and if you need care in a nursing home, you’d likely be looking at selling property anyway. To be honest, getting to grips with the fact this is a reality if you need carehome care for a sustained period, rather than you will be able to fund it and preserve your property as inheritance for your kids, is a big leap into reality most families need to take…rather than imagining leaving an expensive property to kids is always going to be possible.
So, having looked into pensions a lot, I am of the view, that a couple with £30k post tax (£2.5k per month) can be very comfortable indeed. Lots of people can generate that from perhaps 60 or early 60s and once their state pension kicks in (£18k for a couple if full amount payable to each) then you’re looking at extremely good pension income.
Targeting a private pension of £30k each for a couple, really isnt needed for a comfortable retirement which will deliver and find plenty of fun and travel. Of course, if you can have £60k between you from private pensions, that’s great, but a much lower target is achievable and will deliver a good life for many more.
For those with decent pensions, often the big question is instead about stopping work when they want to, and bridging the gap between any early pension payout and the increasingly late time lots now pay out..ie state retirement age.
I plan to stop work at about 55/57. I won’t take any pension until 60, but my DH will fund us both for that period. At 60, I will take the part of my final salary pension that pays out at 60. That will give us about £15k per year, plus the pension lump sum and some other ISAs and SIPPs we can draw on, will allow my DH to stop work and fund us with about £2.5k post tax for 5 years, until my DHs defined benefit pension also starts paying out. At 67/8 we will each get full state pensions plus the other parts of our defined benefits pensions which pay at state retire,ent age. At that point, we will certainly be in the luxury category.
So, for those doing okay with their pension provision, now start thinking about when ou might like to or want to stop work. Everyone is diffeeenf and affordability is key but also how much you love your work and your feelings about health etc. For me, it’s really important to stop mid to late 50s. It a luxury to be able to do so, but I’ve had family survive one year after retiring at 60 and I’ve done my sums so I can afford to stop and I’d rather have the time and a slightly lower pension, than work another 5-10 years and have more. There’s no right answer is there.
Things that have helped me with this is the fact that both DH and myself are in public sector pensions, with lots of years of final salary service. We also prioritised paying off mortgage and became mortgage free soon after 40 so have been able to save. Neither of these might be possible for those 10-15 years younger. But neither of us earn loads and have never quite reached being higher tax payers, but by plodding away, now know we can stop work in later 50s.
Planning is important. Knowing how much living in retirement costs and what your pension pot currently is, your state forecast etc all helps. Do look at the Which Guide with suggested figures for single and couples - it helps get a sense of what living in retirement costs.
And yes, some might have £30k each in a private pension and then the full state pension to come too, meaning a gross household retirement income of about £78k, but it’s far from unusual and not anyway near necessary for a usual kind of comfortable and very happy retirement. People looking at those figures either need to point out that they realise they aren’t the norm or needed, even for retirement with plenty of fun and travel, or to consider that perhaps they aren’t actually needed.