Realistic annual pension

[Poppins17]

Thinking about how much you realistically need at retirement.

A site was recommended recently which is looked at (Lansdown) which suggested an annual pension of £28k was needed.

Thinking mortgage would be paid off, but would like to have a couple of holidays per year say £5k each. We shop in Aldi, can’t see that changing. Would probably want to eat out at local pub once a month. Maybe one takeaway a month too.

How much do you realistically need as an annual income to live this sort of lifestyle?

35k as you want to spend 10k on holidays.

My DH and I are retired, we’ve found we are spending a lot more on leisure activities and eating out than we expected. I know some people will come along and say they are happy going for walks, volunteering and eating at home but I like to do more expensive things.

It’s completely individual. Best thing to do is work out your expenditure now, look at what might change in retirement (ie no mortgage, more/less holidays, different hobbies, support for kids/grandkids) which will give you your expected expenditure in retirement. It’s obviously only best guess right now.

For one or two people? I’d want 35k a year minimum for one. 50k for a couple. That includes holidays, eating out, hobbies.

Of course everyone's needs differ so it's best to work out your own likely needs, but that's tricky to do if you're a long time off and your life is likely to change a great deal. This site https://www.retirementlivingstandards.org.uk gives research on what couples and singles spend in practice at different spending levels. Their 'comfortable' level is fairly close to what FrownedUpon said.

Remember this is what people spend not what their income is so you need to factor tax in to the number you aim for. Also, more depressingly, if you are planning as a couple make sure you think through what happens when one of you dies (before or after retirement) and what if you divoce. Personally I'd plan to have a reasonable income as a single person even if I expected to be part of a couple.

I agree with this. Only you know how much you as a family spend on bills/food/clothes/toiletries/gifts etc. Add on meals out and holidays. Do you run a car? Budget for servicing and repairs. Also a bit extra for any unforeseen events eg household repairs.

Really useful responses, thanks everyone!

State pension is say £12k a year ?

It's possibly worth looking at how much you need at each stage.
I'm 53 and hoping to retire at 60, personal pensions currently worth about £23k per annum at 60 . Busy saving into ISA and AVCs so can use cash to bolster annual income between 60 and state pension age.

OP do you have any plans to downsize your home?

I paid into my Teachers Pension but also into an additional Sipps, a second pension for 20 years. When I retired at 57 I cashed in this pension into an annuity I can draw over 10 years from 57-67 when I can draw my state pension. I got my Teacher's Pension at 60 and lump sum. With pensions it's best to plan 20-30 years ahead.

https://www.moneysavingexpert.com/banking/budget-planning/#spreadsheet

A budget planner like this might help.

DH and I would like £4k per month so let’s say 50k per year.

We will both have full state pension so that accounts for £20k. We each have old workplace pensions which will give us approx £5k each. The final £20k per year will come from savings, investments and small private pensions.

Remember that pension and investment income is taxed, so if you want £X a month you need to figure out what your net vs gross income will be! So @Belindabelle in your example you'd need to each have a pension income of about £30,000 (give or take) to bring in £2k each per month - not just £25,000.

@laclochette If the investment is wrapped in ISA then there should be no tax? I plan to use earnings from ISA to minimise the amount I have to pay on tax to top up the pension and only draw down from my AVC (before national pension age) just below personal allowance, whatever value that might be when I am 58.

@Marmut Sounds like a very smart and tax efficient way to do it yes. I was just commenting generally as when most people talk about pension income they don't mean ISA income although of course as you say it can absolutely act as one!

As a couple I'm thinking we would want roughly £45-50k a year assuming mortgage repaid. As PP said you need to stage your retirement. For example we would like to retire at 62 (we're the same age) and the plan is to live on ISAs from that point until we draw down on pots at 65, then state pension kicks in at 68. I also have a small DB pension which I could access from 57 but plan to wait until 62.

At the moment the ISAs are very small but I have a plan to fund them over next 15 years. School fees kick in this year otherwise we would be retiring at 60, possibly earlier.

My DH and I have pension pots of 1.5 million and this works out an approximate pension of 70k per year. We have a high standard of living, we are 54 and 57 and have been retired for two years. To achieve this £2200 per month was saved into which was a mixture of employer and employee contributions. This sum was smaller when we were younger and earning less.
We also have ISA’s and other investments which we both spend the profit on fun stuff. My main lump sum is for my adult DC in a couple of years time for their deposits on a flat. We have an older DC who we have already helped. My DH’s savings are for helping if the DC get married and also towards their first property.
I think the possibly of helping adult DC is something to factor into how much you need, obviously this depends on when you retire and how old DC are.
We both have full contributions for a state pensions but haven’t really factored those in to our calculations.
We will probably downsize or do a sideways move in about four or five years.

@laclochette dont worry, much like @Marmut most of out savings are within an ISA, premium bonds or fairly straight forward savings accounts. Obviously tax will be due on any interest over the £1k threshold on the savings accounts and any pension over £12570.

For the first 10-15 years of our working lives DH and I had good workplace pensions. Utility company for him and Civil Service for me. DH set up his own company but didn’t start a private pension as his parents had been stung in the Polly Peck pension scandal so he was rather apprehensive. Instead we put money into ISA’s as that felt safer. Downside we didn’t get the tax relief like a pension. Upside we won’t have to pay tax when we spend it.

I like the potential flexibility this will give us when planning our retirement. Start spending the savings to supplement our income to potentially reduce our working hours as we age. Be able to spend more on travel, house renovations etc at the start of our retirement when we are hopefully still in good health.

Fingers crossed we have it right.