Have I worked this out correctly?

[BLT24]

I’m trying to workout what our retirement income is likely to be so I can workout how much we should save realistically into a pension to have roughly the same disposable income as we have now.

Myself and DH both just turned 40. I’ve had to give up work due to ill health. He has a well paid job. Neither of us have a pension (wish we did but can’t go back in time). I’m claiming a small benefit amount which also entitles me to a NI contribution, which I hope means I’ll still qualify for state pension one day. I may or may not be able to return to work one day.

We live in a property that is currently valued at £465,000, the mortgage won’t be paid off until DH retires at 65. We want to downsize at this point and I’ve identified a property we’d be happy to move to that is currently valued at £210,000. So I’m thinking we’ll have £255,000 in cash if we do this (we could save up for the moving costs). We would then do equity release on the £210,000 and I’ve seen the average is around 65% of the value so that’s another £136,000. Total cash = £391,000. Divide this by 20 years = £19,000 per year.

If DH invests £500 a month into a pension and his employer puts in £200 a month for the next 25 years that should give him an estimated pension pot of £10k per year.

Our state pensions will be around £22,000

Total income £51,000, so £4,250 per month.

We won’t have any mortgage or rent to pay so only house bills, food, cars and home maintenance so estimated at £1,600 per month

This leaves us with £2,650 a month to spend on whatever we like which is very similar to what we have now.

Any opinions on whether this is a feasible plan for retirement or is it a load of rubbish lol. Anyone else out there feel like they have no idea about retirement, investments etc

Well off the top of my head I would think that; house prices will have risen, equity release schemes can leave nothing left for any dc (if you have any), what type of lifestyle are you hoping to fund?

My thinking is if our house increases in value so will the house we want to downsize too so it’s all relative?? We won’t be leaving money for DC. We aim to have savings before we retire to gift them a house deposit.

How do you know that the property that you want to downsize into will be vacant in 25 years time ? Have I missed something ? 🤔

Its a property that’s currently for sale that we would move to something similar, I just looked it up for the value, we have a 4 bed detached house now so we’d downsize to a 2 bed apartment.

Lifestyle aim would be what we have now, money to socialise and travel regularly and treat ourselves to nice things but nothing more extravagant than what we have now.

How will you travel and socialise regularly in 20 years time if you're too ill to work now?

You won't get your state pension until 68 at the earliest.

Is that contribution definitely correct for your husband's employer? It's not very good for someone on on 51k salary.

I am also 40 and have spent the last year actually properly retirement planning. I've started watching James stack on YouTube which has helped. He has a spreadsheet you can download.

You won't get your state pension until 68 at the earliest.

Is that contribution definitely correct for your husband's employer? It's not very good for someone on on 51k salary.

I am also 40 and have spent the last year actually properly retirement planning. I've started watching James stack on YouTube which has helped. He has a spreadsheet you can download.

Exactly as I do now. I am able to go out a few times a week for around an 1 hour to socialise or have people over to the house. I am able to travel with assistance. There are only certain activities I can do.

That's good to hear OP

My husband does not have a disability and so is not restricted in anyway, this retirement money also needs to cover his socialising and travelling not just mine.

Have you allowed for tax payable on that income of 51k?

No I haven’t thank you for pointing that out! So our cash savings wouldn’t be taxable (I think) or my state pension as it’s under the personal allowance. My husband would have a small tax charge as he’d be getting state pension plus 10k a year although I think he can take some of that pension pot as tax free lump sum?

He’s not on a 51k salary now. He’s on 80k. The contribution is still correct as I’ve based it on his employer paying the minimum 3%. Thanks I will take a look at that YouTube account.

3 things I thought of that might help.
do you need to pay anything back for the equity release? Interest/ rent of the proportion of the house released equity on?
second thing was £51k today won’t be the same as £51k in 30 years…. So it’s likely you’ll have a lot less relatively than If you had £51k today.
finally, this plan presumes you husband can work for the next 25 years and that state pensions/ pensions will still look the same

I’m 37 and point 3 is a bit of a worry for me

How are you calculating DH’s pension? Is this a db pension scheme or dc?

I’ve based my calculation on today’s value of houses and today’s state pension and cost of living. Relatively they should increase/decrease so this is just an estimation.

Everyone I speak to around our age says the same thing, they are all concerned that state pensions may not exist.

I put it in a online pension calculator, £700 a month for 25 years gives an annual pot of 10k if no amount is drawn as a lump sum. It is DC.

At the moment, those on basic rate income tax can get up to £1000/year interest tax free from savings (plus interest on tax-exempt accounts such as ISAs). How much you need to save to get that amount depends on interest rates; obviously it may well change over the next 30 years.

Yes, you'll pay tax on whatever your pension income is at the same rate as if you were on PAYE with that income. You need to look at the totality of each person's income to assess their likely tax load (and that does include taxable gains on savings). If you look at current figures, the basic state pension keeps you below the tax margin; but to go from there to £51k would imply an income of around £40k for your husband, with the corresponding tax payable (so not that small an amount).

On the plus side, you don't pay NI on pension income, or after reaching state pension age; that can be a fair saving each month.

Of course the entire tax/benefits/pension system may change out of all recognition before you reach that age!

And I don't understand your figures actually - state pension for you each plus 10k/year from your husband's private pension comes to nowhere near £51k.

It’s not income of 51k. The 51k is made up of 3 elements, private pension of 10k, state pension (joint) of 22k and equity release/proceeds from sale of 19k (which is not taxable as far as I’m aware).

My income would be 11k so not taxable.

Husbands income would be 22k so taxable (but only a small amount)

Oh, of course, you've added on a putative 19k/yr from the equity drawdown.

If that's simply put into savings, it will very likely take you over the tax margin on savings interest. If it's invested you may be able avoid this but of course "investments can go down as well as up".

You would need to get financially savvy or to take good quality independent financial advice to maximise your income from the drawdown money.

Another thing to consider is how long you might live after retirement. Of course you don't have a crystal ball - but think about whether either of you have potentially life limiting issues (smoking, chronic diseases such as diabetes, addiction issues esp alcohol, obesity, your own medical problems etc etc). How are your families - healthy nonegenarians or creaking at 65? Theres a bug difference between planning for 5 years of retirement Vs 25 years.

Thanks definitely lots of food for thought here.

I’ve based the use of our equity drawdown over 20 years.

I’m wondering how people decide how much to save into a pension. We have the means to save more than £500 a month but not sure what to do.

You need to factor in cost of living increases. The money you hope to get from equity release won’t be index linked, neither will his private pension. At an increase of 5% a year, your monthly estimated income would need to be more like 6K after 10 years to keep up.
Things to consider:
The younger you are when you take out ER, the lower the % you can expect to borrow.
Borrowing all the money you’ll need for your lifetime shouldn’t all be done at once. If you think you’ll need for example 100K to last 20 years, ie 5K a year, you’ll rack up far more interest taking it all out at once rather than 50K over 10 years then another 50k for the remaining 10 years.
Read this:
https://www.moneysavingexpert.com/mortgages/equity-release/

Consider starting your own private pension - it’s never too late!
Consider overpaying your mortgage asap. You’ll save a fortune in interest and be able to pay it off far earlier, thus enabling both of you to filter more spare cash into your pensions.
Make sure you’ve both got decent life insurance policies. The older you are the more expensive life insurance cover is.
Finally, also look at the figures for what will happen financially when one of you dies. As you’ve no private pension, and I assume no savings, you could be far worse off financially if your Dh dies before you.

Thanks lots to think about.

We both have life and insurance to cover the full mortgage. Husband has critical illness insurance to cover a large fixed amount plus work life insurance policies.