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

We salary sacrifice into pensions for tax efficiency and to keep us under the threshold for tax-free childcare. So whatever we earn above the threshold determines how much we sacrifice into pensions.

I’ll have to research this as most of that is like a foreign language to me! 😂

To add to my post, I am now retired, DH still working. We downsized at 57, when we paid off the mortgage. Our income is now around half what it was when I worked full time as my salary has reduced from 50K to about 25K (including my private pension) and DH has dropped a day a week so he’s on less money. However, we have managed very well financially, in fact we save more per month than we ever did! I plan on working part time until my state pension kicks in at 66. DH will not get his state pension til he’s 67, and will fully retire then. He has no private pension. We run 2 new lease cars but will reduce this to 1 once I fully retire. You really do not need as big an income when you retire as you think!

Another thing to consider is that most people, if they are healthy when they stop working in their 60s, can hope to stay healthy and enjoy retirement for around 15 years. Come late 70s/early 80s, many people start to need less money for a variety of reasons eg downsizing; health and mobility less good; disinclination to go on foreign holidays (or inability to get travel insurance due to health issues); being widowed; may stop driving; etc.

You are therefore likely to get through more money in the first years of retirement than in latter years; plan accordingly.

Carpe Diem!

I can't see if this is mentioned but average life expectancy for your age is 94 and it sounds like your planning over 20yrs, or are you only planning the £136k over 20yrs?

What's your plan when you can't live in an apartment anymore - or if you need in home help, are you relying on social care as that's probably not a good idea either.

And don't forget your dh can claim additional tax relief on his pension contributions as a higher tax rate payer. So the more you put in the more he can claim a significant proportion back in Tex relief which you can then reinvest into savings.

Thanks, how does this work?

I was planning on using the process from sale/equity of £391,000 over 20 years but this would only be an estimate, we may not spend all of it each year as such. Husband’s pension pot and state pension would be until end of life.

Nonidea how to we would pay for social care, it’s not something I’ve considered. Any tips on how to plan for that? We won’t have any equity in our home anymore.

It's great that you're looking at this in detail now. It's really worth spending time understanding how pensions etc work to help you plan. I am not a financial advisor but personally I'd be looking at giving pensions a bigger role in your planning, both because of the drawbacks that PP have mentioned on equity release etc and because of the tax advantages of pensions.

If you haven't already I'd start by:

1. Both checking your state pension forecast to make sure you're on track as you expect https://www.gov.uk/check-state-pension
2. Understanding exactly how DH's pension works. Does/can he contribute through salary sacrifice? Will his employer contribute more if he increases his contributions? Do you know what fund(s) it's invested in and what the charges are?
3. Looking further at the estimate on what he'll have in his pension. You mention using a calculator - what are the assumptions that this makes about growth and inflation? You also say it should give you £10k a year in 25 years - is that buying an annuity or drawdown? If it's an annuity does it have protection for inflation and for you if he dies first? Of course annuity prices change so the picture might well change in the next 25 years but at least it gives you an idea.

I'd also really read around pensions so that you can both make informed decisions. Sites like meaningful money, MSE (especially their pensions forum) etc are very helpful. You should also know that even if you are not working you can still contribute to your own pension and benefit from tax relief (maximum £2880 a year, which is then made up to £3600 through tax relief).

Arm yourself with as much knowledge as possible and it won't feel as daunting!

Also I'd think about whether you really need to be aiming for such a high number for your retirement spending, especially in the later years. OF course everyone is different but research on what people actually spend would put you towards the highest spenders. No problem if that is what you want and can realistically achieve but a more modest annual amount and then some savings for the big holidays etc might be more manageable.

These sites have the research and information on what you'd need to save to achieve it:

https://www.retirementlivingstandards.org.uk
https://www.which.co.uk/money/pensions-and-retirement/planning-your-retirement/how-much-will-you-need-to-retire-aNmlv7V7sVe9