how much do you keep in reserve for emergencies/roof/boiler?

[redmapleleaves1]

I'm 59 and after a long while scrimping and working flat out as a single mum, have been inspired by a same age friend planning to retire next year. I've just looked at my accounts, and if I lop off mortgage outgoings (soon to stop), student maintenance (son finishes this summer) and pension contributions, turns out I've been spending c£23,000 a year on the rest of life. Which actually could make retirement fairly soon quite a likelihood with various schemes which start at 60, and others at 63. I would have various lump sums, up to around £53,000, but of course would also need to use some of these to taper towards the state pension. How much did you think you needed to hold back in reserve for emergencies like these?

Current roof is in good nick. Boiler is only a few years old. Will need new to me small car in a few years. Likely to need to move house when get to frail old age (ie moving costs etc). Two young adults who at some point would welcome (partial) contributions to weddings or a house deposit... House is 100 years old, in fairly good repair but would want to keep cash in hand for rerendering the house etc. I'm thinking holding back therefore around £25,000 of the £53,000, and that could use the rest as cashflow to bring retirement closer. What would you do? How much did you hold in reserve/was it enough?

Wondering too about the balance between monthly cashflow and reserves. If I carry on working for a few more years, at present I've been putting any extra into AVC, to get the tax benefits. I have around £17,000 in an isa, but actually now wondering if I'm better prioritising saving into my isa to be able to draw it tax-free once retired, even though I'd lose the tax benefit into the AVC.

Exciting but all a bit overwhelming. Be grateful for any thoughts.

Suggest you do a really thorough audit of the whole house / garden / car / your health including dentist, optician / cat or dog ? (vet fees) and work out what you think is likely to need paying for in the next 5 - 10 years. E.g. will you need a new:
Garden fence
Dental treatment (major)
Cooker
Window replacement
Cost of rendering house that you mentioned
Add on a lump for "the Unexpected"
etc
etc

Then do some "nice" things for your list, how much will they cost:
Holiday ?
Gift to DC ?
etc
etc

This should give you a clear idea of how much you need to hold back and not spend.

When we were considering when to retire, we did this and decided to pay for a number of things while still working (e.g. bathroom refit / replace car / kitchen changes etc ). We then retired and some unexpected things did of course turn up.

I would be very nervous retiring at 60 on the figures you're giving . I think you're saying you'd have a reserve fund of £25k which will go in the blink of an eye and you don't have a big monthly income either so not so much chance of saving from that .

Whether to save in an ISA or AVC I guess is up to you , as you say the AVC is good for tax but the ISA is very flexible .

I think if it was me I'd carry on working , put as much as you can in AVC's and then any excess into the ISA but we're all different. I definitely wouldn't retire on the figures currently.

Thank you both so much. Realise I didn't put in the annual income just the reserve figures. so would have c£22,000 pa income until state pension>£30Kish after state pension, plus then the reserves, mentioned above.

@SusanOldknow idea of an audit is really helpful thanks, and will help make the additional saving more purposeful as ring-fenced for something.

And yes @hattie43 think you're right, shouldn't let my excitement run away with me. Probably do need a few more years salting down cash. However I think, am fairly frugal, am thinking houseswaps not cruises for the next stage, still enjoy camping, and so am hoping with new figures stopping work at 62 with new figures should be possible.

Very gratefu for any additional comments from you all/how you approached this.

Are you saying you get private pension at 60 and just need to cover the one year?

Although I wasn't in your position but this from personal experience. Firstly get a SP forecast to make sure you have paid enough contributions for the full SP ( Despite paying 44yrs, due to new pension introduced 2016, I still had to pay a shortfall of 7 years ) I am married so the 2 of us. We both wanted to retire as early as we possibly could. Saw so many friends and relatives that didn't even make it to their 60's so this had huge impact on me. Worked since 16, fortunate to have health and jobs didn't have high lifestyle. We reckoned we could have a v good lifestyle on £2000 per month for 2 people from age 60 to when pension kicks in and we do. Biggest expenditure apart from monthly bills which are probably £700 all in (CT is huge part plus DH Sports TV packages, enormous but 🙄) Also factor in fuel costs, ( Petrol, Oil for us but live very rural) cars running cost, all insurances plus dental costs an absolute fortune which we didn't budget for (no NHS now) Also we had invites to family/friends weddings/ birthdays/ engagements which all cost whether it's in terms of travel or meals and general socialising (some were abroad and other parts of the country). I would seriously consider whether to help your children for weddings/deposits, plus the cost of moving house is very expensive unless you are downsizing or moving to a lot cheaper. I could live with an ancient kitchen but yes roofing/ boilers etc you do need. We had emergency budget of £30,000 but that has depleted over 5 years. SP will kick in soon though with a free bus pass ! Love my life and would say to anyone finish work as soon as you can. Lots of lovely stuff to do which doesn't cost much. Good Luck OP. Life is short so enjoy whilst you have your health!

Thank you both! Yes @DustyMaiden will get DB private pension, some of which kicks in at 60 (1 year hence), majority I'm planning at 63. I think from 63 I will be more than fine for running costs, similar to @kaymay12 but it is trying to decide how to fund the taper till 63, and how much to retain in emergency reserve, till then which gets tricky.

Point about children's weddings and house deposits is good one. And dentists, hip replacements, garden fences and the like....

On those figures you could have a modest retirement but I think it’s unrealistic that you could help with house deposits and weddings.

It really depends on how important that is for you.

DH has retired recently and joined me so it’s very different as a dual income. I would be nervous retiring if I was you but I would feel much more confident at 63 looking at your set up.

Was paying the shortfall worth it? I have a shortfall, but it looked like I'd have to pay something like £8k up front to guarantee an extra £14pw. It didn't seem worth it.

If you go over to the Money Saving Expert forums and head to the Over 50's section there's a massive thread called How Much to Live On. It's over 200 pages long and lots of discussion of how people are managing retirement on less than you. I think one person was living on about £14k.

The first part of the thread is really good.

How do you want to spend your retirement? Because that could affect your living costs. I find it easy to spend nothing during the working week. If you see your retirement as pottering at home / in your garden, then that may be in line with your current spending. But with more free time, you may want more meals/coffees out, more entertainment, more travel etc etc.

It all really depends on your personal circumstances, eg what age you retire, if you are a tax payer or were contracted out and if you can afford the extra years. I costed it out and for me it will be about an extra £34 per week so if I survive just over 4 years after SP kicks in then I will start to benefit plus hopefully SP will still increase with inflation.

£25k is there for emergencies including redundancy, a car crash, dead boiler etc. Sooner or later we'll have to swap to ground source heat pump which will require an expensive refit.

I was out of work for 7 months after redundancy because of covid. I used £15k of my emergency fund.

So you think you can live on (just barely) your private pension of 22k from 60? Plus you’ll get 53k lump sum too? And then state pension when it’s time?

I guess firstly it does depend on whether you can genuinely live comfortably on that amount? I think k only you can answer that question. And secondly like you say - what big costs do you need to have money saved for?

Is there any option to reduce your hours or pick up a no stress part time job so you can partially retire but still have some extra income until state pension age?

Your income sounds fine for regular expenditure, but not sure it gives you enough together with the savings for irregular items. For big costs, you may need to factor them in more than once e.g. you may get through more than one car before you give up driving and you may have big repair bills along the way. The same applies to the boiler.

With things like your home, you may also need some other forms of maintenance and redecoration and replace appliances as they break down.

Just going to social events like weddings and funerals, especially if you have to travel and get a run of them, can be expensive too.

Also for later old age you may need mobility aids, lighter kettle and crockery, to pay a cleaner, travel to hospital, care and just getting into your choice of care home by being self funding at least to start with.

You plan to move so not sure if you will release equity then, but you may be able to do equity release more generally if you get it wholly wrong. However, in your position I would work longer if at all possible. I am very keen on early retirement and am not a big spender, but I don't want to have to worry about money at an age when I won't be capable of earning more.

I would love to see a resource with all the non discretionary payments you might have in retirement as it is so hard to envisage.

I’d be wary of promising money to your children unless you’ve got other money in the pipeline. It never flows back to you and deposits need to be substantial and many partnerships fail and money is lost.
I’ve been generous with my children in the past but feel it’s time to put myself first as I’m single and may live for another 30 years.

I echo what others are saying — that seven years is quite a stretch to manage with only £53k in the bank for emergencies. And if you're not working you may well find you spend more money on doing things, going places etc than you do now. All bear in mind the cost of things like glasses and teeth and physio as you get older. Dentistry is terrifyingly expensive and after 62 years without need of a physio I'm now having to pay to see one every few weeks.

In your shoes I might go part-time or retire and set myself the task of earning at least £5k pa to add to the pot. This is what I'm doing myself, though in my case I've set an £8k challenge. Before Christmas I worked at a local supermarket, picking online orders. Because it's 'extra' money and I'm not relying on it for survival I actually enjoyed doing it. I've been told they'll want me back again later in the year and I'll organise a few hours to suit me.

I'm earning £1k in February/ March, looking after a dog in my own home for 32 nights, and I have three more bookings lined up which should bring in around another £1k by the end of the year. I also have around £400 pm for 12 hours of freelance work, courtesy of a previous employer. For me it gives me the confidence of knowing that I can fairly easily cover any unexpected expenses and have some good holidays and adventures between periods of work.

Thank you so much to you all for posting. I am incredibly grateful to learn from your experiences, and it is so helpful, when I'm in the fantasy stage of sensing retirement could be possible, to hear wiser voices, saying, hmmm, welll, maybe not just yet, what might it look like then? I've understood yes, a bigger pot for emergencies, for what might well be three decades more, is definitely sensible. I do agree with this, I don't want to be frail and worried about repairing the roof.

My first step will be continuing to work full time for now, at least to 62. I do like my job, and it is the best way to save and accrue for pension. I'll do the audit, and spent more time actively thinking and experimenting what I'd like retirement to look like. I am fairly frugal, and like reading library books, gardening and walking. All cheap. But I've recently moved to a new area too, so there are different additional options here, and trying to get a sense of what they'd cost and where I'd prioritise will help.

@Pluvia I love your idea of an £8K earning challenge. Great idea to gamify all this. I do like my job, but think the earning challenge could be another bit for the next stage.

@Goodcat yes like you would be really helpful to have a list of non-discretionary payments for this next stage. But your points about mobility aids, cleaners, dentistry and osteopathy all really helpful future forecasting.

Thanks to all those who've said to secure own oxygen first, and not to promise or give to young adults till I'm sure I'm ok. And I'll go and look at the Moneysavingexpert forum now. All the best to all those similarly weighing up these issues - major decisions where MN voices make a big difference.

Maybe I should look again, though I might have missed my chance.