Forum menu
You cant say i can live on 12k – Well you can but its an existence, even a modest lifestyle is around 24k per annum after tax – 36k before tax is adequate as you will need capital items like a car and replace lots of household stuff.
That's for a couple, though? 12k each. Pretty limited amount of income tax.
the downsize to free up 250k and the state pension will absorb inflation
If you keep funds invested, they should at least keep up with inflation. You shouldn't need to account for more. House prices have generally also at least kept up with inflation.
I have now gone through my expenditure over the past 3 years and its approx 20k a year(no mortgage), but with 8k of that being new bikes each year.
Congratulations on having your priorities sorted
Over the last 12 months I have been through exactly this. My approach was firstly to ensure that, broadly speaking, it was feasible to retire before then doing the calculations properly.
Key points to me were:
- Be realistic about how much you spend and look over a longer time period than 12 months as there are costs which you may only incur every few years (e.g. new cars, significant work on the house).
- Build in a margin for risk as having too little money in retirement is of far greater significance than having more than you need (law of diminishing marginal utility).
- Calculate the savings/pension fund you will require at age 67. In broad terms this is your annual spend less your state pension less any DB pension, multiplied by 30 (this implies only taking c.3% yield from investments so as to preserve them in real terms).
- Calculate the savings you require to get to age 67. Very simplistically, this is your annual spend x years to 67 x 110% for each decade (to take account of inflation) plus any outstanding debts (mortgage etc) as they will need to be repaid.
This let me know whether it was realistic to retire before doing the calculations properly (e.g. taking account of tax, which the foregoing does not, or a DB pension that vests prior to 67).
For me I was well within any sensible risk parameters so come 1 April I will be stopping work (at age 57).
Thanks for the equity release comments and experiences. Downsizing will definitely the first part of that process
I know its very individual but I’m not convinced I can live on less money than I do now for the following reasons.
1. Going to work is cheap, we are out of the house so the heating is turned down, and whilst there we cant do anything else and our commuting costs are tiny circa £20 per week
2. When we are no longer working we intend to spend considerably more than our current annual leave entitlement on holiday and travelling which will cost more than sitting at my office desk.
3. We don’t have a mortgage anymore and no kids so our outgoings paying for the generalities of life are not going to materially drop in the future.
I'm 40 and assuming that State Pension will be means tested by the time I get there (or much later than 68) in my calculations. Something to bare in mind perhaps.
I know its very individual but I’m not convinced I can live on less money than I do now for the following reasons.
...
3. We don’t have a mortgage anymore and no kids so our outgoings paying for the generalities of life are not going to materially drop in the future.
Are you still spending all of your income with no mortgage?
Your outgoings should drop because... you no longer need to pay into a pension fund.
Re IFAs - what surfer said. I started out reading Motley Fool and Alvin Hall just for general common sense (of which I have little!) guidance, then the Tim Hayle book for ideas about how to spread your investments, Mr Monevator blog, citywire investment forums. And ask your older mates what they do if (I mean we ARE British so you would have to have known them a while!) you're on good enough terms.
I’m 40 and assuming that State Pension will be means tested by the time I get there (or much later than 68) in my calculations. Something to bare in mind perhaps
That's a pretty negative outlook. I think a government would have a hard time removing a benefit that people have been paying towards for their whole working life. UK state pension is already amongst the worst in the world
Are you still spending all of your income with no mortgage?
Your outgoings should drop because… you no longer need to pay into a pension fund.
Im working from take home pay so pension has already been paid before we see it
We don’t spend everything we earn at the moment and do save because we will need to replace the car at some point, there will be work on the house that needs doing that don’t come out of the everyday cost of living. I agree that will taper as we get older and either become less bothered about the age of the kitchen and bathroom. At some point we wont need to replace a car.
My thoughts are based on an expectation of being retired for 30+ years and judging by both sets of parents who are 25 years into their retirements are still active and travelling widely when they can. We hope to be the same and don’t want to be stuck at home because we have run out of money to fund the lifestyle we want.
As both of us spent time in the public sector we are basically interested in how long before our pensions kick can we quit working. Our pensions and then state pension will be enough from there on. So it’s all about how soon can we quit working and self fund the gap to pensions being released given that we will young enough to make the most of the time
That’s a pretty negative outlook. I think a government would have a hard time removing a benefit that people have been paying towards for their whole working life. UK state pension is already amongst the worst in the world
Well they moved back pension ages with minimal complaint. I reckon if they turned around and said in 25 years time the state pension will be means tested to 'make sure that limited resources go where they're needed most' they'd get away with it. Hopefully i'm wrong, but just assuming it won't get any worse is overly positive - hope for the best, plan for the worse.
At some point we
wont need to replace a carwill buy a Nissan Micra and leave the polythene on the seats
^FTFY 😉
And then there's the prospect on needing care...
AFAICT, in Wales, you'll be expected to use all but the last £50k of any capital and assets (including your house), and all of your pension income except £32/week pocket money to fund residential or nursing care at £30k -£40k PA. (I think the limits may be lower in Ingerlund?). Should very quickly polish off any remaining lump sums...:(
Sometimes I wonder, when it comes to pensions, whether there is a tendency to be very pessimistic and only look at the downside risks. The problem is there are so many potential individual risks if you include them all you may never retire or die much too wealthy.
Like building a car - each individual component may have a tolerance of +/-1%. However, if all the uncertainty goes in the same direction, loads of things would not fit together. In practice you have to assume a certain randomness in the uncertainty and cars do generally fit together. Indeed, to do otherwise would make uncertainties less uncertain.
So, when it come to whether the state pension will disappear, whether there will be an unprecedented stock market crash(s), interest rates soaring etc. There are plenty of unforeseeable upside risks too: promotion at work, inheritance, win £20 in beauty contest etc. which could offset them.
Pensioners all vote tho!
The focus on downside risk is appropriate as running out of money late in life is hard to recover from.
The focus on downside risk is appropriate as running out of money late in life is hard to recover from.
So is dying the day after you retire.
I have considered this recently as I moved jobs and had to make some pension decisions.
Part of me thinks I can live on not very much as there will only be 2 of us at home, no commuting costs or mortgage.
The other part of me thinks that I don't plan on sitting at home having beans on toast with the heating off to keep my living costs reasonable.
I came to the conclusion that I'll need a lot more money for the first part of my retirement than the second. I'd like to think that I'd have the health and energy to keep cycling, hillwalking and would like to travel a bit.
Lets assume the state pension sticks at roughly where it is - for a couple at state pension age that is £18,200. Assuming no mortgage, I am pretty sure I could get by fairly well on that, a few grand would be nice but I doubt there would be much correlation between additional money and happiness above that figure.
The reality is, as you get older the value of money to you diminishes - there is less and less to enjoy spending it on. So it seems a bit arse about tit, that a lot of people think the biggest risk to their retirement plan is outliving their live expectancy. To me, I think the biggest risk is not been able to spend the money in a meaningful way.
Well they moved back pension ages with minimal complaint.
There was a huge fuss (and rightly so) about the huge jump in women's retirement age. Men only got knocked back a year or so...
The focus on downside risk is appropriate as running out of money late in life is hard to recover from.
But you need alot less money to live on when you're 80+ than when you're 55 - 70 or so. You want 80% or so of your pension pot before 70.
This is the rub...you do need to make some sort of assumption or guess about what age you're going to die and when you think you're going to deteriorate physically, and mentally which you can judge by other members of your family. For me I know that once I'm into my 70's its irrelevant how good I might be physically as all the members of my family start to loose it mentally into their 70's. So for me I've the bulk of my living in retirement to get done and dusted before 70 and anything after 70 is a bonus. Once my mind starts going then just put me out of my misery as I've seen the misery of a slow mental decline in too many of my family members to want that for myself. They all live to a ripe old age...into their 80's and 90's and my gran made 100, but from some time in their 70's they all stared to succumb to mental deterioration then you're screwed. You have zero quality of life and become a burden on the rest of your family.
So for me pull the entire pension pot and self invest and I'll aim to spend most of it by 70 or so and after that the state can look after me - or put me out of my misery and make dog food out of me. I'll be beyond caring by that stage - I'll certainly not be in any fit state to be riding bikes, driving around in motorhomes or going on foreign holidays. But if you're from better stock than me and expect to be dancing the jig and completing fiendishly difficult Soduku puzzles in under 5 minutes into your 90's, then you need a very different pension plan.
There was a huge fuss (and rightly so) about the huge jump in women’s retirement age. Men only got knocked back a year or so…
Womens retirement age was brought in-line with mens, something that should have been corrected a long time ago.
Womens retirement age was brought in-line with mens, something that should have been corrected a long time ago.
It was a big jump at relatively late notice. So right end result, buy managed very badly.
Changes to things like retirment ages should be phased in with plenty of notice.
@wobbliscott - I agree. I was more thinking about being cautious about the rate of growth and inflation why drawing down, independent of how long you decide you're doing to be drawing down on your pot.
I wouldn't call 1995 late notice, and it was phased in over the last ten years, not a sudden jump.
If anyone should have been complaining it should have been the men having to wait five years longer to reach their retirement age and lower chance of surviving long enough to spend it.
Once my mind starts going then just put me out of my misery as I’ve seen the misery of a slow mental decline in too many of my family members to want that for myself.
Quite agree. One way trip to switzerland please.
Although if you start to go nuts, do you realise its happening yourself or do you just drift off into a happy dribbling stage & then its too late to do anything about it.
Womens retirement age was brought in-line with mens, something that should have been corrected a long time ago
arguably, given women live longer, the age should be later than mens.
arguably, given women live longer, the age should be later than mens
It's definitely an opinion to keep to yourself when in the company of ladies of a certain age though 😀
What @wobbliscott said a few posts ago, sums it up perfectly.
Don't lose sight of the here and now as well, as difficult as that may be in COVID times.
Today is the 3rd anniversary of losing a best friend to cancer when she was only 32. Keep everything in perspective guys! x
Totally agree with that.
My mate died in the summer from cancer.
Triple lock pension from council service did not make a jot of difference to him.
Just had a chat with my brother on the phone
He is looking at a small portfolio of b2l places and stoping work once in place
With interest rates so low any reasonable deposit secures a property which, after a minimum amount of effort becomes self funded.
Yes you need a rainy day fund for a boiler or carpets and annoying tenants who wont pay nor leave but, if your lucky, for a few minutes work a month the dosh rolls in
He intends to keep working for a few year s (49), and put the rental into a SIPP, gaining the tax telief @ 40% and using the tax free lump sum to pay off the balance on the btl mtg.
This thread is excellent reading. I've just turned 40 and that's sparked something in me to begin planning for all this.
My plan had always been to just hammer the mortgage as quickly as possible, rely on the company pension and then at some point in the future sell my house which is in London and use the money to buy 2 or 3 houses somewhere cheaper, live in one and rent out the other 1 or 2 to get some income to pay my retirement, reading through all of this makes me realise there is probably a bit more to it than that.
@singletrackmind - I think your brother is confused? Or I am. You could never put personal property into pensions. There was talk about it ~15yrs ago, but they aborted that.
You also imply that he is going to borrow to get the B2L - I assume he realises that you cannot offset mortgage interest any more (or soon- whatever the rules are). Actually you can, but it has to be from within a company.
Landlording returns are only c3% currently in London but compared to interest on cash that's not bad. Regulations are getting worse tho so expect some more costs going forward.
I reckon btl is a good pension product, stable long term income linked to earnings, security of capital, option to sell when required.
Only problem is the asset is a fairly lumpy price. I suppose you could borrow against it to free up cash instead of selling. I m q happy with mine, no voids in 15 years.
Landlording returns are only c3% currently in London
8% in Wirral
Colleague of mine had a couple of deaths in close family which a. gave some perspective and b. Inheritance. He had used furlough to assess whether he and his partner could live comfortably on that sort of income - which his retirement pot would pay, and they could. Once he got the inheritance income it became a no-brainier. He has plans and is about to kick it all off. Slightly jealous, bereavement aside.
As for house price increases, my Mum (died in 2016) bought her house for £220k in 2002. It previously sold in 97 for £150k and is now valued around £475k. It’s Buckinghamshire. Insane though really. Some of this will be my inheritance but I’d like prices to stick so I can have a better chance of moving up to a bigger home.
If it is a furnished holiday let you can still offset the mortgage interest against tax.
Quite agree. One way trip to switzerland please.
Although if you start to go nuts, do you realise its happening yourself or do you just drift off into a happy dribbling stage & then its too late to do anything about it.
In the early stages most people can't see it themselves or don't accept it and certainly wouldn't be off to Switzerland. In the later stages you don't have the capacity to be allowed to make the decision. Much easier to say before it comes to it that actually do when it happens...
No, not confused, it the way I worded it badly.
He is a high rate tax payer with a holdall full of cash earning next to nothing in interest.
He is going to buy somewhere in lancs, with either a 40% deposit, or outright and move the income into HL SIPP products
The finance tax credit v mtg interest difference means returns are not as good but if you buy outright... Makes no odds
And cash in the banknis depreciating because of inflation, fiscal drift etc so doing something with it is bettrr than having a mattress full of £20 notes, metaphorically
The property he is looking at yeilds 5%, with a sitting tenant but is undervalued ans as Colp states 7 or 8% is acheivable
My plan had always been to just hammer the mortgage as quickly as possible
It depends. I still have some outstanding mortgage but i have quite a lot in ISA's, company pensions and a SIPP. I am making good returns on my ISA and SIPP and I get 40% tax relief on contributions. On the other hand I am paying £1k a month on my mortgage but as Mrs Surfer works for a bank we get close to bank of England rate. I could pay it off but I am making more on my investments than the interest on my mortgage. There is no hard and fast rule.
8% in Wirral
I owned a property years ago. I wouldnt care if the return was 25% I would never have the hassle again. Always stories of great experiences with tenants but once you add up ALL of the costs they are more trouble than they are worth. People often ignore/"hide"/absorb the real costs of managing
a property, not to mention the stress.
Pensions can't hold residential property. Only commercial. Residential rental properties don't count as commercial
I owned a property years ago. I wouldnt care if the return was 25% I would never have the hassle again. Always stories of great experiences with tenants but once you add up ALL of the costs they are more trouble than they are worth. People often ignore/”hide”/absorb the real costs of managing
a property, not to mention the stress.
Wrong properties in the wrong places.
People buy dumps in crap areas and have problems.
If you pick a decent area and do the house as if it were your own you get the pick of tenants, they stay years and look after it.
Do the house well to start with and you’ll have minimal ongoing issues.
The reality is, as you get older the value of money to you diminishes – there is less and less to enjoy spending it on. So it seems a bit arse about tit, that a lot of people think the biggest risk to their retirement plan is outliving their live expectancy. To me, I think the biggest risk is not been able to spend the money in a meaningful way.
Yep, got to agree - although it'll depend on how much you've planned for it and/or incomes earned.
My Grandma spent her money with a passion to ensure she'd spent it how SHE wanted, to quote, "so there's nothing left for the family to argue about". Got to 97 without illness and still living in her own place. Even paid her own funeral, so it was how she wanted it.
My Mum is now in her 80's and, especially with lockdown, can't really spend her income (with both her own and 1/2 my Dad's DB's plus the state pensions).
I owned a property years ago. I wouldnt care if the return was 25% I would never have the hassle again. Always stories of great experiences with tenants but once you add up ALL of the costs they are more trouble than they are worth. People often ignore/”hide”/absorb the real costs of managing
a property, not to mention the stress.
Nothing is for nothing, the same can be said about having a job 🙂
I wouldn't care if the salary was 250k, I would never have the hassle again. Always stories of great experiences with employers but once you add up ALL of the costs they are more trouble than they are worth. People often ignore/”hide”/absorb the real costs of going to work, not to mention the stress.
Nothing is for nothing, the same can be said about having a job
+1, well +1/3
My property investment brings in about 1/3 of my income and takes maybe 1 week a year being generous. That is mostly the odd hour here or there to deal with a tenant or a few hours of weeding the common areas when I feel like it. Currently actively looking for more so I can do less work but prices are way up round here. It's commercial property, before the haterz dive in 🙂
I have been thinking if it is good to pass on a bit to the children...
I am thinking, a little probably won't do too much harm. However, my experience is that friends who inherited a lot at a young age ended up a bit ****less, work shy and generally miserable until they had frittered a good proportion away. No bad thing per se but the problem of not having a job is it gives you a lot of time to think about the meaning of your life.