How much do YOU need to retire, right here, right now in the current economic climate ?

[longgone]

35 minutes ago, Fishfinger said:

And to quote the exception to the rule, my father retired at 60 and lived until he was 87 despite smoking for the best part of his life and was overweight. He left school at 14..

Leaving school at 14 to work probably hardened him up. 

Not many will be retiring at all. 

67 for me for a state pension. May as well be never.

[Sackboii]

1 hour ago, sexton said:

Between the two of us we get about £25K US/UK state pensions. Spend about £15k.

I get asked what the hell am I saving it for most days but can't think of anything we really need.

Another rubber-stamping of real-world spend, thanks.

39 minutes ago, Fishfinger said:

Yup, all these pensions caclulations are based on living the same lifestyle you have now. I'm already past peak "stuff" and until I die I will be getting rid of the possessions I've craved over the years as I don't need them and they clutter up the house.

When you get older you want more social company than the latest iphone although ironically your social circle gets smaller as it literally dies off. I'm 57 but already lost a few people I've known for decades. Also you're not so active and don't go out so much so you're spending less.

That's actually what I have done - based my calculations on current spending and living the same lifestyle as I am now. On the one had, I will probably need less when not working as working incurs it's own costs. On the other hand, I'll have lots of time and time can cost some money (although nearly all my hobbies need time rather than money).

[JDI]

5 hours ago, Sackboii said:

As per subject.

Lets say you are approaching 55, the age at which (for now) you can start to access your pension pot(s)..

In an ideal world, taking out of the equation whether or not you would want to, how much would you need to cover your everyday and monthly/annual expenses and have a reasonably decent standard of living ?

Has anyone not yet close to this age started to give this any thought ? I know I have been doing so for at least 3-4 years already (I will be 55 late this year).

But somehow, although I am a technical and scientific person and have been all my working life, I can't help but continue to think that my extensive calculations on what is actually needed to give up work completely is missing something..

Just wondering what others think/are thinking/or perhaps it will start to make you think ?

For me, the big unknown is inflation. If only a crystal ball was available...

You're probably already aware of this, but there's plenty of information about retiring early here https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp

Planning to retire 3-4 years before actually retiring doesn't give much time.  I've been putting a large amount of my income into ISAs for years to build up enough to retire, as well as building knowledge to be comfortable enough to have a diversified portfolio which I plan to be safe enough to reliably withdraw income from when I retire.

Diversification is key for me, I've been lucky enough to have a non-contributory pension where I work, some of which is accessible from 50 (due to having a protected pension age on the scheme).  This, along with my ISA should allow an annual income which should be tax free, I also plan to have some cash savings in reserve.

Another large factor is your spending.  I expect to own a home outright, so will have minimal costs - then spend my time walking long distance paths in the UK and abroad.

I appreciate not everyone's fortunate enough to do it, but I plan to approach my employer about having summer off, and working over the winter for a year or two.  This way I can get a good idea of how prepared I actually am for retirement, with the knowledge that I can hopefully return to the office if I choose.

I agree with your concern about inflation.  I'd like to retire early, and inflation and health are my biggest concerns.

[shlomo]

4 hours ago, Nick Cash said:

People around you will start having health issues at 55. Some will die at 65. It might be you. If you can afford it, then retire (to some extent). By 60 try only to work if you want to.

I’m 59 soon. Too many friends gone or struggling. 

Yes a lot of people I was at school with can no longer walk, this just happened within the past year, at 55 most people were fine but at 60 they stated getting seriously ill it was like some sort of cut off point 

[kzb]

3 hours ago, scottbeard said:

But the only way to get a high return is to take high risk, and similarly if you take low risk you will get a low return.

It's impossible to invest in a manner which has "little to no risk" and also delivers a good pension unless you just put absolutely unaffordably high amounts in it in the first place.

The key to investment is to find the right balance of risk vs return for you, and to adapt how you invest as you go through your life and your risk profile changes.

Otherwise you're asking "which horse can I back in the Grand National that has generous odds and is also almost guaranteed to win?"

When you are only a few years away from retirement you don't want any risk.  Same after you retire, because when its gone its gone.

However like you say I am not sure if it is possible to beat inflation like this, so inevitably your money is going to decrease as you drawdown.

[kzb]

15 minutes ago, shlomo said:

Yes a lot of people I was at school with can no longer walk, this just happened within the past year, at 55 most people were fine but at 60 they stated getting seriously ill it was like some sort of cut off point 

And then they want to make the retirement age 72 !

[kzb]

3 hours ago, Nomadd said:

Yes. Learn the difference between volatility and risk. Then you can build a "safe" long-term portfolio that is likely to return you 4-5% inflation-adjusted per annum. No scepticism required. Start here: https://www.amazon.co.uk/Little-Book-Common-Sense-Investing/dp/1119404509/ref=sr_1_1?keywords=john+bogle+little+book+of+common+sense+investing&qid=1681828071&sprefix=john+bogle%2Caps%2C70&sr=8-1

I've never had time nor had the background to do this type of thing.  I ticked the box saying "do it for me".

[kzb]

2 hours ago, longgone said:

Early retirement, before the age of 62, has been associated with higher mortality risk in some instances. A study of Shell Oil employees found that those who retired at 55 and lived to be 65 died 37 percent sooner than those that retire at 65. And in general, people who retire at 55 are 89 percent more likely to die within ten years than those that retire at 65.  

https://www.elderguru.com/why-do-retirees-die-soon-after-retirement/

 

Keep working to live longer.

 

Then again sick people tend to retire early.

[scottbeard]

1 minute ago, kzb said:

Then again sick people tend to retire early.

Exactly.  Retiring early isn't bad for your health!

It's just that sick people have to give up work, whereas healthy people can work to 90 if they want to, and a few crazy souls do.

 

[Sackboii]

42 minutes ago, Just_Do_It said:

then spend my time walking long distance paths in the UK and abroad.

This!

[kzb]

1 hour ago, Sackboii said:

I've also been doing this for a few years. Since January 1st 2020 in fact. I've keep records of every single penny spent, from all sources and across all categories since then, to date, and will probably continue to do so. This includes absolutely everything entering and leaving my bank(s) or card(s). i.e.

Groceries, Alcohol, Firewood, Heating Oil, House items (furniture, gadgets etc), Eating Out/Takeaways, DIY/Maintenance costs, Petrol/Travel costs, Holidays, Gifts, Life Insurance, Dentist fees, Council Tax, Electricity, Water, Broadband, TV License (!), Motoring costs, Car and House insurance, Mobile costs, Postcode Lottery (little dabble..) etc etc.

Adding all these costs up per day/month over the last 3.4 years or thereabouts, and the monthly average is £1,557.43. I am then adding 10% to this to get £1,713.18, and using this figure (net) for my retirement affordability calcs, which equates to a gross annual income of about £26k. In reality, I expect I'll need less than this as although I may spend more in the earlier years I'll for sure spend less in later years. None of this includes my state pension.

Based on this, living to the age of 89, using various calculation methods and assuming 4% growth in funds and (over a time period) only a little higher inflation, and I need a fund of £744k and I'm currently at £872k.

I own my house, have no mortgage and about £65k in savings spread across multiple platforms. No debts apart from a circa £5k on a 0% credit card which I only have because I can. This will get paid off in 6 months when the deal ends because very few if any fee-free balance transfer cards are available now. So really only have £60k savings I suppose.

 

I don't know what you are worried about if you have that much in your pension fund and you will get a DB pension at age 65 on top.

You can spend £2,000 a moth and arrive at pension age with £584k still in your pot, even with zero growth.  The vast majority won't be in such a good position by that age even if they keep working.

Just two things:  the age 89 date with death means 50% of your age cohort will dead by then.  There is a 50% chance you will outlive that age.  Also, the 4% real growth rate worries me.

[winkie]

9 minutes ago, scottbeard said:

Exactly.  Retiring early isn't bad for your health!

It's just that sick people have to give up work, whereas healthy people can work to 90 if they want to, and a few crazy souls do.

 

Crazy.

 

 

[Sackboii]

Just now, kzb said:

I don't know what you are worried about if you have that much in your pension fund and you will get a DB pension at age 65 on top.

You can spend £2,000 a moth and arrive at pension age with £584k still in your pot, even with zero growth.  The vast majority won't be in such a good position by that age even if they keep working.

Just two things:  the age 89 date with death means 50% of your age cohort will dead by then.  There is a 50% chance you will outlive that age.  Also, the 4% real growth rate worries me.

The DB pensions have been lumped in to my figures above, by multiplying the number of years I am likely to live by the pension annual amount, adjusted for inflation. And by taking the CETV for each pension. Then taking the average of the two.

So the DB income is not ‘on top’, I’ve kind of factored it into the overall figure.

4% worries me too, my SIPP is a long way off that over the past few years, but my DB ones have been 7.5-8.0% !!

 

[notnow]

I would hate to be planning retirement without the following:-

A happy home.

A challenge. Something you have never done before.

A pastime/hobby/sport that you are passionate about.

A solid relationship if you have a partner.

No debt.

And then , seeing as how you asked....    £35k pa take home absolute minimum, £40k pa sensible minimum. £45k pa is comfy.

Double that in London etc

[bearishonhouses]

3 hours ago, longgone said:

Early retirement, before the age of 62, has been associated with higher mortality risk in some instances. A study of Shell Oil employees found that those who retired at 55 and lived to be 65 died 37 percent sooner than those that retire at 65. And in general, people who retire at 55 are 89 percent more likely to die within ten years than those that retire at 65.  

https://www.elderguru.com/why-do-retirees-die-soon-after-retirement/

 

Keep working to live longer.

 

You don't think there might be reverse causality? That is, those with poor health choose to retire earlier because they anticipate not surviving to enjoy a long and healthy retirement.

[Brendan110_0]

6 hours ago, Nick Cash said:

People around you will start having health issues at 55. Some will die at 65. It might be you. If you can afford it, then retire (to some extent). By 60 try only to work if you want to.

I’m 59 soon. Too many friends gone or struggling. 

True, my father and mother in-law both suffering with mobility issues 2 years after retiring at 65/66. Can't do anywhere near what they could do at 55/56 like walking around Glastonbury festival and carting all the gear to campsite.

My grandad told me the same, retire early or regret it.

[bearishonhouses]

The biggest challenge when computing retirement financial needs is longevity risk. Based on most recent figures, if a male is alive at 65, life expectancy is another 18.5 years - i.e. average age at death of this cohort is 83.5 years. (see tables at: https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2018to2020#life-expectancy-at-older-ages  )  The distribution is not symmetric but the median life expectancy is very close at just over 84 years. So, there is a 50% probability that said male will be around at age 84 and a bit upset if his savings have run out. You can avoid this longevity risk by buying an annuity with your pension pot at time of retirement. The law of averages allows the insurance company to play middle man, taking a cut for its troubles. The folks who die early subsidize those who live a long life.

But, these figures are only averages, and so some 65 year olds who invested their pension savings into buying an annuity on retirement will be none too happy as they lie on their death bed 5 years later because of an unanticipated stroke/heart attack/cancer etc, and they realize they are one of the folks who will be subsidizing their long surviving neighbours.   

It has to be a compromise. My plan would be to buy an annuity so that combined with other inflation protected, and longevity risk protected income sources (defined benefit and state pensions) all anticipated essential expenditures are covered. And then keep the rest for spending on non-essentials, including luxuries and gifts (lifetime and legacies).

All calculations can be done in terms of a 'real' rate of return  plan based on existing prices. Clearly there will be some movement in relative prices over 30+ years, but ignoring those changes will give a first-pass estimate of what is required.

In doing the calculation I would be far more conservative than assuming a 4% real rate of return. For myself, plans are based on a 1% real rate of return on savings. Anything in excess will be a bonus I am happy to blow on luxuries if and when it arises.  

 

ps in terms of life expectancy, there was a great article in the FT three weeks ago comparing UK and US.  Link is at  https://archive.is/3ngmP 

 

 

 

 

[kzb]

39 minutes ago, bearishonhouses said:

The biggest challenge when computing retirement financial needs is longevity risk.

Things would be so much easier if you knew when you would die.

40 minutes ago, bearishonhouses said:

My plan would be to buy an annuity so that combined with other inflation protected, and longevity risk protected income sources (defined benefit and state pensions)

Even though interest rates have gone up, annuity rates seem to be decreasing from peak.  Wonder why.

Also has the advantage you can buy the annuity out of the taxable portion of your pension pot.

[scottbeard]

58 minutes ago, kzb said:

Even though interest rates have gone up, annuity rates seem to be decreasing from peak.  Wonder why.

Also has the advantage you can buy the annuity out of the taxable portion of your pension pot.

Because they are priced off gilt and bond yields, not interest rates directly.

Whilst Base Rate has only risen, gilt yields were much higher in the Truss/Kwarteng debacle window.

[scottbeard]

6 hours ago, regprentice said:

To my mind pension funds have an obligation to return the highest return to investors at no risk. losses should be made up from the pension companies profits/retained earnings not by reducing the investors fund below its original value. 

There is no such thing as "no risk".  Literally there is nothing that you can invest in that has no risk.  Even cash under the mattress can be stolen.

6 hours ago, regprentice said:

My first job out of school was in a Halifax building society branch. In the mid 90s they had a investment where they guaranteed the returns of the stock market to a certain %age cap, but that your capital was 100% secure and even if the stock market halved you'd get back your original investment. 

I used to work on one of those when I worked at (another) bank in the 90s.  Behind the scenes the bank hedged its risk with derivatives, but it was really all priced on the idea that over 5 years the stockmarket would ALWAYS go up, and basically the banks would be quids in.  The long bear market of 2000-03 that killed off with profits fund killed these off too.

6 hours ago, regprentice said:

The problem with taking a high risk is that theres more chance of losing. im not willing to lose a penny of my pension fund. 

But that's impossible, because life isn't risk free.  There's no sport you can play with a guarantee of no injury, no book you can read with a guarantee of enjoying it, and nothing you can do with money in which there is 0% chance of losing it.

Even things that are guaranteed not to lose money in nominal terms (such as Premium Bonds, or bank deposits under £85k) will lose purchasing power to inflation.

You're basically asking the impossible.

[Lagarde's Drift]

8 hours ago, regprentice said:

i've never had a high opinion of financial advisors, but the only people ive known who have used one religiously have been my inlaws and he encouraged them to spend their 25% pension tax free lump sum on a camper van.

Theres a lot of financial advice online, but there isnt really much advice of the kind id want to hear which is "whats a concrete plan for retirement to maximise income for little to no risk."

i hate pension conversations. they all sound so vague and full of unrealistic sounding assumptions. The biggest financial decision ive made so far was my mortgage, which was on a 25 year fix and which i repaid early, at any point in the 15 years i could have told you to the penny what i was repaying and how i was going to overpay. i think its ridiculous thats not possible with a pension. will there even be  a state pension in 25 years? 

i'd a friend who retired at 57. he was mainly invested in funds outside the UK and Brexit increased these unexpectedly so that he was able to retire 3 years earlier than he planned. that idea, that you can be 56 and i have no idea if youre retiring at 57 or 60 even though theyre barely months away is insane. What if it had been the other way around? What if he suddenly found he needed to work til 63 because of brexit. people with defined benefit pensions have never had to consider this. 

 

TLDR : I've never used financial advisors but I think they're rubbish.

[Smith]

14 hours ago, rantnrave said:

At the risk of derailing the thread - how are everyone's pension pots doing? I have three, the smallest of which has only had a positive rate of growth once in the last five years. Admittedly that was up 24%, but its been down way more often than up. Anyone else seeing the same, or are they out to get me?

Yes, seeing the same, as our others I know. Hopefully things will improve at some point though. You'll find a lot of people talking b^^sh^t about their pension or investments, either in self-delusion or perhaps because they've fallen for what their adviser has told them.

 

[regprentice]

7 hours ago, scottbeard said:

But that's impossible, because life isn't risk free.  There's no sport you can play with a guarantee of no injury, no book you can read with a guarantee of enjoying it, and nothing you can do with money in which there is 0% chance of losing it.

Even things that are guaranteed not to lose money in nominal terms (such as Premium Bonds, or bank deposits under £85k) will lose purchasing power to inflation.

You're basically asking the impossible.

Inflation, the performance of a pension fund, the value of my currency and the behaviour of the stock market are 4 different things. 

Conflating inflation and the value of my pension fund ignores the fact that my pension funds performance is the responsibility of the pension company and that inflation is the responsibility of the government.

I can only reasonably ask of my pension fund that my pension never lose a penny of my capital. allowing my investment to fall below that original level is effectively theft or fraud. if i have a problem with inflation i'd have to raise that with the government.

i made another point about the valuation of shares, its not right my pension fund might change materially overnight because Elon Musk sends one tweet for example.. but again thats the responsibility of the SEC not my pension fund.

Put it another way. owning a car exposes you to the current value of your car, the cost of car insurance, the cost of road fund licence, the cost of maintenance and repairs and so on. when im complaining to my garage mechanic about costs i can only reasonably challenge him on the cost of maintenance and repairs... he can't do anything about rises in insurance tax and so on. likewise the performance of my pension fund is diffrent from the overall economic environment when i retire.

As a side note i've often wondered why we have inflation, its present in every economic model im aware of except "true" communism (which wouldnt have currency or a concept of money at all) and obviously in communism you wouldnt save for a pension anyway. 

[Sackboii]

Pensions seriously underperforming inflation which by this mornings news is still the seriously worrying thing.

Great for savings and HPC though..

[micawber]

I retired at 51 (and not dead yet!). Not really by choice but dickhead employer changed from DB to DC and wouldn't guarantee the very generous conversion rates on my AVC pot. I couldn't risk them halving the rates with no notice. Always thought I might get a nice job pushing trolleys around the car park but never needed to.

My "required income" for couple and dependent adult is £3300 pm. That does mean I'm drawing down faster than sustainable, but I expect to draw less as I get older and as state pension kicks in. Around half of that drawdown goes into savings for all those expenses other have listed. For me, I try to save 1% of the house value p.a for future maintenance. Other odd costs to save for include passports (every ten years), solicitors costs (for wills, trusts, etc), potential moving expenses (solictors, stamp duty, keys, removals, etc), computer consumables (paper, ink ,software, etc), memberships (bowling, fitness, golf, etc), days out, kitchen equipment (more cooking), garden equipment (more gardening).

A lot of the current generation are getting shafted in their NEST pensions (and elsewhere) as a result of this ESG nonsense. They are losing valuable contributions from oil companies. I operate a Golden Butterfly portfolio, rebalanced as necessary.

https://portfoliocharts.com/portfolio/golden-butterfly/