Money talk- retirement

My pension plan summary just arrived and I have been trying to calculate where I will be financially when I retire in about 15 years time (if I'm lucky).

According to my bank statements I currently spend about £22000 a year including everything. Is that around the ideal retirement annual spend I'm looking for? Apart from the bus pass, are there other financial changes for a pensioner, such as taxation? (Sorry, I'm a total newbie especially when it comes to UK pensions so know absolutely nothing. )

The main difference would be that currently I save some cash from my salary every month, but if my pension just meets the spend there will be no savings.

I'm a single lady (with blue eyes and a fetching smile ), currently renting but planning to buy a house with expected mortgage less than my annual salary to be paid off before I retire. No debts, no other income. By retirement age I will have paid NI contributions for 25 years or so.

I'm now in a situation where I still have time to do some planning, but basically I just wish to slide into retirement without too much hassle or big worries.

Many thanks for advise!

 

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As a rule of thumb, without a crystal ball, your pension should grow at about 6% per year. When you start drawing from it, you have multiple options. You can buy an annuity. This is the traditional way. I person don't like that idea. It basically means you give all your money to a company, who then gives you a fixed income for life.

Or you can draw it down. Again, rule of thumb, if you draw 4% per year, it should on average keep its value as it will grow by about the same amount as you're drawing it.

The annuity protects you from economic crises that might shrink the value of your investments, but the drawdown gives you total control, so you can draw a lot more if needed, say to buy a house or deal with some pressing emergency.

To guestimate what your pension will be worth in the future, I like to use the compound interest calculator

Compound Interest Calculator

I put my current pension pot value in, along with expected contributions per month, and play with the growth rate at 3,4,5,6 and 7%

 

Hi,

When you say "pension plan summary" do you mean for the State Pension, the current type of employers pension scheme you may be in, or your own private pension scheme/s ?

For the State pension, you can ask them for a forecast - if you are short of the full year/amount, believe you can pay in a lump sum to boost your entitements nearer the time.
Check your State Pension forecast

For tax, if you are paid an annuity plus your state pension then you will probably have to pay tax on anything over the single persons tax allowance at that time, its often deducted via your private pension payments.

If you are talking about pension lump sum payouts etc thats needs more detailed advice around the time as schemes and taxes change.

Another good source of info is the MSE site and forum, https://www.moneysavingexpert.com/
though like most financial things, beware of putting all your eggs in one basket or into a last minute schemes offering extra rewards that often never happen, as happened to our friends who lost 30% of their lump sum ! so much for their financial adviser/broker !

Lastly, keep your actual personal details well hidden on the web, too many looking for an easy mark !

 

Thanks, very helpful!

My pension plan summary is for my work pension, and I think I'll get around 7.5 grand a year from the state if the current pension agreements are valid when the time comes. I'll get about the same from the state of Finland in any case, whether they pay it to UK or not remains to be seen.

So I will get the state bit plus my work pension bit, at the moment the online calculators tell me that I'm more or less ok to continue with my current living standards. The problem is that I don't know what spend to expect when I switch from being a full time employee to being a pensioner.

A very good point of online safety, googling "calculate your pension" brings up various websites where I do not want to enter any details of my income or other details. And even on the reliable ones I select a "Queen's birthday" to make the facts less traceable.

Annuity is probably what I'm going for- I prefer security over potential prospects.

 

What I found when I retired was that my outgoings dropped considerably. No travel to work, no meals in the canteen or pub, no National Insurance. Lots of little things associated with working (leaving gifts, Secret Santa, work nights out). It all adds up.

 

I just wish I was still working, apart from not having to get up at 5.30 I just seem to be wasting my time.

 

I find every day a delight. I am busy from morning to night, not always doing what could be construed as productive. Apart from the garden, I play games on the computer ("Mergest Kingdom" and "Lost Lands" at the moment and most evenings my brother and I play "WGT Golf" online with each other), I spend time on the Gaelic learning and I watch a bit of television. I feel as is often said about retirement, "I don't know how I had the time to work". I also have my chores to do around the house. I am usually up by 08:00 and seldom in bed before midnight. Life is great.

 

One spend factor, and it might be a big one by then......energy. You'll probably be spending more time in the house, so make allowances for needing to heat/light and probably cook more.
AFAIK you need 35 years for a full State pension and the Gov are currently reviewing the pension start age, aiming for 68, but as mentioned above, you can get a detailed forecast which will highlight any shortcomings and even enable you to give them more money
What you can't predict is the cost of living by the time you do retire. So x which would be sufficient now might not be by then....
I hesitate to mention it, but have you factored in inheritances?

 

Again, rule of thumb, no crystal ball, but the reason the 4% growth in investment comes in is that this is a conservative estimate factoring in growth AFTER inflation. Stock market growth is historically closer to 8% but inflation steals half of that growth, so 4% is about as good a figure as anyone can estimate as an indicator of worth factoring in inflation.

On a related point, the FCA has imposed rules on estimated future potential value. Pension advisors have to limit their estimates on the very conservative end. I can see the point in this, but it does make it very difficult to come up with realistic accurate estimates. They probably do this because it is common for the stock market to take a dive. If that happens right on retirement that's bad. Most pension providers factor this risk in, and gradually move your money out of the stock market and into bonds, which are historically more stable but have a much lower growth rate, so its worth checking where you're invested.

 

It's strange and a bit scary to wake up to planning for the rest of my life. But, it's the right thing to do and with (hopefully) 15 years on a salary still ahead and the fortunate position of being able to save, now is the time. With the uncertain economical situation I'm trying to be boring and safe with any investments, and to learn from others- thank you all.

@noisette47 I'm not expecting any inheritance, with any luck we siblings will agree not to sell and split but rather leave the assets to be enjoyed by the youngest because that's fair. The next generation can then fight, sell and buy designer handbags as much as they wish

Online calculators suggest that a comfortable pension would be about 60% of current earnings. Is that realistic?

 

It is difficult to filter through all the bumf around pensions on the internet. But in a nutshell - here is my real-life experience of retiring early and how much of a pension you really need to live fairly comfortably.

- you don't need to match your income with a pension to maintain your current life style - this is the biggest porkie pie out there. Whilst in work you are commuting, eating lunch out etc. - this all soon adds up. My pension is £15k - and this is more than enough. When the state pension kicks in - to be honest - it won't make that much difference. All it will do is increase our bank balance.

- we don't have a mortgage - so if the Bank of England increase the base rate - it doesn't make any difference to us. Getting rid of the mortgage was the most important step before retiring - no one can throw you out of a house that you own in full. All the better if you can buy a house and get rid of the mortgage before retiring. But then I wouldn't let this one factor stop me from retiring.

- you don't pay National Insurance on pension payments - you do pay income tax - so bear this in mind when working out when to retire. If you exceed the basic tax threshold - the Government will skim off 20% or more.

- make sure that you have a hobby - retiring is a bit of a culture shock - you need a hobby (like gardening ) to keep you engaged.

- retire as soon as you can - as I've said before on here - I packed work in at 52 and have never regretted doing so. In fact I only wish that I could have retired earlier - but couldn't until the pension legal framework changed.

As they say - you can't buy more time.