Retirement, how much?

[oldfatfool]

I must admit that swmbo being 11 years older and only having her state oap in 2 years time is a consideration in my financial calculations that takes a lot of thinking about. If one dies then you need the cash if they don't then by the time one does you have wasted the opportunity to enjoy it

 

[Ming the Merciless]

How did you get those figures?

The full state pension is currently £179.60/week but will rise by 3.1% to £185.17 for 2022/2023.

There are two parts to the pension.

Basic state pension. That’s the max £179.60 you quote.

Between 1978 and 2002 you then had State Earnings Related Pension Scheme (SERPS). Which is on top of the basic.

The State Second Pension (S2P) then ran from 2002 to 2016, replacing SERPS.

That was then replaced with the new state pension from 2016.

For those who took out company private pensions over the period we had an option to opt out of the earning related portion of the state pension. These portions of the pension and up 2002 have a protected minimum value. Some NI got diverted to that pot, on top of what you and your company paid in. In that case you’ll get your company pension(s) plus the basic state pension. The basic state pension will be paid at whatever the retirement age is when you get there. Many private company pensions can be taken from 55. So there’s the option of semi retiring at 55 say, supplementing with part time 3 days a week, then when the state basic pension also kicks in, fully retiring.

Really depends on your financial situation, how much you enjoy your “career“ / job, your health, and what is making you happy etc.

If you’ve earnt a decent salary since your early 20s and not taken breaks. Then by 55 onwards you’ve maxed out what you can get from the basic state pension, at 35 years of full NI contributions. So working longer doesn’t increase that, it just gives you an opportunity to save some more.

I have known enough who’ve worked right up to state retirement age, and dropped dead not long enough after retirement, to know what my priorities are. Sacrificing some income by retiring early can make absolute sense if it means better health and opportunities to do things you almost won’t manage when much older. You’re not really losing out on the total you get unless as above you approach 100 and by that age you probably won’t care and expenses will have gone down anyway. Not too many trips to Ibiza to party at that age.

 

[ColinJ]

As I have posted above, I will be okay with state pension, a very small private pension, and housing/council tax benefits, BUT... I have an ambition which will keep me amused in retirement - to earn enough from my own projects to no longer qualify for those benefits and to have to start paying income tax again. It would feel good to at last be paying something back into the system.

I have just been playing around with the entitledto calculator for my situation *** and there are some very interesting results. Interesting to nerdy people like me that is - If you already have loadsa money lined up for your retirement, and/or you hate numbers, don't bother reading on!

The system seems to largely do away with actual disincentives to work as a pensioner, though there does appear to be a very slight disincentive where income tax kicks in. There are wildly varying degrees of financial incentive though with rising income. For a certain band of income it is financially barely worth trying to earn more unless that can be a LOT more. If money isn't the motivation though, just do the work for fun!

The first £22.10 a week of earnings goes straight into the pocket. Beyond that, my housing and council tax benefits would start to reduce with increasing income (as you would expect, and as they should do). Those reductions are chomping up most of the increased income:

Nominal pay £10/hr

Earn £22.10; get £22.10; effectively £10.00/hr in pocket
Earn £25.00; get £22.54; effectively £9.02/hr
Earn £30.00; get £23.29; effectively £7.76/hr
Earn £40.00; get £24.79; effectively £6.20/hr
Earn £60.00; get £27.79; effectively £4.63/hr
Earn £80.00; get £30.79; effectively £3.85/hr

So for an increase in pay of £57.90, money in the pocket only goes up by £8.69. Assume £10/hr... the 5.79 hours of extra work effectively only nets £1.50/hr... For just the cash, I wouldn't bother - I would just do 2 or 3 hours a week!

Earn £100.00; get £33.79; effectively £3.38/hr
Earn £120.00; get £38.09; effectively £3.17/hr

***** council tax benefit has already gone, so less total reduction now, effective hourly rate rises slightly
Earn £125.00; get £39.84; effectively £3.38/hr

***** Here is where income tax kicks in and there is the disincentive! *****
Earn £125.29; get £38.87; effectively £3.10/hr
***** Earn more, get less! *****

Earn £140.00; get £44.02; effectively £3.14/hr

**** Here is where the last of the housing benefit goes
Earn £157.46; get £50.13; effectively £3.18/hr

**** From here on, take home increases by 0.8 X earnings until (in my dreams!) £50k tax band reached
Earn £160.00; get £52.67; effectively £3.29/hr
Earn £180.00; get £72.67; effectively £4.04/hr
Earn £200.00; get £91.23; effectively £4.56/hr
Earn £250.00; get £135.07; effectively £5.40/hr
Earn £300.00; get £170.57; effectively £5.69/hr
Earn £400.00; get £241.57; effectively £6.04/hr

Given that I will be able to manage nicely without working, and I didn't like being an employee, I will never work for anybody else again. That's a great feeling!

If I can earn some cash from my hobby projects, fine, but I would do them for nothing anyway.



*** I had to add a year to my age to see the numbers because I don't actually qualify for the state pension yet

 

[ebikeerwidnes]

I was 'contracted out' for most of my working life

Didn;t really know much about what it meant until I started to lookat retirement. It was the IFA that we use that went through it all with me.

Turns out that once you retire and stop paying National Insurance you contributions obviously stop as well.

Now - many years ago - I fiulled in a form asking about my contributions. I received a letter saying that I had over 40 years () of contributions so I would get the full pension.
Wish I had kept that letter!
Anyway - turns out that I have NOT contributed enough - but I can add years on by sending them a lot of money.
Working it out the money is worth it unless I die quite young (NOT in the plan!!).
I can also send them a certain amount every month and this will bump my contribution up and I will be better off when I reach 66 (or 67 - can;t remember).
When we saw the IFA last year we went through this. There is limit to how long you can wait before sending money to make a year paid up - but at my age I can just wait then send the money just before I'm 66.
And in the meantime the money is in an investment that is making interest (I hope)

SO that is what I am doing.

For those wondering how all this works - there is a government website that allows you to get a quote of where you are up to.
The statment that you get sent also has a help line that is very helpful and doesn;t try to confuse or anything.

Only confusing things is that you talk to the help line and they give you a number - THEN you have to ring a totally different for the Inland Revenue and arrange to send them the money.
The 2 are not connected and the payment line has no clue whether or not you have got it right - so you have to be careful that you make notes on the first help line

Or ask an IFA if you already have one!!

 

[Ming the Merciless]

Yeah £800.80 to add a full NI year then that will go up by about 12% in April 22. You get up to 6 years after a tax year to make up any missing NI contributions. Which connects with needing to keep tax records for 7 years after which HMRC can’t chase you for stuff older than that.

 

[Ming the Merciless]

The 35 years of full contributions means you can have approx 15 years without being in the work force and still manage to get the full basic state pension. This obviously will be impacted by whether in the years you did work it was part or full time. Plus assuming you don’t retire till 66/67. If you want to retire earlier but still get full pension when old enough, pay in those missing NI contributions

 

[midlife]

At 62 years old having worked for as long as I can remember, the math for me retiring still don't add up being a "bank of dad".

 

[Chislenko]

We are very happy with our lifestyle in retirement.

Won't go into our income as some have save to say that I think some may be over estimating just exactly how much you need.

 

[gbb]

At 62 years old having worked for as long as I can remember, the math for me retiring still don't add up being a "bank of dad".

I suspect some recipients of 'Bank of Dad' may have to change their ways once retirement reaches us. I happily support one branch of my family, in a small regular way. That will inevitably change in early retirement.
But equally, as older age takes its toll and you don't have the desire, mobility and possibility to do 'stuff, you spend far less and ironically have more disposable income, simply because you don't spend much. My mother (almost 92) has saved over £15k in the last 15/20 years

 

[PaulSB]

As a retired person looking through these posts is very interesting. I stress we have nothing like the income or savings mentioned in some posts. All I would say on income is our household does not pay tax. My experience is:

• I've been with the same IFA for 20 years, I regard her as a good friend and know this is returned. The cost is £400pa plus commissions which are rare. Do understand the benefits of a quality IFA and appreciate there are many good ones out there. A good IFA will not be driven by self-interest, by definition a good IFA will be driven by client interest and will benefit from the financial success of his/her clients. My IFA has made one mistake I'm aware of in the 20 years we've worked together. I was on the cusp of the change in state pension age and she assumed I would receive my SP 10 months earlier than I did. My IFA understands my family, not only me and my retirement
• Get good lifetime forecasts on how spending, income etc. will develop through retirement. A good IFA will have such calculators/forecasters. I'll sit with my IFA on Friday and we will do the "what ifs" so my wife and I can decide on our spending for the next 12 months. This advice will cost £200-400 which I regard as a sound spend. Do not rely on online calculators for this information. I see two major flaws; how can one be certain the correct and all questions are asked by a random website? Anyone who feels IFAs are driven by self-interest might question the integrity of a random website?
• Through my IFA's forecasting I know from September when Mrs P's state pension arrives our wealth and savings will increase annually unless we choose to spend this additional income. We will begin to pay tax at this point
• Understand current outgoings. There seems to be a lot of "I reckon" in here and it can be misleading. Banking and credit card information can easily provide a 12 month history of one's spending. Grab this information put it in to Excel to fully understand your spending. Include everything and be accurate - no estimates.
• If currently working and making a lot of cash purchases stop doing so. Before retiring I looked at our finances as above. I was horrified to discover how much cash we spent and had absolutely no idea on what. It was simply cash taken out of the bank. In 2021 we used £200 in cash
• Understand where unnecessary expenses are incurred and how to reduce or eliminate these. Before retiring our newspaper bill was £884pa, today it is £364 - and we still have enough paper left to light the fire!!!!!!!
• Be aware of the significant savings one can make on high cost expenses such as insurance, utilities etc. by having the time to properly research these. When I worked I thought I had "good deals." I was wrong, I now have the time to understand these
• Don't underestimate how expensive going to work is. Retirement immediately saves one a lot of money!
• Undertake all major household capital expenditure before you retire. New roof, kitchen, windows etc. as needed/wanted
• Be prepared to spend savings to fund your desired lifestyle. I initially found this difficult
• Understand the thought one cannot "earn" money any longer. This worried me for a long while but I have overcome it because my IFA continually gives me a proper understanding of our position
• Try not to worry about council tax, there's bugger all you can do about it

In my experience provided one owns one's house a very comfortable retirement can be enjoyed on +/-£25,000 for two people. If I was single I think I could drop that by £5-6000, which is not to suggest my wife is a spendthrift but recognises two people do actually spend more than one and if single my lifestyle would be different. I do not understand how people afford rent in retirement. I couldn't. As a result we are doing all we can to help our children buy properties and have invested long-term to do the same for our granddaughter.

To highlight the benefit of a quality IFA. I took 25% of my pension pot five years ago, if I add back this sum, without growth, my pot today is worth more than the day I retired. Our capital has grown by £11,000 in the past six months and is well above pre-pandemic levels. Our capital is far from large.

 

[PaulSB]

and lastly in the 12 months preceding retirement live on the income level you will have when retired. This eases getting used to having less income.

Obviously if work involves costs such as travel, bought lunches etc. add this to the spend.

 

[ebikeerwidnes]

Timing can be everything
This means that you need to have a good handle on when policies and retirment funds have deadlines and cut off date and work with them.
WHich means going though policies that you took out (or got dumped into be default in a previous job) but have not thought of for years.
In my experience the help lines for the retirement funds are very helpful - but then these were not insurance/investment companies so maybe I was just lucky.

 

[Flick of the Elbow]

Timing can be everything
This means that you need to have a good handle on when policies and retirment funds have deadlines and cut off date and work with them.
WHich means going though policies that you took out (or got dumped into be default in a previous job) but have not thought of for years.
In my experience the help lines for the retirement funds are very helpful - but then these were not insurance/investment companies so maybe I was just lucky.

A key enabler to me leaving work at 55 was 3 years of employment over 20 years ago with a company that provided a defined benefit scheme. I wasn’t earning very much with them at the time so I’d assumed that 3 year’s worth of accruals would be inconsequential. Turns out that those 3 years worth had a transfer value of £75k. So I cashed it in, transferring it to a personal pension, which I am now living off until 60 when I get my main works pension, ie from the employer with whom I spent the rest of my working life. My main works pension will be the full value as I am not taking it early.

 

[alicat]

When we saw the IFA last year we went through this. There is limit to how long you can wait before sending money to make a year paid up - but at my age I can just wait then send the money just before I'm 66.

That assumes the law stays constant as does the cost of paying for back years.

 

[gbb]

I do not understand how people afford rent in retirement.

My mother (91) widowed now, gets no support for her rent, never did, she pays full whack.
But state, dads military services and private pensions take her well over the thresholds and tbh, she ('they' when dad was a alive) didnt struggle. I guess its all factored in, plus mum (and probably many like her) get DLA, thats circa £450 per month, overall, she does ok.
None of the pensions are substantial, but three modest ones plus benefits take her well over, it would be wrong to expect the state to pay the rent as well. I guess she may well be representative of many people.