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How much do I need to retire?

How much do I need to retire? post image

Just “How much do I need to retire?” The answer to that question tells you whether your pension is on track, and when you can finally call it a day.

Everybody’s circumstances are different, so we’ll guide you through a straightforward process to find your number.

The two retirement riddles we need to solve are:

  • How much retirement income do you need to fund the lifestyle you want? (We’ll cover that in this post).
  • What size pension pot will deliver that income? (That’s in the next post).

Your response to the first question unlocks the answer to the second.

How much do you need to retire?

The amount you need to retire is the annual income that can comfortably pay your bills and life’s extras – once you’re no longer earning.

Thankfully that figure needn’t match your current pay.

Many expenses fall away in retirement. You’ll probably pay less in taxes too, and you won’t need to fund your pension anymore.

How much you need to retire is obviously a personal number. Inevitably it takes a bit of guesswork to visualise the life you’ll lead in the future.

Step one: track your expenses

The best place to start is with your current expenses. They already include many of the expenditures you’ll pay for in retirement. We’ll delete the costs that won’t apply later.

If you already track your expenses then most of the work is done.

If not, tot up your current spending using a budget planner. This tool helps you remember all the expenses you’d prefer to forget – dentist’s bills and the like.

Do this step as accurately as you can. Excavate your credit card and bank statements to fill in the budget planner.

It’s good practice to record your monthly expenses for a year at least.

If you’re happy with a lower resolution snapshot that’s fine. It’s better for your numbers to be mostly right than to skip this stage entirely.

Step two: remove pre-retirement lifestyle expenses

Now for the fun bit: offloading all the expenses that won’t bother your budget in retirement.

Create a retirement duplicate of your expenses’ planner. Then strike out all the costs you won’t have to pay later in life.

For example you can nix:

  • Commuting costs, such as petrol, train fares, et cetera
  • Work clothes
  • Professional fees
  • Networking lunches and drinks
  • Other work expenses – Costa Coffee pick-me-ups, baby shower gifts, billionaire shortbread buckets to get the team through another Wednesday.
  • Mortgage payments (assuming the mortgage will be paid off when you retire. Sadly becoming less common in the UK.)
  • Insurance bought to replace your employment earnings, such as income protection, critical illness, life cover, and mortgage payment protection.
  • Child-related expenditures – namely the cost of bringing up the kids before they fly the nest.

Other expenditures won’t disappear but they will change.

You’ll still want clothes and haircuts. But you can save a packet when you don’t need them to be office glam standard.

Perhaps you’ll replace your car less often – or spend less on repairs and servicing – when you’re not piling on the work miles.

Discount these sorts of expenses in blocks such as 25% or even 50%. You only need a rough estimate.

Make conservative reductions to be on the safe side.

Step three: add retirement lifestyle expenses

A fresh stage of life means new spending priorities. You may want to increase your outlay on:

  • Holidays
  • Hobbies
  • Heating
  • Health

Have fun dreaming about how you’ll live when your time is your own.

If you’re really struggling, the Pensions And Lifetime Savings Association has funded research that visualises a trio of retirement budgets using a bronze, silver, and gold framework.

For example, the ‘moderate’ £30,600 couple’s budget includes two weeks holiday in Europe and a long weekend staycation per year.

Your own parents will be a good reference point for health. After all, they’re more like us than we might care to admit. (A temperamental early model, naturally. You 1.0 before the kinks were ironed out.)

Insurance companies inquire about our family history for a reason. Try asking your parents what they spend on health per year.

Elsewhere, your social and entertainment spend may well include lines for retirement pleasures like spoiling the grandkids and catching up with friends.

We’ll take a deeper dive into the spending insights revealed by retirement research in a later post.

Monevator Minefield Warning #1: Retirement research doesn’t tackle the cost of adult social care. In other words, how much might you need to cover care at home or in a home? This is a huge unknown that every government has failed to tackle for 15 years or more. Your future liability is a lottery but there is useful information out there. We’ll cover this issue in a follow-up post. In the current environment, long-term care is likely to cost you something but there are options that don’t involve the ‘leaving your spouse homeless’ nightmare.

Step four: allow for depreciation

Some big-ticket expenses only show up once in a blue moon. They can too easily be overlooked in the steps above.

Hopefully your retirement will last for decades, so your income needs to account for replacing items like the car, boiler, TV, and white goods.

There’s house maintenance, too.

You can estimate an annual allowance to cover these costs. Applying depreciation to the stuff you own is one way to do it.

Step five: subtract other retirement income like the State Pension ­

Income from other sources takes the pressure off your private pension.

The State Pension is the main alternative income stream for most retirees.

You can deduct the State Pension and any other income you can reliably expect from non-investment sources from the total spending estimate generated by steps one to four.

The remaining sum is the retirement income you need to generate from your private pension and any stocks and shares ISAs.

Subtract your significant other’s State Pension too if you’re calculating a budget for two.

(Add up your retirement income as two individuals first. Then combine your numbers as a grand total at the end. We do this because you’ll adjust for tax as individuals in step seven.)

Your State Pension forecast reveals how much money you can expect to come your way courtesy of UK PLC. The State Pension can be a solid wodge, provided you max out your National Insurance record.

Other retirement income sources may include:

  • Defined benefit pensions
  • Property rental income
  • State benefits
  • Passive income – trust payments, royalties, and so on

Only include income streams you’re confident of receiving throughout your retirement.

Part-time work or a side hustle can do a lot of heavy lifting, especially early in retirement. But it’s not reliable enough to be a key part of your plan. Such work can dry up, or you may suffer ill-health or just decide you don’t want to do it anymore.

Treat any uncertain income as a bonus or back-up instead. The same goes for inheritance money.

Only deduct the amount of income you’ll receive from other sources after tax. Otherwise, you’ll deduct an unrealistic amount of income from your total so far. See the tax section below.

What if your State Pension will only kick in later than your intended retirement date? Well, you might temporarily draw more from your private pension and other investment pots like ISAs to bridge the shortfall.

However, this approach comes with its own risks and uncertainties. It also means you’ll have less to take from your depleted investment pots after the State Pension finally arrives. I’ll point you in the right direction in my next post.

Step six: build in a safety margin

You’ve probably noticed that answering the question: “How much do I need to retire?” involves a lot of guesswork.

That doesn’t make retirement income planning pointless. It’s better to be roughly right than precisely wrong!

A better answer to the precision problem is to add a safety margin. This shock-absorber protects you against undershooting your retirement target.

There are a few ways to build such a buffer:

  • Underestimate how much you can subtract from pre-retirement expenses.
  • Overestimate how much extra you’ll need for retirement expenses.
  • Round up your total number by another 10% or 15%.

In practice, actual retirees cut their cloth just like they did when they earned.

Their pension is effectively their salary. If a bigger than expected bill comes in, they cut back in other areas for a while.

So your retirement spending needs flexibility.

If your budget includes plenty of optional extras, this automatically gives you room to tighten your belt when necessary by putting them on pause.

Downsizing, reverse mortgages, and annuities are all tools that can provide financial reinforcements later. You needn’t worry about them now.

There’s also time to adjust before retirement. Delaying hanging up your boots for a year or two can make a big difference.

The important thing is to have a number that will guide you towards retirement. This can tell if you’re on track as you get closer to your destination.

Step seven: adjust for tax

Your total number so far is net retirement income. That is to say it’s the annual amount you’ll need to retire after paying tax.

Sadly, there’s no escaping tax in retirement so we need to cover that, too.

Use a good tax calculator to work out your before-tax gross income.

Use a tax calculator to work out your gross retirement income
  • First, tick the No NIC box (National Insurance Contributions).
  • Check the calculator is set to your particular country in the UK.
  • Pop your net income total into the Gross Income Every [Year] field.
  • Increase this figure by your best guess of your annual tax bill.
  • Keep adjusting this gross amount until the Net Earnings field (circled) is close to the net income amount you want.

Hey Presto! The Gross Income figure is now the amount of total income you need when you retire.

It’s expressed as an annual retirement income at today’s prices.

We’ll deal with inflation shortly.

Customising your tax number

Do this calculation twice if you’re part of a couple.

It is pretty likely for example that your pension pots are unequal and one person will bear more of the tax burden. We’ll explain how much you can expect each pension pot to deliver in the next post.

Your State Pension and private pensions are taxable (except for the 25% tax-free lump sum).

If you deducted your gross State Pension from your net retirement income in step five then we need to adjust the Tax Free Allowances setting in the calculator.

This prevents you from double-counting your income-tax-free Personal Allowance.

(Your State Pension only counts as tax-free in step five because it uses up some of your Personal Allowance.)

Adjust your Tax Free Allowance down in the UK Tax Calculator like this:

  • Type your gross State Pension income into the Allowances/Deductions Field as a minus figure. For example: -9000.

The tax calculator deducts that amount from its Tax Free Allowances field to show you’ve already counted some of your Personal Allowance.

You can see that I’ve adjusted for a £9000 annual State Pension income in the tax calculator picture above.

What about ISAs in retirement?

ISA income isn’t taxed at all.1

We need to remove income that’ll be generated from ISAs from your tax calculation, as you don’t pay tax on that.

So temporarily deduct your ISA income estimate from your net retirement income figure. Then add the ISA income back into your total after you’ve calculated your Gross income.

This stops you inflating your gross income figure with tax you don’t have to pay.

(How much income can your ISAs produce? That’s also in the next post!)

Do the same for your 25% tax-free lump sum if you think you can tax shelter it quickly enough. That’s possibly doable with a flexible annual ISA allowance of £20,000 per person, depending on how big your pension pot is.

Incidentally, pensions beat ISAs as a retirement savings vehicle for most people. A mix of both works, with pensions doing the heavy lifting.

Monevator Minefield Warning #2: It’s fair to assume that tax rates will have changed by your retirement date. But we cannot see into the future. So our best model for the tax burden tomorrow can only be the tax burden today. Add an extra percentage if you fear things will get worse. For example, you could tick the NICs box, assume your ISAs will be taxed, or suppose that the tax-free lump sum is eliminated. This all simulates increased tax in the future without having to know the unknowable right now.

Accounting for inflation

This process all tells you how much you need to retire on at today’s prices.

That’s fine because you can easily adjust this number for inflation.

Simply check the annual inflation rate once a year or so.

The picture below shows how the official rate looks on the Office For National Statistics website:

An image of the inflation rate to illustrate the need to adjust your retirement income figure by inflation

Multiply your retirement income figure by the CPIH inflation rate every year.

For example:

  • Your retirement income number is £25,000 per year.
  • One year later, the annual CPIH inflation rate is 2.9% (as in the graphic above).
  • Your retirement income number adjusted for inflation is now:
    £25,000 x 1.029 = £25,725

In other words, your pension pot must generate £25,725 income per year to keep pace with current prices.

Next year, multiply your latest retirement figure (e.g. £25,725) by that year’s inflation rate. And so on.

Yes it’s a faff. But this annual calculation ensures your income estimate keeps up with official inflation.

You should multiply your investment contributions and target pot size by inflation every year, too.

It’s the same calculation as above and helps prevent your forecasts being boiled away by the slow pressure cooker of inflation.

You can go even further and calculate your personal inflation rate. But there comes a point when life is too short, even for retirement planning.

The State Pension is up-weighted every year by at least the annual inflation rate. Small mercies!

Can I really know how much I need to retire?

As long as you treat the process as an ongoing estimate then this method answers the nagging question: “how much do I need to retire?”

Admittedly, it all takes a fair bit of work if you’re starting from scratch. But once you’ve done it, you’ve got a target to aim for.

Complete the process and you’ll drastically reduce one of life’s big uncertainties.

Adjust your number as you go, and it will help you keep your retirement on track for years to come.

Which in turn will be an enormous tick off your To Do list.

Oh, and please don’t be put off by the unknowns.

Your best educated guess will be good enough, because retirement planning cannot be precise.

We’ll walk through how to translate the amount you need to retire into, how much should I put in my pension?in the very next post.

Take it steady,

The Accumulator

  1. You already paid tax on the money you put into your ISA. []
{ 29 comments… add one }
  • 1 MickonFIRE November 17, 2021, 11:27 am

    Nice post, and very timely. I’m semi-retired on Lean FI but have not got over the anxiety that I don’t have enough, so spend time lingering on LinkedIn wondering if I should do ‘one more year’. Anyway, I have spent the last few days in bed with the cold running my numbers trying to come to a conclusion – in the end, I realise unless you want to spend the years to build a very chunky pot there are risks (needing home care, divorce etc) – but for me it comes down to answering the question at what age does time become more valuable than money, and will an extra 5-10k year increase my happiness.

    I always go back to Rich, Broke or Dead simulation to make myself feel I’ve made the right decision. That was all a long ramble to share 3 FI calculators that people may find useful to run their numbers -US based but ignore the $ sign, and invest in the US! 🙂

    https://engaging-data.com/will-money-last-retire-early/
    https://ficalc.app/
    https://www.cfiresim.com/10ad6cb6-74fd-4620-9b45-cd57a30d94f8

    Looking forward to the second post!

  • 2 The Great Unwashed November 17, 2021, 12:01 pm

    When I found out that I was being made redundant last year I used my uber-spreadsheet (containing 20+ years of categorised bank account transactions) to put together my Spreadsheet of Doom.
    It takes figures similar to those described in the article plus inflation and changes due to ‘life events’ and gives me an estimate of how the next few years will pan out. So far it estimates that I can live until I’m 86 at which point my outgoings surpass my income. That’s based on the assumption that I don’t work again (I’m now a full time carer for my other half) and take my works pension at 55.

    I may have accidentally FIREd myself before I hit 50…

  • 3 Brod November 17, 2021, 12:34 pm

    @TA – excellent stuff! I’ve already done our budget and outlined 3 (or maybe 4) retirement phases depending on who’s paying what, state and Civil Service pension kicking in, etc.

    Our situation is we’ll have a family budget and while my wife works, I’ll only put in 1/3. When my pensions come in in 11 years, my wife retires and I’ll pay everything until her pensions are paid in 27 years. Then we’re home and dry. After all, with a 30 year planning horizon, what could possibly go wrong? 😉

    I’ve a question, though, about pension contributions. Is it worth overdrawing beyond the £12570 income tax threshold in order to recycle, err… continue to contribute to my pension like a good citizen? I reckon not, as I’m swapping tax free cash for cash that will be taxed when it’s withdrawn. If I’m working, it’s maybe worth it.

  • 4 Al Cam November 17, 2021, 12:43 pm

    Good highly informative post.
    IMO spending is the next most important parameter after longevity – ie how long will I/we be spending.
    Just a thought: would it be worth adding probable survivor spending needs – assuming it was originally planned spending for two or more?

  • 5 weenie November 17, 2021, 3:47 pm

    @Brod

    Don’t forget that once you’ve started taking a pension (unless you’ve only taken the 25% tax free bit), the maximum pension contribution per year drops from £40k to just £4k. This was brought in to prevent ‘recycling’.

  • 6 BerkshirePat November 17, 2021, 5:44 pm

    What would really nail the calculations would be a definite ‘expiry date’
    Ironically, knowing when one is going to shuffle off this mortal coil would completely ruin one’s remaining time on this earth….

  • 7 BBBobbins November 17, 2021, 6:07 pm

    Maybe I’ve oversimplified but I’ve modelled with my pots at some conservative rates of return like 0-2% to approximate to a situation where I barely beat inflation in order to not agonise about guessing on future inflation. I might get some timing differences where investment returns don’t beat inflation in certain periods but given I’m really looking at whether the money runs out, not short term squeezes it seems pragmatic.

    Other than sequence of returns risk am I missing something with this approach? At the moment inflation feels big and scary but then asset returns have been pretty good over the past couple of years so I guess I’m rationalising that as pre-paid.

    Also interested in real world data from those that have FIREd – it’s easily possible (under current rules) to draw say £36k equally from SIPP, other investments (boosted by Tax-free lump sum at 55) and ISA without being troubled by tax which ends up being a decent sum per person in (current) gross pay. Now whether that is enough is a lifestyle question but is it a sensible peg to start thinking about?

  • 8 Mr Optimistic November 17, 2021, 7:23 pm

    Good article. In terms of trying to build confidence in how much I needed, I found ‘capital’ expenditure to be a problem in terms of predictions. This included cash we might need to get hip replaced privately for example. Psychologically I just need a large buffer of cash.

  • 9 Bb November 17, 2021, 8:05 pm

    Great article as ever…

    Anyone got any suggestions how to model kids expenses? Have 2 primary aged kids so have a load of school fees to come but then this expense will drop out. I can’t work out what’s best… perhaps work out a “no kids” number then add the present value of projected school fees to the pot?

  • 10 Jim McG November 18, 2021, 9:29 am

    Very good. From my experience, I’d underline that you have to be really honest with yourself about understanding your spending on a month to month basis, especially when you’re working. I used to massively underestimate the monthly spending I was doing that didn’t fall into my household budget, but which I didn’t really track because I’d just take it from my “savings” bank account. The year I started tracking it, I remember the utter shock that somehow, every month, there was around an average of £500 of spending that I hadn’t budgeted for. These could be “one offs” like a roof repair, or a new lawnmower, or a burst car tyre, or just an impromptu weekend away that wasn’t in the “holiday budget”. It’s easy not to count what you’re actually spending, even when you’re convinced that you pretty much are on top of it all.
    With reference to social care, if you have a strong heart, watch the Ed Balls documentary about Care Homes on iPlayer. If that doesn’t make you save for retirement and try to stay healthy, nothing will.

  • 11 MG November 18, 2021, 11:28 am

    excellent article, very much looking forward to part two and the additional “minefield” articles – finding out that my grandad’s care home fees are £3k per month has suitably terrified me to get serious about the true amount I’ll need to be able to retire one day!

  • 12 BBBobbins November 18, 2021, 1:23 pm

    I’m in wilful denial about care costs. My basic thinking is that I will probably be able to afford some level of in home care and likely what’s left of the pot could fund residential for a while (plus home proceeds). But my logic is that by the time I’m in a home my quality of life will be gone and therefore living in the lap of luxury is not really going to help. Plus being male I’m less likely to hold on for a long time.

    The pragmatic side also suggests that with care home costs easily topping £1k per week in many places I’m better spending the same sum on holidays etc in RE than agonising about securing annuity income to deliver £55k + after tax for 20 years in a care home.

  • 13 G November 18, 2021, 1:34 pm

    @MG – you can potentially model these too. I think the average care home stay is around 30 months and personal spending tends to drop off a cliff post 70 anyhow (and presumably in a care home, your expenses will drop even further). Obviously, wanting to leave an inheritance/a partner complicates things but I suspect the average monevator reader will have enough assets to cover the cost…

  • 14 ZXSpectrum48k November 18, 2021, 1:44 pm

    @JimMcG. I think it’s the big one off costs that are hardest to quantify. It’s not too difficult with cars, white goods, tech etc that you replace every few years. It’s much harder with the irregular, lumpy, but inevitable big costs such as roof repairs, a complete new kitchen, medical costs, care home costs etc.

    Take our house. We lived in it for almost 8 years and, despite that, we don’t really have a good idea of long term house maintenance costs. The house was in good condition when we bought it, so there was little or no maintenance early on. That is starting to change. The old rule of thumbs are £1/sq ft or 1% of the house price per annum. Problem is those two rules of thumb gives me two numbers that are different by a factor of 5! Not helpful.

  • 15 BBBobbins November 18, 2021, 3:49 pm

    I find it helps to think of future spending in pots – Bills and basics, everyday quality of life (travel, ents, meals out etc), and discretionary (holidays, big indulgences). I think there is probably a fourth which is capital accrual but there is some overlap in that with discretionary e.g. you want a new kitchen or upgrade a car it’s natural to anticipate sacrificing a holiday for it.

    If you’re not prepared to sacrifice it if necessary then it’s everyday not discretionary.

    Bills and basics represents the baseline of what absolutely needs to be delivered no matter what.

    Agree that the size of the capital accrual is hardest to estimate – who knows what roofing materials and labour will cost in the future and whether it hits at the same time as big medical costs and a car failure.

  • 16 Brod November 18, 2021, 4:48 pm

    @Weenie – thanks, but sadly I’ll never be in the position of contributing more than £4000 a year once I retire.

    In 11 years I’ll have state and civil service pension of £17k in today’s terms, so will be over the personal income tax threshold. I plan to use the taxable element of SIPP and leave the PCLS untouched and invested in the SIPP wrapper, which I think is better than taking it and stuffing it in ISAs. For inheritance, if nothing else.

    Of course, Rishi looks like he’s changing the rules I’ll have to move quickly!

  • 17 DavidV November 19, 2021, 2:14 pm

    @Brod (16) I don’t think you can leave the PCLS in your SIPP. Any amount that you crystallise, either as flexible drawdown or UFPLS, causes the PCLS to be paid out. Of course, there is nothing to stop you taking multiple UFPLS, as small and often as you want – monthly if necessary, and only paying tax on 75% of each payment. This maximises the funds remaining in your SIPP.

  • 18 DavidV November 19, 2021, 3:25 pm

    @Brod (3) Of course HMRC have strict rules about recycling tax-free cash. As weenie has pointed out (5), once you have taken any part of your pension other than tax-free cash you are restricted to £4k/year (provided you have this amount of ‘relevant earnings’). Even without relevant earnings, though, you are still allowed to contribute £2880 (before tax relief added) each year and HMRC will add £720 tax relief to your SIPP to bring it up to £3600. This happens even if you do not pay tax. When you withdraw it, 25% will be tax-free. Therefore your concerns about swapping tax-free cash for taxable cash are not valid, provided you do not put yourself into the 40% tax band on withdrawal.

  • 19 Escaped Brit November 20, 2021, 11:13 am

    Brod, Don’t quote me but I think you have the inheritance thing the wrong way round Isas are taxable Inheritance, your Sipp is not as long as you have made a clear expression of wishes. To Quote the Hargraves Landsdown website: Any money left in your SIPP when you die can normally be passed to your heirs free of inheritance tax. Any withdrawals they then make will usually be tax free if you died before you were 75. If you die when 75 or older, any withdrawals will be taxed as their income.
    Unless its your intention to pay future taxes fron your estate. Hope this helps

  • 20 The Accumulator November 20, 2021, 1:01 pm

    @Mickon – I understand where you’re coming from. There were known unknowns and disaster scenarios that I had to stop worrying about (e.g. long-term care provision) otherwise I’d keep coming up with new reasons to delay FI. I’m very happy I made the leap – hope you get there too. Cheers for the links.

    @ The Great Unwashed – I admire your planning and resilience. How did you decide to treat the issue of retirement income? Did you go for inflation-adjusted constant spending or declining spend with age or something else?

    @ Brod – cheers! Sounds like you’ve really done tons of legwork. Overdrawing seems very situation dependent to me. What’s actually acceptable seems to be a very sketchy area.

    @ Al Cam – Great point on probable survivor needs. That’s another area where I haven’t been too fine-grained on the grounds that it creates room for maneouvre if I’ve miscalculated somewhere else.

    @ Berkshire Pat – Yes, knowing when we’ll shuffle off would solve the main unknown variable. Perhaps we’ll have the appropriate genetic test one day. Some will want to know… I think I’d probably look at the result and then regret it.

    @ BBBobbins – modelling low rates of return to stress test your plan is an exellent approach. Like you, I’ve also sought to maximise my tax shelters. That research led to this piece, which may be helpful:

    https://monevator.com/financial-independence-how-to-calculate-the-capital-and-contributions-you-need-in-your-isas-and-pensions/

    @ Mr Optimistic – That makes sense. The psychological side of the coin is fascinating and critical. I’ve mostly created my buffer by using conservative assumptions.

    @ Bb – I’ve seen work in the US around modelling college fees. Maybe you could borrow from that approach?

    @ Jim McG – that’s a great point about being honest with yourself. For me, that meant developing a depreciation budget for those one-offs and being quite micro with my spending categories to find out where the money was going.

  • 21 The Great Unwashed November 20, 2021, 1:28 pm

    @The Accumulator – I’ve gone for inflation adjusted spending (assuming a constant CPI of 5% at the moment but it’s a tweakable value) for most things and then scary super-inflation for energy costs (should that drop to 9% then I can live forever apparently). I’ve also added in an similarly increasing extra “other stuff” buffer of £2k per annum.

    Future income is a mixture of drawing down my S&S ISA when the last of my redundancy cash dries up followed by my DCS pension which has jumped remarkably thanks to dropping most of my redundancy package into it just when the markets hit rock bottom.

    We’ve been mortgage free for 11 years (paid off 15 years early thanks to a 0.5% above base rate tracker where I just threw every penny I had at it) and I’ve variables to handle downsizing so I can visualise how that is likely to reduce energy and council tax costs.

    And though I am certainly not the Man Who Has Everything there really is nothing left that I want to buy.

    Of course it’s all educated guesswork 🙂

  • 22 Al Cam November 20, 2021, 5:02 pm

    @TA (#20):
    Macro models suggest survivor needs are usually around 60% to 75% of a pairs needs. It may also be worth noting that the result might depend on which partner expires first!

    @TGU (#21):
    Whilst I totally agree “its all educated guesswork”; based on my own experience I would not be surprised if in a few years it turns out that you have been a tad conservative.

  • 23 The Accumulator November 21, 2021, 12:47 pm

    @ The Great Unwashed – it sounds like you have a firm grip on it all. Hopefully, with a fair wind, the future will be kinder than your models and you’ll enjoy some upside 🙂

    @ Al Cam – that’s interesting. If you get a mo, please post some links to any useful research you’ve read on the topic. Think I need to pop on my scuba gear and dive deeper into this 🙂

  • 24 Al Cam November 21, 2021, 7:30 pm

    @TA (#23):
    There are numerous sources, however, IMO a great place to start is with the various types of “equivalence scales” (see e.g. https://en.wikipedia.org/wiki/Equivalisation) e.g. Oxford scale aka Old OECD scale, Bonnet Houirrez scale, OECD modified scale, and the square root scale. These give a range of roughly 59% to 71%.
    Many others, including Which? Magazine publish, guidelines for “How much will you need to retire” – and these often present figures for single and two-person households.
    I think the US Society of Actuaries also publish data too.
    Your own household spending particulars will, of course, determine your own survivor need(s).

  • 25 Al Cam November 22, 2021, 1:16 am
  • 26 Al Cam November 22, 2021, 10:17 am

    @TA

    OOI, this earlier (2011) US SoA report is somewhat more definitive, see page 14 of:
    https://www.soa.org/globalassets/assets/files/research/projects/post-retirement-charts.pdf
    In any case, your own situation will primarily determine your survivor need(s). FWIW, I have found an exercise not dissimilar to your steps 2 and 3 above -albeit focussed on survivor needs – could be helpful.
    Some real world examples include:
    a) usually you would qualify for a 25% discount on Council Tax for single occupancy;
    b) groceries should reduce – but by how much, e.g. bulk offers such as BOGOF;
    c) cost of “going-out” might reduce, but by how much and possibly not by 50% if you use, say, Meerkat cinema tickets; but will frequency increase, decrease, stay the same
    d) etc, etc

  • 27 The Accumulator November 23, 2021, 1:27 pm

    Great stuff. Thank you Al Cam! I appreciate you taking the time

  • 28 Al Cam November 23, 2021, 4:31 pm

    @TA:
    No worries, hope the stuff is of some use to you.

    BTW, earlier today I had a quick look at the Pension and Lifetime Savings Associations Retirement Living Standards, see https://www.retirementlivingstandards.org.uk/ and, without exception, they have lower [single person] percentages than the Which? magazine.

    If/when you do dive into this topic you will inevitably come across the issue of pension survivor benefits too. IMO, this is one of the few areas where DC schemes are usually much better than DB schemes. And, as several folks have mentioned before: survivor benefits in DB schemes are often misunderstood as simply X%, whereas in reality they are often mired in complexity. Then there is the new state pension which I would suggest is exceptionally poor in this area – although again I suspect few folks may appreciate how bad it really is. That is, in all but exceptional circumstances, there are zero survivor benefits in the new state pension.

  • 29 Harry November 27, 2021, 6:09 pm

    It would be interesting to see a post about renting vs buying from a FIRE point of view, which makes most sense? Seems like renting and investing would be better, but it makes a huge difference in the “number”

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