# Retirement spend. A calculator or list of assumptions?



## presidenttttt (24 Jun 2021)

Hi all,

There are numerous calculators for savings and pension pot size, but is there something to forecast retirement spend?

One of the first articles at the top of a google search is a Motley Fool one suggest 80% of pre-retirement income. That seems very excessive for anyone who is fortunate not to be living month to month. With mortgages paid off costs should plummet, and if Covid lockdown savings have proven anything it has proven people pay a huge "tax" with going to work in an office (travel and sustenance). The % of pre-retirement income will vary broadly depending on how close that income is to the average or standard cost of living?

Doing the actual maths is important to us as early retirement or early partial retirement is an objective. 

The 4% rule is often banded around, and it seems reasonable, but i need to establish what 4% is.


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## IsleOfMan (24 Jun 2021)

Shortly I will be spending the same amount on my Property Tax as I will spend on all my food for two of us for a year.

or

My Property Tax spend will equate to my Health Insurance for two people for a year.

This is a large bill that I had not anticipated when I retired a few years back and was probably not built in to any retirement pots years ago.


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## Conan (24 Jun 2021)

How long is a piece of string?
Yes some expenses will reduce:
-Mortgage...probably 
-Less tax, no PRSI, Less USC, 
- Hopefully kids are off the payroll 
-No work related expenses such as lunches, coffees,  travel costs etc
But some expenses may increase:
- Travel, holiday
-Allow for big one-off expenditure such as car change, hose repairs etc
I suggest that you prepare a Budget. So what do you expect will be your yearly expenditure in retirement? Then look at likely income, and Hopefully income exceeds expenditure.


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## Shirazman (24 Jun 2021)

The missus and I have lived very comfortably for the past decade on a pension of €35K a year.  One car, no mortgage, PHI, one annual foreign holiday a year and regular meals out.     I'll be eligible for the State OAP shortly and, genuinely, have no idea what we'll spend it on.

We'll probably gift most of it to the kids who have a much harder life than we ever had.


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## Conan (24 Jun 2021)

IsleOfMan said:


> Shortly I will be spending the same amount on my Property Tax as I will spend on all my food for two of us for a year.
> 
> or
> 
> ...


Typical Property Tax is c€700. I hope your are spending more than that on food in a year


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## Sarenco (24 Jun 2021)

This recent UK survey on what constitutes a comfortable level of spending in retirement might be of some help.








						The secret to a happy retirement? £26,000 per year, Which? research reveals - Which? News
					

We help you to identify your retirement income targets




					www.which.co.uk
				



Personally, I think that most couples could live quite comfortably on an annual (net) income of around €50k.

So, a combined pension pot of around €1m, plus two full State (Contributory) pensions, should be sufficient for most folks, assuming they own a mortgage-free home.


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## PGF2016 (24 Jun 2021)

Sarenco said:


> Personally, I think that most couples could live quite comfortably on an annual (net) income of around €50k.
> 
> So, a combined pension pot of around €1m, plus two full State (Contributory) pensions, should be sufficient for most folks, assuming they own a mortgage-free home.


Of course a mortgage free couple could live on a grand a week. You could live like a king on that. Surely the majority will neither have nor need that.


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## presidenttttt (24 Jun 2021)

Interestingly the two figures mentioned so far 35k per year, and 50k per year, sit well with the 3 different levels suggested in that which survey also linked. It would seem on a basic level; it depends how keen people are for long-haul holidays and new cars in retirement. I suppose those running a larger home which is paid off have extra costs, but that will balance out with the ability to downsize at a certain point.

Any more studies like the Which article would be interesting to read.

The problem with doing my own budget (which i have done) is in my mid-30s it is hard to know if i am missing costs or including costs which shouldnt be there. You don't know what you don't know. Hence the figures and breakdown in the Which survey are very useful


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## michaelm (24 Jun 2021)

My retirement budget forecast suggests I(we) will need circa €26k/year (in today's money), excluding holidays & day trips, to live comfortably.


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## presidenttttt (24 Jun 2021)

For the sake of modelling a pension pot requirement (and therefore retirement date);

If I say we want 50K gross/annum pension in todays money from personal pension (ignore state pension) I need to assume 2% inflation per year, so if i retire in 20 years the actual figure I will need to work with is 72K/annum. So, if one uses the 4% rule, I need to establish how long before we achieve a pot of around £1.8M (which wont happen in 20years without using aggressive assumptions)?


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## Sarenco (24 Jun 2021)

presidenttttt said:


> Any more studies like the Which article would be interesting to read.


Here's a more academic UK study that I posted a few years ago that basically concludes that a retirement income of around €50k should be comfortable for most couples -



			https://www.lboro.ac.uk/media/wwwlboroacuk/external/content/mediacentre/pressreleases/2019/10/developing_rls_research_report.pdf
		




PGF2016 said:


> Of course a mortgage free couple could live on a grand a week. You could live like a king on that. Surely the majority will neither have nor need that.


I don't necessarily disagree.  

Maybe it would be better to say that an annual income of around €50k should allow most couples to have a luxurious (rather than a comfortable) retirement.


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## Truffade (24 Jun 2021)

I think you need to baseline this number with some assumptions first:

do I own my own home free of any mortgage? (you would hope YES)
does my own home need any substantial works, over and beyond everyday maintenance? (you would hope NO)
do my children, or other dependents, need (as opposed to want!) large cash sums from me after retirement? (you would hope NO but this may be unrealistic - weddings and helping to get a foot on the property ladder are the two big ones)
do I have large healthcare expenses? (we all hope NO or that insurance\public health will cover this)
etc
if 1, 2 and 3 are tilted the wrong way, then your 'comfortable income' threshold might be a hell of a lot higher than it need otherwise be...


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## garbanzo (24 Jun 2021)

Interesting thread. 
I came across this report a couple of years back. It may be of interest in scoping out a couple’s position. 
It does date from 2013; though inflation hasn’t exactly been crazy since so the ballpark should be right. 






						How much income do you need in retirement?
					






					www.nerinstitute.net


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## Truffade (24 Jun 2021)

Sarenco said:


> This recent UK survey on what constitutes a comfortable level of spending in retirement might be of some help.
> 
> 
> 
> ...



I'm not sure about the viability of that survey. It says the grocery spend is £4,100 - no matter whether you have a 'essential', 'comfortable' or luxurious' lifestyle.

Essential is Aldi. Luxurious is Fallon and Byrne.
And you sure as hell won't be paying the same amount at the tills!


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## Sarenco (24 Jun 2021)

garbanzo said:


> I came across this report a couple of years back


Thanks - I hadn't come across that report before.

It actually seems to line up pretty well with the UK studies -

"_An urban pensioner household needs to have an income of approximately €48,000 in total (€24,000 each) to afford this very high standard of living in retirement."_

Cumulative inflation (CPI) from May 2013 to May 2021 was only 2.9%.  So, €48k in 2013 equates to around €50k in 2021 terms.


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## Steven Barrett (24 Jun 2021)

presidenttttt said:


> Hi all,
> 
> There are numerous calculators for savings and pension pot size, but is there something to forecast retirement spend?
> 
> ...



Those two metrics are coming from the opposite direction. I would favour the Motley Fool one. Your lifestyle is based around what your current income is. Your spending on things like clothes, holidays etc are based on current income, as is the size of your house and therefore the cost of running that house. Working 5 days a week, 48 weeks a year is a great way of not spending money. But once you retire, you can go on holidays whenever you want and do things that you always put off. Helping children out financially is another thing that is very common these days. Using the 80% of pre retirement income gives you a ball park of what income you need to replicate. Also remember that we do not know how long we will live for or what our future health will be like. Out spending habits will change over our retired lifetime, with spending more while you are younger and healthier and medical/ care bills increasing as our health deteriorates. 

The 4% rule meanwhile tells you what you can spend each year. So if I have €1m in my pension, I can have a lifestyle based on €40,000 gross. But I have been earning €100,000 for years and my lifestyle is based on that level of income. I also want to travel the world over the next few years. But if I stick to the 4% rule, I can't do any of these things. If my ARF grows by 4% each year, I will still have €1m or close to it when I am too old to do anything. At that stage, it will either all be spent on nursing home fees or my kids will inherit it. Either way, someone else will benefit from the €1m that I saved and I know it wasn't me! 

It is ok to spend all of your savings/ pensions. That is what you accumulated all that money for in the first place. It wasn't so your children have a big inheritance. 


Steven
www.bluewaterfp.ie


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## Gordon Gekko (24 Jun 2021)

I looked at this recently enough. Work out what you spend now and take away mortgage, retirement provision itself, savings, and the costs associated with working.

I worked out that if we retired today, €60k net per year would do the trick.


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## presidenttttt (25 Jun 2021)

Updating this to add after running some numbers based on the various resources linked above. Mortgages go away but one ends up adding a bit more cost with health and maybe an extra holiday. 75-80% of working life costs is not a terrible ball park figure - I should never have doubted the Motley Fool article I mentioned in the OP.   I do wonder how many people survive, only a small fraction of the population understand the need to save for retirement. While the state pension and a very small basic pension might enable someone to get by - it is not going to replace a broken boiler or put new brakes on the car.


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## OMG_OMG (13 Aug 2021)

Retired about 2 years ago.
We arent exactly frugal and enjoy going away.
We decided on €5k per month as the magic number.  Though we find we arent even spending half that now.  Maybe the pandemic has a lot to do with that but I would be surprised if we ended up spending more than €3.5k per month when the pandemic is over.
The year we retired we cleared the mortgage.  
So the mortgage that was coming out every month stopped.
Savings stopped.
Savings into pension funds stopped.
There are a lot of expenses that go away at some point in your life.
We just made sure they were gone before we retired.


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## fayf (16 Aug 2021)

What income you need depends on so many factors, but here is another thought:

Couple A- aged 50
Earn 50k gross each pa, they are both in ER DC Schemes and pay the bare minimum EE contribution of 4%, they have combined nett income per month of about 6k.

Couple B- aged 50
They have identical Gross income to Couple A, they both contribute the maximum 30% with AVC’s, they have a combined nett income of about 4k.

Both couples have a mortgage, with 125k, balance, which will be paid off by aged 55.

Couple B: have been maxing pension contributions since their early 40’s, and have now got used to a much lower nett income (2k less per month)and have managed also, to increase their pension/avc contributions up to their age related maximum. They will increase AVC’s to 35 % and 40% as soon as they hit 55 & 60, this could easily be somewhat balanced out cashflow wise, by the mortgage dissapearing at aged 55, however they have decided to continue paying the monthly mortgage amount into a savings plan, as soon as the mortgage is paid off. Therefore, reducing disposable income further.

its fair to say, Couple B are much more likely, to need less income in retirement, than couple A, as they have managed their money a lot better, and by prioritising max pension contributions, they have also made themselves manage, to live on the income remaining. When one has less available income over many years,  one is going to be much better prepared, for the big income drop in retirement.

The point here is, one needs to discipline oneself, to manage ones outgoings, and while Couple B might sound like an extreme example, its the kind of thinking, that may be needed, to plan up to, and beyond retirement.


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