How Much Money Do I Need When I Retire?

As part of my planning for retirement and perhaps forced retirement (redundancy) I’ve been trying to figure out how much money Debbie and I need to live for the next 20-30 years.  When we are in our eighties I think our costs will reduce a little because we will probably downsize.  I’m assuming that the kids will have left home, be working and paying their own contribution or they will be earning their own pocket money and some kind of child benefit (depending on their age) will fund the rest.  I think this is a reasonable assumption as they are all working now and earning enough to pay their own way. As I was doing this I must admit that I was a bit surprised at just how high our expenses are, given how simply I think we live, but the numbers don’t lie.  Working through these calculations I’ve decided to structure our expenses into four layers and I’ve tried not to be too optimistic:

1. First layer being the mandatory costs of housing, maintenance, insurance, heat, light, water, taxes, furniture, push bikes, white goods, basic phones.
2. Second layer being the cost of clothes, basic food needs for nutrition, TV and TV licence, internet, home PC
3. Third layer being the simple pleasures in life, more expensive foods, eating out, cinema, theatre, smartphones, health club
4. Fourth layer being the luxuries, a few weeks of holiday, a car, more travel for hiking and cycling, more eating out, gadgets, garden investments, better house maintenance, furnishings and decoration

In my calculations I’m assuming that neither of us are working, which is unlikely as Debbie has good skills, enthusiasm and is just embarking on a teaching diploma, but the extra costs associated with her working will be easily self funding.

So how does these costs stack up:

1. £11,000 basic mandatory housing costs
2. £9,000 basic living costs  – Total £19,000
3. £3,000 simple pleasures – Total £22,000
4. £10,000 simple luxuries – Total £32,000

This is looking pretty good. We have a fair amount of savings in cash, 3 final salary pensions and 2 money purchase pensions and provided I continue to keep working for the next 18 months I will have a fairly stable income of about £35K indefinitely, more if Debbie is working.   I’m very thankful for those Final Salary pensions!!

I’m planning to keep working until I’m made redundant or I feel that my health demands that I give it up, the longer I work the better this picture becomes. These calculations assume that I will work for another 18 months until I am at least 52.  The years between now and 55 are the most perilous financially and if I don’t manage to keep working for the next 18 months I would probably need some government benefits to help me with the kids expenses and they would be eligible for the non-means tested ones.

Of course this all assumes that the stock market doesn’t crash, annuity rates keep at their current rate, interests rise a little, inflation keeps low, so there is still quite a lot of risk that I’d like to insulate myself from.  I especially don’t like my future being totally dependant on the financial services industry, I’d rather have a small-holding but then that has it’s own risks!

The photo is of our lovely dunes, living by the sea in a small town where everything we need is within walking distance has a big impact on keeping living costs low.  All of those tempting seaside cafe’s don’t help though!