How Much Money Do I Need When I Retire?

2014-03-26 11.48.46As 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!

Steve Richards

I'm retired from work as a business and IT strategist. now I'm travelling, hiking, cycling, swimming, reading, gardening, learning, writing this blog and generally enjoying good times with friends and family

5 Responses

  1. July 13, 2014

    […] What will our cost of living be? This is another tricky topic, given that it’s hard to unpick how much it costs for Debbie and I to live from the costs of the 4 kids, all of whom should be working by then, except maybe Anna (in fact they are all working now).  Also we have expenses now, like two cars, that we probably wouldn’t need.  My current assumption is that I will need the average wage to live reasonably well, that’s about £25K,  Debbie’s income will supplement this and we have lower costs than the average as by then we won’t have a mortgage or costs relating to our children. Update: I now think I need a minimum of £22K, ideally £32K […]

  2. July 21, 2014

    […] Foremost in my mind while planning for retirement is how to balance my costs and income and key to making this work is my assumption that my cost of living won’t rise that much in retirement.  There are many reasons for this optimistic view, some of them are just general economic trends, some my own lifestyle choices and the rest are down to decisions that I’m planning to take about my investments.  I definitely concluded that my cost of living will stay fairly stable or decline and that I won’t be the victim of inflationary lifestyle costs (I might fall victim to inflation eroding my savings, but that’s not the topic of this post).  When I’m developing a strategy at work I try to make sure that it’s resilient to uncertainty and so being able to vary my cost of living to match my income is an approach that I highly recommend and I described that in a separate post. […]

  3. July 30, 2014

    […] How Much Money Do I Need When I Retire?  (Estimating my cost of living and income) […]

  4. September 21, 2014

    […] Debbie and I need enough income to cover our expenses for a long life!  This is my current […]

  5. September 21, 2014

    […] My cost of living, inflation might be an issue and healthcare costs might increase so we don’t want our fixed cost of living to be too close to our income, in other words we need to have variable costs we can reduce if we need to […]

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