how much to save for ER?

[jade]

Hi all,

We are 41 & 45 and live on approx £1k a month usually. We're mortgage free and currently have about 27k in savings. We have a savings rate of at least 50%, usually quite a bit higher (we're both freelance so it varies) earning 20 k a year but usually more.

My question is around what should we be aiming at in terms of FIRE. I think we'll easily be able to live off the UK state pension once we both get to that age, so in essence I am thinking could it work to cover the expenses for the "bridging" between RE and state pension. Does anyone else think in this way and would it decrease the 'stache you need if relying mainly on state pension for the 67 years +? I'm sure we'd have more than that the way we're going anyway but wanted to ask peoples opinions. Or is it too precarious to rely on state pension (who knows what could change, I guess?) I've being thinking of aiming at a bare bones 250-300k stache based on our current living expenses (i.e. 25 x yearly spend) but if it could be lower that would help.

[pbkmaine]

Curious as to how you live on so little, but have saved such a small amount. Do you have low pay?

[jade]

Hi, I was just about to amend the pay, that was after tax so more like 25 k. We've started savings just over a year ago as were paying off the mortgage till then (overpaying by about 12 k a year over 8 years) so happy with our savings and we can fully concentrate on increasing them now we have zero mortgage. We have a good rate of pay (£30 per hour and 17) but working in a university term time only (30 wks a year) in my case and as an agency nurse in my husbands case means we don't work all year around (which we love and wouldn't change). We now find it easy to live on 1k, I think also having a lot of spare time means we have space and energy to save money and live cheaply. Also, living near the coast helps! We are at the beach most of the summer which is free and great and decreases the need for holidays! :)

[dreams_and_discoveries]

Well done on paying off the mortgage.

It's a plan - and certainly if you both get full pensions you'd be looking at £17k tax free, much more than your expenses.

Given the nature of your work, are your NI contributions up to date? 

And if something were to happen, either divorce or death, could each of you live on just your own pension?

[jade]

Thanks dreams_and_discoveries  :-)

NI is fine for me and hubby is keeping an eye on his. Good point about other scenarios, something to think about.
As you said we should be fine on 17k tax free.

So if we we're just saving for the gap, 170-210 k could with (based on our she's) I think.

[SpreadsheetMan]

So what is the max you can save each year? And when do you want to ER?

One way to get some ideas would be to play around with Firecalc to see how much stache you need to last until SP age from some ER dates and then see if you can save that much by then. Your £250k doesn't look far off to me, you'd get about 16 years with £12k draw off that (corrected for inflation) and if you ERd 10yrs before SP you'd have some stache left to supplement the SP if it had been cut in real terms due to the UK being skint.

The question of relying entirely on the SP is a big one - I'd not be comfortable having absolutely no other options (like property down-size or other savings/income), but there is a big difference in time taken between building a stache that has to last 10 years as a bridge to SP and one that has to last 30 years plus.

I think in your shoes I'd get my head down and save hard for at least 10 years in a mix of SIPPs (or similar for the tax efficiency) and (s&s) ISAs and then see where you have got to, there's no down side to that - you'll have a big lump saved and the economic environment will be clearer the closer you get to SP age.

[jade]

Hi SpreadsheetMan,

We should be able to save at least 10k regardless but I'm hoping 15+ . I imagine we might carry on working but I would like to have the choice in about ten years. My plan is to do exactly what you says, ten years of saving away and I think we will be in a good position whatever we decide and as you said, we'll know more about the pension landscape at that time, then. We're contributing to pensions with employer match and now adding all new savings into a S &S USA. As you said, it's a big difference saving for the gap rather than 30 years plus, exactly what I was wondering about.

Really appreciate your thoughts.

[Retire-Canada]

So assuming you work for 10 more years and then retire. Using the younger of the two of you at 41 makes that 51yrs old and if you get your pension at 67 you'll need to cover the 15yrs gap.

£12K/yr COL x 15yrs = £180K So that would be the max you need to save if you were able to just have the saved funds keep pace with inflation.

Using the defaults setting for cFIREsim at £180K [75/25] at £12K/yr spend I get 82% success. If I bump up the starting amount to £200K I get 92% success.

At £180K the median ending portfolio value is £121K. So most likely you'd end up with some fun tokens to supplement your state pension.

[jade]

Thanks retire-canada, that's really helpful. I think if we keep doing what we're doing for ten years we'll be in a good position and as you said, likely have enough left over for later and if we do carry on doing some work it will add to the pot. Thanks again, appreciate the calculations. :)

[dreams_and_discoveries]

Thanks retire-canada, that's really helpful. I think if we keep doing what we're doing for ten years we'll be in a good position and as you said, likely have enough left over for later and if we do carry on doing some work it will add to the pot. Thanks again, appreciate the calculations. :)

Yep, you seem to have a great balance in life and a good early retirement plan. On the pensions, in the timelines we're talking (20-25 years), the only thing I'd really see happening is the state pension age increasing a bit, and the pension value perhaps falling a bit in real terms. If you can cope with them, I don't see any concerns with your plans.

[arebelspy]

This is just a math problem.

1) Go to www.cFIREsim.com
2) Input your expected ER expenses, and stache, and AA.  See what the percent success rate would have been, historically.
3) If not high enough, up the stache amount, and re-run. 
4) Repeat step 3 until the percent success rate satisfies you.

(There is also an "investigate" option you can run at step 2 to find how much you need for a given success percentage, that lets you skip steps 3 & 4.)

This is how much to save for ER.

Obviously adjust for any other data you have (common ones include downsizing or moving to lower COL area, pension kicking in, etc. etc.), but it can accommodate all those things when running the numbers to figure out the stache amount.

[jade]

Thanks retire-canada, that's really helpful. I think if we keep doing what we're doing for ten years we'll be in a good position and as you said, likely have enough left over for later and if we do carry on doing some work it will add to the pot. Thanks again, appreciate the calculations. :)

Yep, you seem to have a great balance in life and a good early retirement plan. On the pensions, in the timelines we're talking (20-25 years), the only thing I'd really see happening is the state pension age increasing a bit, and the pension value perhaps falling a bit in real terms. If you can cope with them, I don't see any concerns with your plans.

Thank you dreams_and_discoveries! Really appreciate your positive feedback and getting where we're coming from :) We don't have the biggest salaries (I have probably underestimated a bit to be conservative) but feel grateful for good hourly rates and meaningful work alongside the opportunity to work part time and also save a good chunk of what we're earning. I think you're right, if we can factor in possible drop in pensions and increase in pension age, I think we'll be fine and I am off to use www.cFIREsim.com too now. Thanks again!

[jade]

This is just a math problem.

1) Go to www.cFIREsim.com
2) Input your expected ER expenses, and stache, and AA.  See what the percent success rate would have been, historically.
3) If not high enough, up the stache amount, and re-run. 
4) Repeat step 3 until the percent success rate satisfies you.

(There is also an "investigate" option you can run at step 2 to find how much you need for a given success percentage, that lets you skip steps 3 & 4.)

This is how much to save for ER.

Obviously adjust for any other data you have (common ones include downsizing or moving to lower COL area, pension kicking in, etc. etc.), but it can accommodate all those things when running the numbers to figure out the stache amount.

Thanks arebelspy! Much appreciated. Off to tinker with  www.cFIREsim.com!!

[jade]

hi arabelaspy again,

Is there a way that you know of to input in GBP on www.cFIREsim.com?

Thanks

[matchewed]

You don't have to necessarily. You can use USD and just make sure the investments are similar/returns are similar. While currency fluctuations are a thing they can't be anticipated for this calculation. What you do is just 1 to 1 ratio and put your current scenario in USD and it will give you the number you seek in GBP.

[jade]

thanks matchewed :)

[Playing with Fire UK]

Yes, I just use £1 instead of $1; all the maths works out the same.

[arebelspy]

Yes, I just use £1 instead of $1; all the maths works out the same.

This is my preferred method.  Pretend the currency symbol is the other one.

Naturally we're already making pretty big assumptions comparing to historical returns of a different country, but you also can't measure the future. Let alone precisely.

Use it to get an idea of what would have worked in the past, to see what could make you comfortable to handle the future (especially if you can be flexible in retirement and/or have safety margins).

[jade]

thanks all :)