One of the biggest concerns for most people as they approach retirement is ‘Do I have enough to retire?’. There are a lot of variables (which we will outline shortly), but one of the most significant over the course of a three-decade retirement is the amount that we will spend. This week we share:

• The variables to consider when exploring the question, ‘Have we enough to retire?’
• The latest research on how our spending changes in retirement
• Some practical things to help you achieve positive long-term outcomes

Considerations in ‘Do We Have Enough To Retire?’

Let’s look at some of the main considerations when trying to figure out if you have enough to retire yet. Firstly, if you are new to Informed Decisions, you may not have seen an article we wrote almost 4 years ago, exploring the likelihood of €1m pension pot being enough for a couple to retire on. Check out is €1m enough to retire here.

Our Top 5 Retirement Considerations:

Income Sources

Many people will have 2 Income sources which they rely on to generate their future incomes; their own Pension and the State Pension. Others may have 3 or more; investment property, dividends, cash reserves, foreign state pensions, and other alternative incomes.

Understanding your sources, what % of your desired retirement income may come from each, and how reliable those sources are is a key step in figuring out if you have enough to retire.

Having several different sources can be an advantage in terms of diversification and sequencing for tax/income purposes but likewise, having less sources can be simple and just as effective in the right hands

2. Taxation

The annual exemption limit for a married/civil partnership couple is currently €36,000 for over 65. Depending on the amount of Gross Annual Income you will draw/receive from your sources, you may pay little or no tax.

If however, you are in receipt of €100k or more taxable income in retirement, you will likely pay c25% tax on all incomes. Of the €100k per year, you will ‘net’ c€75k, or €6,250 per month. Knowing what your tax rate and Net Income will be is a key aspect determining if you have enough to retire yet

3. Investment Strategy

When you retire, unless you wish to succumb to the invisible disease that is inflation, you will need to ensure your retirement funds are appropriately invested.

Drawing 4% or 5% every year from a pot that is also being ravaged by inflation to the tune of say 3% long term average, assuming a 1% fee, will mean the pot falls in real terms by c9% per year.

This is a very quick way to guarantee you run out of money way before you hope. Navigating investment strategy in retirement on significant portions of your assets can be daunting, but with the help of a professional planner/advisor, can help ensure you retire and enjoy it with confidence and longevity

4. War-Chest

From March 2009, when the equity markets reached their bottom at the end of the ‘Global Financial Crisis’, to the end of 2021, the S&P 500 (to use it as the proxy for global markets) delivered us an average annual compound return of 17.6%, or 15.1% inflation adjusted.

This was one of the greatest runs of all time, and we have all witnessed our investments and pension funds grow somewhat accordingly. It will not always be that easy, however, and we must have a war chest of cash reserves we can turn to.

Whether that war-chest is built into our investments or it is a separate chest entirely is a minor issue – but having one is a key consideration to ensuring your long-term success when you retire

5. Spending

Your spending is the last of the big five I note here. If you have finite retirement resources (which we all do!), the rate at which our spending changes in Retirement will have a significant bearing on whether you will have enough or not. Lets look at this in more detail.

Our Spending Habits When We Retire

It could be said that even those with the most modest of incomes or assets in retirement could afford to retire, provided the cost of living was sufficiently low.

If you were willing to move to a country or region which required a tiny expenditure to live, then most of us could afford to retire right now! But most of us don’t want to relocate to back of beyond, we want to remain where we are and we want to continue to enjoy the lifestyle we have. So, how does spending change over a 3-decade retirement?

Economic & Social Research Council in the UK recently published an interesting research paper, showing how our spending changes over the course of retirement. No two households are the same of course, but the level of detail that the ESRC went to paints a pretty comprehensive picture of how we spend in retirement. Here are the main take-aways from their research

1) On average, retirees’ total household spending per person remains relatively constant in real terms through retirement, increasing slightly at ages up to around age 80 and remaining flat or falling thereafter.

The specific example they offer on this is the following;

People aged 80 now, their spending at age 67 was on average £245 per person per week (c€30k per year), rising to £263 per person per week at age 75 (c€33k per year), an increase in spending of 7%, or just under 1% per year.

2) In conjunction with relatively constant spending, increasing incomes mean that more people save, and save at higher rates, as they age. For example, for those in their 80’s, almost six-in-ten of them saved at age 67 but this rose to
almost seven-in-ten by age 75. Over the same ages, the share of income saved by that group rose from 2% to 15%!

3) The things that we buy as we age are also interesting to observe. Spending on food inside the home and on motoring falling steadily.

Spending on holidays increasing up to age 80, and then understandably decreases, and spending on household services (which includes spending on home help and domestic cleaning) and household bills increasing in later years of retirement.

4) They observed differences in spending patterns across different types of households. Households with above-average incomes for their age have an increasing profile of spending in their 60s and 70s (for example, increasing by 7% between ages 67 and 75 for the 1939–43 birth cohort), with spending falling slightly for those in their 80s.

On the other hand, those with incomes below median have a slightly declining age profile of spending in their 60s (with one research cohort seeing a fall of 1% between ages 67 and 75) and spending remains flat at older ages.

5) They concluded that for people largely reliant on private pension income when they retire, a non-index-linked annuity would leave them exposed to inflation and they may not be able to maintain the level of spending they would like in retirement

6) Another conclusion was an interesting one for me in the work I do; If the spending patterns of current retirees are a good guide to how people in the future will want to spend, current savers might be best advised not to plan their retirement saving on the basis that their overall spending will fall sharply during retirement.

Furthermore, we find that later-born generations spend more at the start of retirement on categories such as leisure services and holidays, which tend to increase with age, and less on categories such as food inside the home, which tend to decrease with age.

This might mean that the spending of younger, and future generations of people who will retire could grow more strongly with age than is the case for current retirees

Summary Do I Have Enough To Retire

There are a lot of unknowns about your future in retirement, just as there were a lot of unknowns about your future prior to retirement! Remaining flexible, remaining open to changes and alterations is a key aspect of it.

Provided you have a firm plan, a good sense of what your incomes will be, and what your initial spending rate will be, and your assets are invested/arranged appropriately for your plan, you have done as much as you can do in preparation for the financial aspects of retirement.

Some Resources To Help You Determine If You Have Enough For Retirement:

Finally, here are a couple of handy tools and insights that might help you in your own planning.

• Calculate your tax: free online calculator here PWC Income Tax Calculator
• CCPC Budget and Spending Tools here
• Paddy’s interview with Fritz Gilbert on the ‘non-financial aspects of retirement that many people miss‘
• Our ‘When To Take My Pension‘ Article
• Our ‘Investing In Later Life‘ Article
• Economic & Social Research Institute Report On Spending In Retirement
• Our Services for those approaching retirement

Thanks,

Paddy.