What is your number? How much do you need to live on?

I swiped some of the title from this thread on Money Saving Expert, which is about how much you need to live on in retirement. Don’t start reading the thread from the beginning, because there is a lot of bad humour and flame wars to start off with. The link I’ve posted gets you past the worst of that, and all credit to the OP for persevering in the face of adversity!

It was an interesting tale, as it was the estimation from a whole bunch of real people independently trying to estimate how much a couple would need to live on in retirement. Clearly there will be a range of responses, but there was a surprising commonality eventually settling on around £27,500

The £27,500 can be broken down into:
Food £6,000
Car/Transport £5,000
Bills/Utilities £5,000
Holidays/Leisure £6,000
Clothing/Cash/Other £3,000
Repairs/replacements £2,500

This figure is predicated on a owner-occupier couple who have paid off their mortgage and have no dependents living with them. This figure is roughly corroborated by real retirees living off a similar amount; in practice real retirees seem to be able to shave a little bit off their estimates.

Although hard to express analytically, I get the feeling that those posters who have had children (ie those mentioning DD, DS in MSE-speak) are at the lower end of the Number targets, the child-free at the other end. No huge surprise there, I suppose 😉

Something that surprises me is that for a single person the costs are only a little bit less, there seem to be significant economies of scale for couples. I operated a household as a single person for over a decade early in my career, I wonder if perhaps this set me back more than the extra cost of having children, as when I compare myself with my colleagues they tend to live in slightly more fancy houses, although they are often still carrying a mortgage at the same age.

Poster Loughton Monkey made the good point that you can overcook focusing on how much you need to retire. His alternative, which is closer to the ERE approach is to drive your running costs to below your income, which is broadly how I do it. I then save the excess. There is more drama in my approach, particularly now where I am saving > 70%, but LM has been more consisent throughout his working life. Slow and steady wins the race, fortunately I also have the benefit of a company pension scheme to keep me in the slow and steady for all the years where I didn’t save explicitly. In favour of my younger and more profligate self, I did pay down the mortgage 😉

Loughton Monkey retired at 56, and he saved about 25% of his income. This roughly squares with ERE’s calculations when you add in the State pension later on  and he also seems to be saving more than he had originally anticipated. The trick to early retirement is living below your means. There isn’t any other way that doesn’t depend on scarce luck or criminality.

Unfortunately for me, there are significant differences in my lifestyle which make me wonder whether either I am wrong or I may end up short of money or having to work a little bit longer. These differences are:

Firstly, all these people are assuming that industrial society carries on in much the same way, so the past is a reasonable guide to the future. My view is darker, and therefore some of the assumptions about the world they live in are different for me. The MSE posters may be right, but I have to chart my path according to my own lights.

To be honest, I am amazed at the implicit assumption that everything carries on as normal. The best I can imagine for the UK economy is that somehow Peak Oil and other resource crunches are shown to be a chimera, the result of more industrialising economies drawing on resources that have a limited rate of production instead of a Limits to Growth type of brick wall. Even then I still see many years of grinding decline deleveraging the stupendous UK debt overhang in government, in households and in companies. Alternatively we can deal with the results of defaulting – currency crisis, skyrocketing inflation and horrendous unemployment. In my view the PIIGS have already bought their tickets for this one-way ride out of the Euro, and Britain is only separated from that scenario by having a currency it can devalue.

Yes, Monevator may have been right when he said Britain is booming again when viewed though the selective prism of the stock market. But it isn’t going to feel like that for the average punter on the street. It will take decades, if it ever happens, to pull out the survivors from the twisted wreckage of the British and Western economies, and all the time wealth will probably concentrate towards capital rather than labour.

That means more jobs haemorrhaging away, more unemployment and a domestic economy stuck in low gear for years. The shattered education system of Britain which was the result of our failure to man up to the hard task of telling some children that they are less bright than others won’t help our economy in that case, and will take many years to repair with money we may not have. Hopefully most of the problem is in the perverse value systems that seem to have have confused equality of outcome for equality of opportunity.

Another difference in my circumstances compared with the MSE folk is that I may start one project that may add more expense to my outgoings for a while, which again is different from the normal pattern of living.

So I am a little bit off target. My outgoings are significantly lower than most of the posters, and my savings are probably higher than many. My “number” is about 18k, which given that I have a darker view of the future, possibly slightly greater outgoings than the typical retired couple shows that either I am wrong, or that I have no accurate way of evaluating my attempts to get myself less exposed to the money economy by saving energy and producing food.

Loughton Monkey is probably the closest approximation to the trajectory I would like to take. He is older than me, and worked for 34 years. Although I have 31 years of NI contributions I don’t think I have worked for 31 years; I believe that when I went to university NI stamps were accrued though I wasn’t earning any significant amounts of money. If I retire in 2012 I will probably only have clocked up 30 years of working, so I am 10% short of his earning years.

Something else that I learned in reading that thread is that I am lucky so far in terms of physical health for my age, I have no significant issues there, apart from the minor slights and injuries one accumulates through life. I have visited the doctor considerably less than once a year and aim to keep it that way. Part of retiring early is to to try and preserve that.

I am entering a time of life when I lose some resilience physically, and looking at colleagues at work the stress of the workplace can cause some serious ill-health. I have been lucky there too, the way this has manifested for me is that it is easier to pull muscles for things that really shouldn’t be over-exertions and that the resultant aches take a long time to clear. It is observable that this is much more likely to happen when the working environment is being particularly bad, though since I am in an office job the exertion is always outside work. But it is a warning, and I only have to look around me to see that others have been less fortunate indeed. One guy, who was lived a healthy lifestyle and was into walking and hiking on his holidays with his wife was saving into AVCs like mad and hated the work environment. He looked a lot fitter than me, but he didn’t even get to see his 55th birthday…

So it’s important to remember that quality of life isn’t all about lifestyle and it isn’t all about the number. I would rather run out of money than run out of health.

10 thoughts on “What is your number? How much do you need to live on?”

  1. Interesting. £27,500 seems a lot with no accomodation costs, we have been living on a lot less since leaving work and we pay rent. £6k on food for two people, thats really high together with £5k for food and utilities.

    I agree about the state of the job market, I think unemployment will get worse.

    I too would rather run out of money than run out of health. You reach a point when you say ok enough is enough I hate my job so much that we will just have to make it work with what we have.


  2. For a variety of reasons, $27k-$30k provides a comfortable life for a couple in the USA, too. Nicely fits my usual rule of “take the figure in pounds and that’s what it costs in the US, don’t worry about converting it”.

    The details are certainly different. $5k for car/transport is huge to us, but then our health insurance is outrageous, which would be a fair substitute.

    Obviously, one can squeeze those costs considerably or inflate them if inclined. This is the difference between survival and comfort and luxury.


  3. Some great posts. In common with others I feel 27K with no housing cost is relatively high, perhaps quoted by those not participating in a ‘simple living’ ideal.

    One (not easy) way to reconcile the things that we hate about work is to change our own attitude to our work. This can be a very succesful strategy. Having the early retirement goal can certainly help.’Job hatred’ is pervasive in many work environments. Agreed that the current obsession with spending more time justifying, auditing and reporting on our work rather than carrying out our core tasks is frustrating.

    You have taken back control by setting your ‘simple living retirement’ goals. Great stuff.

    However as you have so rightly stated many reach retirement only to die shortly afterward or never reach retirement age due to illness. Therefore try to enjoy the journey to your goal now rather than solely concentrating on a potentially unreachable future.


  4. @ermine – While being linked to in your ever thought provoking discussions always makes me day (really!) I feel my position is/was a bit more involved than you allow here.

    For starters, when I wrote it well over a year ago the UK was just emerging from recession, and the punditry consensus was that it hadn’t at all. They were wrong.

    While as you may recall I’ve been surprised at the sudden ferocious retrenchment of the UK consumer, that’s as much because it should have happened sooner as because in reality things have massively changed. It could yet swing again, particularly if inflation has peaked and rates stay low.

    Finally, it’s true as you suggest that I ultimately see things through a stock market prism. But this has been much more than simply jumped up asset prices. UK manufacturing has been on an absolute tear for most of the past two years. Last months trade balance has surprised after the best export figures for decades.

    Sign me up in the UK consumer got in over his head camp, but the outcome there is still up for grabs, and the wider economic picture is even more nuanced than overgloom might suggest.


  5. @Dreamer, in many ways your observation “we will just have to make it work with what we have.” is probably the way to do it, particularly for those younger and with more energy 😉 Sometimes there’s no substitute for rolling up your sleeves and doing what you can with what you have to hand!

    @George, it seems a fair swap to me, my car costs more but I don’t have to fear healthcare 🙂 It’s interesting, I would have thought you might need more because US living standards are higher, which presumably costs more to service? When I was last over there I was amazed at the low cost of housing, I could have bought a pad by a lake in the Adirondacks without going into debt, it was much less than my row-house in Ipswich had cost. And I was tempted 😉 Lovely setting, too. Property taxes seem _way_ higher, however, so that may not have been such a good idea…

    @MC – you got it in “the current obsession with spending more time justifying, auditing and reporting on our work rather than carrying out our core tasks is frustrating” – how the heck did we get that way and who was daft enough to sign up to that? You don’t get what you don’t measure works well on tolerances for screw threads, but it seems to be a good way to run job satisfaction and employee goodwill out of town.

    @Monevator – hey, I am looking at the output of your prism through my own distorting vision 😉 I hope I didn’t give the indication I was offering a precis – I am looking through a glass darkly. I absolutely love Britain is booming again. I thought you were nuts, but my head had to acknowledge that the results of my ISA at the time corroborated the article, and now hindsight shows you were right. It’s why I am going to hit my ISA as hard as I can this year again, even though my gut says I expect to see some sort of black swan event turn the whole lot into expensive bogroll. You can’t always go with your gut, though it pays to have some exposure to that too 😉

    One thing, however, I think I can say for sure. Britain may be booming again from a capital point of view, but for the average man in the street the experience isn’t going to back that up. Your consumers have just got the message, and they’re not feeling chipper about it!


  6. My number is about £22, but I agree completely that the number itself is not of great significance and that it should not reslly need to change much if you have structured your finances properly.

    Over the long term, I reckon a savings rate of 15-30%, depending on pension arrangements, probably is sufficient to enable early (mid fifties, say) retirement in the UK currently.

    Although, I am less pessimistic (but not greatly optimistic, either) than you, I think it is a perfectly valid strategy to pursue the non-money operations. The trick, I suppose, will be to make sure that you don’t end up expending too much capital going down that route. Hedge your pessimism! Either way, enjoy what you do, since health and a sense of personal achievement are just as important as finances.


  7. Interesting, as I have just retired @ 57.

    My estimate for a couple’s living cost is much lower – and includes getting 2 kids through uni. Probably to do with the level of frugality that we have become used to.

    Using a rule of thumb of capital needed being 20 times the expected income, £27.5k a year would require total fund of £550k – quite a substantial amount for most people.

    So many of us will need to keep the ‘frugal’ brake fully on!


  8. @SG, Moneyman: I’m heartened that real world experience seems to knock a bit off that 27k figure, as it would be hard for me to reach. A couple I know seem to manage on 18k and take a couple of foreign holidays a year, usually coach trips and I can’t really see how they do that at all but they manage!

    @SG I’m thinking along the same lines re hedging – there’s at the moment a roughly equal split in financial and non-financial investments but that will skew to the financial over the next year. I want some of that Euro rumble to happen to get value back into share prices.


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