Thursday, 26 January 2012

Can you live off a state pension?

Hello Dear Reader,

Scroffles wondered how much I would budget for running a house and if someone could live on a state pension. I've used my current household running costs, but adapted them as if I were retired now. I'm hoping to downsize, have a smaller or no mortgage and then save at the rate that I'm paying the mortgage for my retirement. If I had the sense that I have now, I would have saved for my retirement from the day I started work.

So, for Scroffles - here's some idea of what I would need if I were retired. I haven't factored any money as disposable, haven't factored any holidays or hobbies as I assume I'll carry on amusing myself and having the little day out here and there.

Food and sundry supermarket costs- £2600 = £50 a week
Gas and Electric - £1344
Water - £480
Home Insurance - £150
Car Insurance - £250
Boiler Ins - £65
Council Tax - £1800!!! We wouldn't be able to get council tax benefit as we'd have savings!
TV Licence - £200? I think!
Car maintenance, new tyres, servicing, mot check, parts - £500 (a small budget - into the savings pot)
Diesel for car - a tank full a month? £780
Clothes and shoes £250 (for two)
Household maintenance (£500 - also into the saving pot)
Broadband £180
Home phone - £300
Pay as you go - £50 - for two.
Glasses every two years - we replace ours on alternate years £100 per year

£9549 per year - with a pension of around £10,000 for two people!

Paying what we pay now, if we were retired now? Er! No! I am hoping to have a bit more than a frugal life when I'm retired! I'm sure now you've looked at this with me, you can see why I save everything I can for the future. We can have the money now or later, we can't have both. Even if you can only save a few pounds a month, it's important to put money away for the future.

Over to you. Are you careful? Do you save?

Love Froogs

37 comments:

  1. Yes, it is important to save for the future but unless invest that money 50% on the stock market and 50% in bonds and cash you on a fast track to nowhere as inflation will destroy it. And do that until you are 90 years old !

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  2. I have a colleague who has just blown her partners lump sum pension - on ridiculous frippery! AND they still have a mortgage that they could have paid off with it - some people have their heads in the sand! Incidently she looked horrified at me today because the jumper I was wearing that she thought was brand new (because it looks it) was actually 18 years old. She proclaimed that she didnt have ANYTHING in her wardrobe that old! We are trying to live on just hubbys wage at the moment so that we can save for old age. x

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  3. when I finally know what my public sector pension will be (still up in the air) I will be able to think about extra contributions, I don't think I have the nerve to play the stock market and I don't even know what a bond is (I'll now investigate)

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  4. I'm very lucky - I have half of my husband's Civil Service pension (which I'd lose if I did anything foolish like re-marrying or even living with anyone!)It's not a fortune but my state pension is £110 per week (I was at home bringing up the children for years!) and no, as frugal as I am, I couldn't live off that. My council tax alone is £150 per month!

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  5. We do live on a pension, if it were not for our private pensions we would be in a very different state. We would not be able to afford to run the car which would mean that we would not be able to visit family in England. We live in a complex just off the High Street, everything is within walking distance except our veg garden. £30 of diesel lasts us a month. The only time I use the car is when I go shopping, I can no longer carry heavy bags and a shopping trolly does not take a weeks groceries. We also use it to travel to the garden where we grow vegetables, its off the beaten track, what we grow more than pays the cost of fuel to get there. In the summer we take a picnic and flasks and spend the day there.

    We were brought up in the era that were told that we would be taken care of 'from the cradle to the grave' .......so much of what was promised then would be 'free; we now have to pay for.

    I do my best to be frugal, but its not easy with price rises outstripping the pension increases, there are two things I will not compromise on, food and heating. We are all electric and heating the place during the winter is expensive. We only heat the rooms we use. Out bedrooms are heated for 1 hour morning and night. No heat in the bathroom or hall. A storage heater
    in the kitchen and an oil filled radiator in the sitting room. I do miss the wood burner we had in the cottage.

    I am not complaining, we have a reasonable lifestyle, but I must admit I bless the day we both joined the pension schemes where we worked.

    As a married woman I only get a very small pension, I was never told that I had the right to pay the insurance stamp whilst I was off work bringing up my children. When I returned to work I was told it was not worth me paying a full stamp as there were too many years to make up.

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  6. TV is £140 a year, I know this because I've just given up the tv, saves me that £140 plus the electricity.

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  7. Use your bus pass to the max. This will cut down on petrol costs. It is also a good way to meet people from your area. Bus journeys can be fun. They drop you in the centre of town. It also saves car parking fees. I use mine every week but my big shop needs the Landrover for a 15 mile journey. I need a Landrover as I live in the sticks with floods and snow to put up with.

    Dianne - Hereford

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  8. Was comparing my figures to yours and have you forgotten car road tax? Also where do you get household insurance from? Mine is 250 for buildings and contents. Another area I find difficult to control is petrol as my daughter lives 35 miles away and I like to see her and my granddaughter at least once a week.
    It's really interesting to see someone else's figures.

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  9. Cost of living is much higher here. I found that when I retired my income was less than one quarter of my working income and I still manage to live a similar lifestyle. We moved to a home that needs less maintainance, but it costs us plenty in body corporate fees. My superannuation fund lost a huge amount of my money in the global financial crisis and that was very hard to accept. Not all funds are reliable and neither are all banks. When I retired I actually needed new friends and new interests. That was a surprise. Retired life is not like you picture it.

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  10. I often wonder if it's really worth saving so much for the future.

    I used to think it was, and for 35 years worked, saved, invested and planned for retirement.

    My ex-wife took a huge chunk of it. the gobal pension melt-down took a lot more, the system took the house I bought for my mother to pay her care home fees, which left me with very little.
    So half a lifetimes work was just taken by circumstances beyond my control.

    Then, if you own your house and need care, the system takes it. If you don't have anything and never planned for retirement, the system keeps you.

    Not much incentive there?

    Or am I missing something?

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  11. it's flipping worrying if you ask me, as how do we know that there will be money in the State Pension pot when we do retire?

    Gill in Canada

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  12. I have no fear of living on a pension.Next year our income will fall to around £13,000, so I'm practising for it now and trying to save any extra I can, whilst trying to renovate our fixer-upper and pay a mortgage. I've just reduced the amount I allow for all our shopping needs for 3 of us to £100 per month and we're avoiding using the car unless it's absolutely necessary. Our'fun money' is £22 per month for hubby to play 5 a side football once a week, and a couple of quid for me to spend at the carboot sale each week - I've just started trying to resell stuff on ebay and as I can pick things up for pennies should make a decent profit. At least when hubby retires the mortgage will have been paid off and he won't be playing football - although he's going to be 50 in March and he can still race round a football pitch!

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  13. I think you have got your costings about right. I am retired and THANKFULLY have my pension from teaching. I share a house with my unmarried son--a great idea as we split everything right down the middle. Your heating is more expensive than ours which is £1,020 a year or so. We have it on in winter ; we keep reasonably warm but put it off ASAP. We live on a budget of £30 a week for food and manage well on that and we buy any extras we wish personally with our own money. I buy my cat's food and pay for my car and petrol but because my son gets the use of the car often he is generous with petrol money contributions.
    I would urge everyone to think very hard about retirement money--being on the breadline in old age is very hard. I consider myself extremely fortunate to have a decent pension from my job but I have to say it WAS earned in a highly stressful and tough job. Age brings its own problems without having to worry about paying bills and whether you can afford to be warm or eat.

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  14. Yes, I save for the future - I spreadsheet everything so that I can see the impact on my projections of any unbudgetted expenditure, that concentrates the mind when considering purchasing something that isn't absolutely necessary and isn't in the budget. I also keep a note book, in the front I note all grocery expenditure and staple all receipts in (I'm trying to cut down our weekly grocery spend from between £100-£150 to £80 and so far, since the beginning of January, I've brought it in at £70pw) and in the back of the notebook I keep a note of all my personal expenditure, again, stapling receipts into the book. Other household expenses such as mortgage, broadband, insurance, car tax, fuel, insurances etc are budgetted for elsewhere and tend to be set amounts so I don't feel the need to micro manage them in the same way that I do with grocery and personal expenditure.

    I have a plan to pay off our debts (2 credit card balances, both on 0% deals which I ran up supplementing our income whilst I was on long term sick leave) and a small mortgage. I plan to pay these off by next April by pulling our belts in until we can barely breathe. After April, we'll still keep our belts just as tight and put away the money that would have gone on the mortgage and debts into savings. I don't know whether I'll have a job after December 2013 and I'm not planning to have to service a mortgage the way I had to when I was reliant on SSP for several months 2 years ago. If I do have a job post December 2013 I am NOT going to continue to work 5 days a week - it's a simple equation - how uncomfortable does going without "stuff"/living in a small house make me balanced against how uncomfortable does working 5 days a week make me - no contest, I'll take the going without and living in a small house hands down, anyday even though I work for a lovely organisation with great colleagues, it's still way too much time spent away from my home and loved ones. Even when not working full time, I'll still be able to save a little though. I guess it depends what you want from life and as I'm not the sort of person who'll get any peace of mind by having what I want now without making preparations for the future, I'm prepared to go without today in order to have a chance of a better life in the future.

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  15. I live in the States and we are retired and have my DH's pension and a small one for me. We also have Social Security. Out of that monthly income I save on an average almost 27%. Some months I'm able to save more, some months a little less (emergencies, unexpected costs, etc.). We don't even eat out once a month any more. I can't remember the last time I've gone to the theater. But you know what...I don't miss it and I'm just as happy to put that money away.

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  16. Holy hell, that pension is small. In Oz we have compulsory superannuation and because I have worked for the Govt since 97 I am hoping mine will be suffice x

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  17. Froogs can you do a post about frugal entertaining/having guests if you can?

    You really are an inspiration- the cost of living in Australia is so high, I always wonder what you'd make of our huge grocery prices etc, and my electricty bill that is $50 a week (a week!!) and my daycare fee of $88 a day...

    I think I have told you before that the groceries in Waitrose in Marylebone in central London were about 1/2 the cost of my groceries in Australia. Annoying.

    Thanks for being an Inspiration.

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  18. You might be interested to know that we have invested in solar panels which generate 2.7Kw of electricity. They have been in situ for a year and the money we have received for our electricity generation has paid for all our gas electricity and water. The only alterations we have made is that we now run electrical things like washing machines and dishwashers during daylight hours.

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  19. we try to save but just when we think we ar getting ahead something crops up and its gone again!last month it was the boiler£101..there goes our savings..
    i guess we are stil lucky to be where we are with a roof over our heads and food in the fridge!

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  20. we try to save but just when we think we ar getting ahead something crops up and its gone again!last month it was the boiler£101..there goes our savings..
    i guess we are stil lucky to be where we are with a roof over our heads and food in the fridge!

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  21. Excellent topic froogs - and one we should all give serious thought to.
    I live on a pension - just, even though I am frugal to the extreme, and do a little ebaying and sell my craftwork, it's still difficult.
    I think it is a mistake to become complacant and think you can manage, because on paper - you always can - but life has a way of throwing up unexpected stuff as purplestormwitch says, just when you don't expect it, and all plans are 'out of the window'
    A savings 'cushion' is vital (if you can of course) not everyone is in a position to save, invest or put a little by though.
    That's why I love these 'frugal' blogs, I can always learn something.
    It's very interesting also to read all the replies here about how folks manage, I think we should all give ourselves a pat on the back !!

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  22. I have an incomplete State Pension, but fortunately I have to small private pensions which means I do have to pay some tax. As I have always been frugal in my life when earning good salary, I don't worry about falling back on my savings. My husband is 8 years younger than me, has poor health and is struggling to keep his business going. He gives me DD each month but I am afraid most of it does seem to drift back into the business when he reaches its overdraft limit!

    I still save as much as I can, by way of fairly short term bonds & ISAs because you don't want to be leaving money too long term when in your mid to late 60s.

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  23. My dad now has a state pension and has more (enough) money then hes had in his life, having been unemployed, self-employed or low-income employed and a single parent. I suppose its what your use to, if you think yes I can afford food! or oh I can only afford food

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  24. DH is also a public employee so we have no idea yet about his pension - or even his job! I do have a private pension but the last lot screwed those up. As I commented on Scarlets blog, we seem to be the generation that is getting screwed coming and going!

    At least if you have savings in pension plans they don't count as "savings" so they can't be used against you. Having any kind of accessible savings is frowned upon whereas those who pee their money against the wall get help when it runs out (did I say we get screwed coming and going?).

    We are looking at various downsizing options including retirement flats and even shared housing in retirement - forming a small housing co-op with like minded folk for some security and shared costs.

    What we are also looking at is where to live. I don't want to be anywhere remote - well, I do but I realise there are various downsides to that especially in old age.

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  25. This is a brilliant post - so few people stop to think, when they are working, about how they will maintain themselves when they retire.

    The harsh fact is that unless a person is able to exercise discipline during their working years and save and invest so that they have more than the state pension, then they face a very hard time in old age.

    And people are not usually as well able to cope with hardship in their old age as they are in youth or even middle age.

    Unfortunately, many folk seem to have their head in the sand about this. Because I won't have an occupational pension (I work for a not-for-profit that does not stretch to that) I have made a real effort to boost my private pension pot and savings. It's a matter of priorities, and I know I can't have everything.

    Even if the government keeps its promise (anyone taking any bets on that?)I won't get a state pension until I am at least 66 and I seriously doubt I could keep on in my current stressful job for another 10 years or so to that age. I know I need to look out for myself and make provision for an earlier retirement.

    So, well done Froogs to cover this important issue.

    Jane

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  26. @ purplestormwitch, it is frustrating when you get a little ahead and then some unexpected emergency or essential expenditure like boiler repair puts you back to where you were - it's been pretty much the same with us. I don't know whether it helps, but what I ask myself when this happens is "ok, so our savings are gone/depleted, but where would we be if we hadn't have had those savings?" Being pulled back to a nil balance is better than being in the debt you would have been in if you hadn't saved and you'd still have had to fund the unexpected expenditure but you'd have had to do it with debt. So give yourself a pat on the back, as Wean said.

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  27. I think if you are on your own as a pensioner it would be nigh on impossible to survive let alone live. What savings we do have get moved every year without fail into as high an interest account (with access) as possible. Your petrol might be less as you probably wouldn't use the car all the time. We now only use it once a week (my husband has a pensioners bus pass but I am quite a way from that 'privilege' yet! To keep worry free about your house if you need to go into a home, you sign it over to your child/children with the legal proviso you can live there for as long as possible. I believe you have to live for 7 years after making such a transfer otherwise the tax man gets you (don't know for sure). It is a huge relief when the mortgage is paid off, the sooner you can do this do it. All the rest of the fiddle faddle, you can deal with when it happens

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  28. annei makes a very good point above aswell.But some people are on such low incomes that they cannot spare anything for saving, forever robbing peter to pay paul.

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  29. I know how much is in my superannuation but it won't be enough. Right now I live on the pension as I get that to care for my father. It is supposed one quarter of the average Australian wage. We manage and it is extraordinarily tight. But I cannot put dad into a nursing home. He has many problems but for all of that he is still a loving and caring man and while I can care for him I will. The stupid thing is I know how much it would cost to institutionalise him and believe me my pension is pitiful "pay" and saves the government a small fortune.

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  30. Yes Suze, I don't think governments recognise or appreciate the amount of time, effort and heartbreak that goes into being a full-time carer.

    As you say. we save the government a fortune they would have to find to keep our less fortunate people if carers stopped caring.

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  31. Here in the USA, I have a retirement fund that I contributed to when younger. My husband also had a nice fund that was COMPLETELY wiped out with the WorldCom (MCI) debacle. I don't think that Social Security or Medicare will be available to me if I retire at 65 or 70 (10-15 years), so, Lord willing, I will work until I die so that I can have medical coverage. I'm also vaguely concerned that the government may decide they can "invest" my retirement savings better than I can, and will socialize it (i.e. take it). I don't put any more into that account for that reason. Sigh.

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  32. Hi
    Froogs I am a full time carer so our income is very small are you aware that you can apply to your gas/electric company for a warm home payment this is over and beyond the heating allowance the government pay pensioners directly this allowance up to £150.00 I believe is paid directly to the gas/electric company. you have to apply each year and dependant on your situation you may need to provide evidence of where you income is sourced for us it is my partners guaranteed pension credits that assist us as a rule.
    I myself have tried to cut back on fuel consumption and use the hob as much as possible to cook our meals freezing anything left over as we all do.
    Like you froogs I make my own bedding and draught excluder’s also putting foil behind the radiator to reflect back the heat. If my partner wasn’t in poor heath I would have the radiators off.
    Diane like you I’m mortified that your work colleague has blown all her money. Also I am the proud owner of clothes older than my 23 yr old nephew lol.I have never (not through want of trying) been able to afford to contribute much to a state pension let alone a private one and wonder what my maturing years will be like.
    as an aunt of mine said " use it up wear it out and then find something to do with the leftovers lol.
    I download an awful lot of free organisers and printables calenders and note paper. I make as many as my gifts as possible and never go out for entertainment . One think I do allow myself is going to a craft group once a week full of like minded people and amongst us we barter for bits we need and what we would consider luxury.
    I have just donated my fish pond to a friend as I want to use my minuscule garden for some esplanade fruit trees as the price has sky rocketed!.
    Love the blogs and there are always interesting responses.
    Thanks all for your tips and advice
    Rachel Plymouth

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  33. Hi Rachel and others, My big concern is that the benefits that people have now, my mil gets pension credits for example can not be relied upon to be there when i am in my 70s. When the gov. sorts out what my pension will be (then the beggars will change it at some time before I get it!!) I will pay more into it!

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  34. Great post!
    I can't afford to contribute to my pension at the moment (I'm 27) I know that I should but if I contribute to my work pension (They take a %age but I get no say in how much!) that is the difference between eating beans on toast every day and being able to get my five a day (I'm not kidding).
    So at the moment I'm saving a little every month into an isa which I'm ring-fencing for "long-term savings"; I'm trying to pay off my student loan, and then my mortgage (I know I'm very fortunate to be a single 20-seomthing and own a home, I have generous family members and saved like a demon to get here) so, honestly, pensions are pretty far off my radar. I'm trying to be sensible and save *something* and I'll revisit it in a year or two once my student loan is clear (hopefully) because really, by the time I retire, pensions will be a thing of the past. Remember when peple had this thing called "retirement"??
    On the other hand I am always reminded that you can cut to the bone in order to save well for retirement and then get hit by a bus at age 35. So there's got to be a balance between preparing for the future but living in the present. You never know what's going to happen in 25+ years time.
    It's good to think about this stuff though. Thanks for yet another great post!

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  35. I am very lucky to read this for long time I had problem on understanding the state pension this post helps me to know it and guides me to sell my annuity payments lump sum.

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  36. I am very lucky to read this for long time I had problem on understanding the state pension this post helps me to know it and guides me to sell my annuity payments lump sum.

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  37. I am 67 and still working full time. Unfortunately my finances have meant that I have only managed to pay into a very small private pension (I am self employed) which is probably worth approx. £60 per week. Retirement is looming in about six months and I am quite frankly terrified. I have completed an expenses sheet and even paring everything down to the bone my outgoings will be more than my income. I am not entitled to any benefits as with the state pension I will be over the limit. I have now worked for 50 years, have always lived within my means but retirement is an absolutely terrifying prospect. I just don't know what the answer is.

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