Key Post How much savings do you need to feel safe

buzybee

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174
Just wondering, how much savings do people need to feel comfortable to spend some, or to cut back on saving x amount per month?

If you own your house and had 100k in the bank, would you continue to save at the same rate you always did, or would you save less.

In 50s, couple earning about 70k in total annually. Have civil service jobs, mine is junior level. Have 2 kids going for secondary and college. Live in college town. Own our house. I have investment house with small mortgage.

Have about 200k saved in total.

Grew up v poor so afraid to curb savings habit. I know I should try to loosen up more and enjoy life a bit more. Am afraid that if I start spending I will get out of the savings habit and may kick myself down the line if I need the money.

Any thoughts on this.
 

Fella

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524
Don't think you ever feel safe every milestone I pass I convince myself I'm still poor.

Think the more your save it becomes habit and it's harder to spend then. Unless your earnings are erratic (mine are a bit) you should be able to see what your spending / saving each week . It's important to spend money and enjoy life ( I don't spend enough ) .
You probably don't need that much , i often go mad and decide to buy myself everything I want then I realise I actually don't need or want anything a new iPhone or a trip to New York and I'm feeling better and have got it out of my system and I'm back saving again.

But yeah saving can be a bit boring I have a fear everything will be means tested when I'm older and my savings need to last me for life so I have a high figure I want to hit.

I actually done something recently I never do I wanted to spend some money so bought shares in a company I like , it felt good I feel like I got to spend my money and also not in a stupid way it's way more exciting than buying an index fund ( maybe to me only ! Haha !)

Well done on your savings that's a decent sum.

I don't actually save though as in I don't limit myself ( within reason) I buy whatever I want I rarely check prices of anything and would never inconvience myself to save a few quid . If your the opposite and your making lunch for work to save money then yeah I'd say you should spend a bit more freely .
 

so-crates

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1,813
It is subjective. Some people will go through life on little more than a shoestring and never feel the lack of savings. Some will be forever wishing to save and forever apparently incapable of it. Some are spenders by nature, the grasshoppers of this world and the amount they earn will never make them well off because they cannot fathom why anyone would save (right up to the point where the crunch comes and they find themselves in a pickle) Others are more cautious and will always save first. There is no hard and fast rule. Do you include any free-spend in your budget? Any indulgence? If you had a discrete amount that was earmarked for spending as you wish you may feel less guilty about not saving it. It is is good to live within your means but it is also good to live a little. Give yourself a "treats" budget - it won't break your bank and it won't touch your savings but it will maybe calm the nagging feeling that you are missing out by saving rather than spending.
 

Brendan Burgess

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It's a very interesting question, and it really shouldn't be that subjective, although I don't know the answer or even how to approach it.

Over the years, I have spoken to many older people who were scrimping and saving even though they had plenty of money. They have died leaving lots of money behind them.

In many of these cases, the recipients would have been much better off getting the money when they needed it rather than on the death of their parents, when they had probably come through their expensive days anyway.

Brendan
 

Bronte

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14,165
Just wondering, how much savings do people need to feel comfortable to spend some, or to cut back on saving x amount per month?

Grew up v poor so afraid to curb savings habit. I know I should try to loosen up more and enjoy life a bit more. Am afraid that if I start spending I will get out of the savings habit and may kick myself down the line if I need the money.

Any thoughts on this.

For me I'll never have enough. But having said that I have no intention of taking it with me. So I want enough for the kids all the way to university. Enough for the two of us to be comfortable in retirement, have enough for medical bills and enough to prevent going into state care. And I've had to learn to splash out. We went totally mad this year and went to Orlando. The bill was horrenous. But it was worth every penny, a promise I'd made to the kids for many years and we did it right. Next few years we'll return to our normal summer holiday.

What do you think you will need money for is the way to start approaching this.
 

SoylentGreen

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439
I own my own house and I have a good chunk of savings. I don't waste money. Neither myself or my wife smoke and we would be light drinkers. I will use the Aldi and Lidl vouchers in the newspapers and will purchase the cheap and reduced veggies. I drive a 10 year old car and my wife drives a 13 year old car. Both with low mileage and well maintained. I tend to my garden myself and can do painting jobs and other similar jobs around the house. I don't have top of the range health insurance. We are in our mid 60's and would take 4 overseas holidays at least every year and two at home. We are not interested in clothes or bling.
As I get older I am aware that our living costs will rise. I think that I have enough fund to cover these costs. I can always downsize my home as a last resort. We also don't really need two cars. As I get older it is about comfort and convenience. Good TV, internet, heating on as needs be, nice food, having funds available to help out the children and grand children.
I expect to leave a lot of money behind when I pass on, the reason being, because I don't need to spend it. My dilemma is in knowing how much I will need to keep myself afloat in the meantime. How much I can afford to give to my children now and not leave myself short. I suppose I can manage this on a year to year basis. As Brendan says above I don't want to give a large chunk of money to my kids after they have gone through their expensive days but then again, money is good anytime you get it. Even if you don't spend it you can feel secure with it.
 

Slim

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2,400
It's really down to your personality, in my opinion. I was quite a spendthrift in earlier years, ironically when I earned much less. Now I have been employed for 37+ years, we have educated the kids, more or less, house is nearly paid off, we have good pensions waiting for us, plus decent PRSA to top up, and a good few grand in savings. We could:
(a) buy a luxury car
(b) buy a small motor boat
(c) a small apartment in Spain
(d) take luxury cruises several times a year etc...
But - that's not our style. For each €1,000 we have saved, we have had to earn about €2,000. Last night, we watched 2 programmes on TV, one about a high end jewellers in Bond St. in London and the other about the London-Venice Orient Express. We tutted about the excess and agreed we would not spend that kind of money on jewellery or a luxury train trip even if we had loads of money. Many of the people who buy the high end jewellery do not 'work' for the money.

When we retire in couple of years, we will take a few trips etc but nothing excessive. Not our style. Keep saving. The kids can have it as and when they really need it and then what's left after we go!
Recommended minimum savings, incl pension funds, to provide your desired expenditure level in retirement, should equal or (ideally) exceed 25 times annual expenses.

BTW, if we or you need a nursing home in later years, that will eat up any savings unless we spend it down to <€72k and transfer the house over to the kids more than 5 yeras before we need the Nursing home (Fair Deal Scheme).
 

Codogly

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172
Its suprising that there isn't a financial model out there that allows you to enter your expected future requirements and your current age and financial status and advise you accordingly.

BTW : I'm not so sure leaving money to our kids is actually in their best interest ... i actually believe inheridance tax / gift tax should be 90% ... each generation should have to earn its own way, that way society becomes equal ...all parents should be allowed and encouraged to do is give their kids a good education.
 

elcato

Moderator
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3,689
Its suprising that there isn't a financial model out there that allows you to enter your expected future requirements and your current age and financial status and advise you accordingly.
Are they not called pension advisors ? ;)
 

Brendan Burgess

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45,695
I have been thinking about how one might approach this question. It's probably a series of targets

I don't really know the right figures, but I think that this could be a good framework for approaching this interesting question.

Step 1 - set Targets for what you will need on retirement at 65

Target 1. Work out a reasonable minimum wealth and income to have on retirement.
Aim to have a suitable home mortgage-free home
Assume you will have the state contributory pension which provides just enough to meet the basics - for a married couple over the age of 65 that is €430 per week or €20,000 a year.

So your Target should be to pay off your mortgage by retirement.

You won't have enough money to run a car or to do much socialising and holidaying, but you will certainly meet all your shelter and food needs.

If you only achieve Target no 1, you are exposed to a lot of risks
  • The country is effectively insolvent already and may not be able to continue to pay the €20,000 a year
  • You may need nursing home care. You will get it from the state but you might prefer a private nursing home
Target 2 - Provide more than an OAP standard of living

You should have a private pension to supplement your old age pension

I would have thought that a reasonable target for this would be around €30,000 on top of the €20,000 Contributory OAP.

A healthy, independent couple, who have no accommodation costs should meet most of their needs on €50,000 a year.

Target 3 - If you don't have a guaranteed pension, you will need a reasonable fund or independent wealth

The biggest uncertainty is your longevity. If you own your home and you have an inflation linked annuity pension, then it's not an issue. But if you have a Defined Contribution pension fund,then it most certainly is an issue.

Of course, the return on your pension fund will be a big issue as well. If you leave it on deposit, it will probably get slowly degraded over time. If you put it in shares, you may do very well, or there could be a long-term sustained reduction in value.

Target 4 - you should provide for private nursing home care for 5(?) years.

How long do people stay in nursing homes? I would say that few stay much longer than 5 years, but I don't know. So 5 years at €70,000 would be €350,000 in today's money.

If both of you are in a nursing home, you won't need your home, so that could be sold to pay the nursing home fees.

So how does all this affect you?

If you are not going to hit Target 1 and be mortgage-free by retirement, you should be cutting back now to try to hit that.

If you are on track for Target 2 or 3, you should be enjoying life to the full. Travelling and socialising as you see fit, without squandering your money.

If you have achieved Target 4 - i.e. no accommodation costs, a healthy pension and enough money for your retirement home, then you can afford to help your kids if they need help.

Should you help your kids?
If you have put aside €350k for your nursing home fees, and one of your children is about to lose their home as they can't afford their mortgage, you could certainly consider lending them your nursing home money. Or you could consider buying a home and letting them live in it rent free.
 
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Brendan Burgess

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Step 2 - Assessing your wealth accumulation from now until retirement

The closer you are to retirement, the easier it is to know where you stand in relation to the targets

But if you are in your mid 30s, employed in the private sector or self-employed, with a few kids so far, the uncertainties are huge.

You may be accumulating capital now through paying down your mortgage and contributing to a pension scheme, but what if you lose your job or get sick and can't work?

If you are a public servant with an inflation-proofed pension, paying down your mortgage, you are in a fairly good position. Of course, the state may not always be solvent to pay your pension, so you do need to have savings independent of this. Paying down your mortgage is probably the best form of savings.

So how does this affect your financial decisions today?

Can you afford private schools for your children or should you be saving now so that you can afford to send them to college?
Should you be changing your car every two years?
Can you take a risk in quitting your job to set up a business?
Can you take a career break to spend more time with your children?
 
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Brendan Burgess

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There probably should be some way of measuring all this depending on your age and family status.

I would be surprised if it has not been done.

The pension calculators only tell you how much you need to contribute today to make sure you have a 70% pension on retirement. The question is much broader than that.

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mtk

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591
Can be done on a spreadsheet showing when cash will bomb out with some simplifying assumptions . Future expenses same as current ones inflation linked . Assume fund grows to match inflation ....etc,
Assuming with / no future income etc .
Bomb out date gives you some idea re longevity risk e,g age 100 looking good etc etc
 
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cremeegg

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3,673
Two great posts Brendan.

The ISI RLE for 2 adults with a car comes out at €17,844 pa. The state pension is 12% more than that. That fits with my observations, the state pension gives a good standard of living to a couple including running a car.

Not so good for a single person, the same source gives RLE for a single person at €12,240
 

Gordon Gekko

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I have children, and (not surprisingly) it has changed how I view wealth. When I see people in Ireland struggling to make ends meet and how unforgiving places like the US can be, it makes me want to put more and more away. But not for myself - For them. I worry that maybe thing won't work out for them. I worry that they may not be able to do what they really want to do (e.g. nurse or teacher) because of the modest pay. That's what I think about. In relation to myself, I don't particularly worry at all. I view any safety net as being for them.
 

Brendan Burgess

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The ISI RLE for 2 adults with a car comes out at €17,844 pa. The state pension is 12% more than that. That fits with my observations, the state pension gives a good standard of living to a couple including running a car.

Hi cremeegg

I don't think that I would like to live on the RLEs for the rest of my life. In fact, I wouldn't fancy living on them for the 6 years of a PIA either.

So I would say that the state pension provides a minimum standard of living rather than a good standard of living.

Very interesting point about them being inadequate for a single person. I suppose it's much more expensive to live on your own than when you are living with someone else and sharing expenses. For example, most retired couples would not need a second car.

Brendan
 

Brendan Burgess

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Good article on downsizing by Joe Barry in today's Indo

http://www.independent.ie/business/farming/daydreaming-about-the-simple-life-34266202.html

"In many of the more isolated places on our island, you will find people who have downsized, leaving well paid but stressful jobs to live at a slower pace and perhaps bring up children in a more meaningful environment. I can easily relate to this aspiration and to anyone who wishes to get away from a daily commute, probably through heavy traffic and only then being able to have some time with their kids.

Most who take the downsizing option manage very well on a far smaller income than they previously enjoyed but feel much richer in terms of the freedom they now have to pursue their ambitions to write or paint or grow their own food or whatever"
 

Bronte

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Can be done on a spreadsheet showing when cash will bomb out with some simplifying assumptions . Future expenses same as current ones inflation linked . Assume fund grows to match inflation ....etc,
Assuming with / no future income etc .
Bomb out date gives you some idea re longevity risk e,g age 100 looking good etc etc

I've done something similar in Excel. I left out inflation, calculated when mortgage would be paid off, when income would end, pension would start, major expensives like College etc. I reckoned on being aged 80 ! And based on family experiences reckoned I'd be doing a lot less travelling or expensive stuff in my seventies as I've noticed many people don't want to leave home after a certain age. etc. It's not like I'll be buying a Lamborgini either when I'm 65. My current tin can just passed it's 10th MOT !
 

elcato

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3,689
What are the chances that the state pension will be available when you retire ? At best you will be means tested so any personal pension you have will be deducted. My aim is simple. Have mortgage free dwelling at 65. Have 20 years savings to fund you which at todays rates is 20k by 20 years = 400k. Any pension funds will be a bonus. At 85 my nursing home will be Holland or Switzerland which will be funded by the sale of my home and once I get to my last 50k (and assuming the women, dope and the booze haven't killed me) I will gracefully bow out and they can scatter my ashes in the nearest river.
 

SoylentGreen

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439
Thanks for the link to the Irish Independent's article by Joe Barry about dreaming about the simple life. I have to say while this sounds nice I kind of prefer to have a taste of both worlds. I have nine raised beds in my Dublin Garden where I grow a selection of vegetables every year that add to my daily meal. I am also very happy to supplement these vegetables with those that I don't grow by buying them in my local supermarket.
Within a mile or so of my home in Blackrock I have Tesco, Dunnes Stores. Aldi, Lidl, SuperValu, M&S as well as a smattering of Centras etc. I can get all the foodstuffs that I could possibly need from these outlets and it's fantastic to be able to do that. I have decent water coming from my taps, I have good footpaths and roads, plenty of green space and lots of trees. I have piped gas, good internet and TV and I live relatively close to Dublin Airport when I need to escape to the sun. There are a selection of hospitals close to me, great transport links, DART, LUAS, buses, taxis etc. Two of my children live close by and my grand children can avail of good local schools. Lots of pubs,cafe and restaurants. I take these things for granted so I am not sure that I would want to live in an isolated cottage without these local comforts.
It is nice to escape though and to enjoy a few weeks away. I am always happy to come home because of these comforts that I am lucky to have. I have a high property tax but I can live relatively cheaply being part time hunter gatherer and I consider dealing with modern services akin to hunter gathering.
Having enough money to live comfortably and happy is what it is all about. It must be dreadful if you suffer from the fear of missing out. Then again it took three moves of homes to get me to this space so at some stage I wanted to get a bigger and better house in a better location so I must have wanted more at some stage.
I reckon both myself and my wife can live comfortably on €20k per annum at this point in our lives. It is what is coming along in the rear view mirror is the cause of concern.
 
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