Recently I've been flitting between a couple of books, one of which being "From 0 to 130 Properties in 3.5 Years" by Steve McKnight. Throughout the book, Steve details how he went from 0 to 130 properties by utilising cash and cashflow. He explains what to avoid and what to go for when looking at investment properties. A relly good book and a great listen on Kindle in the car during your lon journeys. A fifth of the way into the book in chapter 5, "The truth about creating wealth", Steve started the first paragraph with:
"Could you live on $335.95 a week ? That’s what the Commonwealth Government currently provides single aged pensioners , and from it housing, living and other expenses must be paid."
Knowing my own current monthly income and expenditure, and reading this sentence, I jumped onto the internet and to our UK Governments Pension site: https://www.gov.uk/state-pension/what-youll-get It clearly states at the top of the page:
"2. The maximum you can get is £113.10 per week."
Then the next line down it states:
"You may have to pay tax on your basic State Pension."
So not only will I work for 45 - 50 years for the system, pay my tax and NI etc. into the system, I will be given a measly return of £113.10 per week (figures correct as of 17th Feb 2015). If I've been frugal throughout my lifetime, the tax office will punish me by deducting tax from my earned pension. Grrrr!!!!!
Now I'm not against paying tax. It is a necessity for the system to function effectively. If it wasn't for tax, then how would we fund the police, NHS, Fire Brigade welfare, education, armed forces, street lighting etc? But honestly, £113.10 per week!? I mentioned my findings to a pensioner friend, and he said his pension pot for the month was ~£514.
So, lets look at £113.10 in today's money. After filling your car up with 60 litres of diesel, you would be left with c.£50 to buy food, electricity, gas, water, council tax.... Not much left I can tell you! I bet you're pleased you worked 45 years and depended on the state pension for your retirement.
Lets get a slightly more accurate picture of the situation.
If you are currently earning ~£2000 per month and getting by, assume you do pay your £500 ish mortgage off (as that is what everyone seems to focus on), then you have £1500 per month to "get by on".
But if I can generalise once more, then people aim to complete their mortgage around 55? (buy house at 30, 25yr mortgage = 55 yrs old)
10 years till 65 before retirement, and you continue to live frugally and save that £500 that was for the mortgage
10 years = 120 months
120 months x £500 = £60,000 saved in the bank by 65 yrs old.
You are now 65, you have retired.
Your state pension per month is £113.10 x 4.33 (av weeks per month) = £489.72
If you use that £60,000 that you saved, and take £1010.28 pcm to make it £1,500 pcm income (what you were living off), then:
£60,000 / £1010.28 = 59.39 months of funds.
59.39 months = 4.95 years till that £60,000 savings pot has gone!
Welcome to the no heating and jam sandwich lifestyle of the elderly!!!
Will it really last 4.95 years though? When you retire you have reached that goal in life where you don't have to go to work, so instead, you go out to the bowls club, cinema, meals out, short frequent holidays away, a new car with your lump sum.....
We've not taken bills or holidays or fuels and MOT for the car(s) etc into account. Nor have we taken downsizing into consideration - but why should you HAVE to downsize your lifestyle now you have the time to increase your lifestyle? If there are two of you then you may get more into the house, but if your other half dies and he/she didn't work for a living, then you won't exactly be getting any handouts!
Just writing this post drives me to work harder with the property investing. I aim to finish the shift work a lot earlier than the normal retirement age. All being well, I will still live to the average 81+ years (2014 UK Office of National Stats), and will therefore need to fund 35 - 40 years of no work income!