What to consider when budgeting for retirement

It’s safe to say that the expenditure we have during the years when we’re building careers and families will be different by the time our working lives are coming to an end and we’re taking the first tentative steps towards retirement.

But how much do you really need to retire on to achieve a comfortable and comparable lifestyle and what do you need to bear in mind when calculating your future financial needs?

Consider when your mortgage is likely to be paid off.  If this is before your desired retirement date than this will be one less expense to be factored in, unless of course your current home is rented, or you have additional properties with outstanding mortgages.

Covid-19 may well have altered some consumer spending behaviours; working from home has prevented many of us from grabbing the daily coffee, spending money on workwear and even cosmetics have seen a decline in volumes sold, however if you calculate what you spend on average each month on typical commuting, or “work” orientated purchases, you will start to see savings add up once you stop working.  Similarly, your commuting fees and fuel costs are likely to reduce, depending on how much travel you’re planning to do in retirement and how much you work from home currently.

Whilst the home office has certainly allowed many to save money, during the winter months you may find the heating thermostat creeping up.  These “hidden” household bills are things to consider when you will be spending the majority of your time at home and although they can be offset by other savings mentioned above, when added up can make a significant difference to your monthly budget.

When we have a regular income unexpected bills can be met, or at least paid for over a period of time, however when we are solely reliant on our pensions, large repair costs for example could detrimentally impact your monthly income.  Building up an “emergency” fund is advisable even when working, but even more so once our monthly pay check stops.

If you’re employed you may have the typical “corporate” benefits such as life insurance and private medical cover, which of course increase in premiums as we get older. If you wish to replicate this insurance in retirement these costs will need to be factored in.

You also need to consider how you will spend your time in retirement; this could include travelling, volunteering, downsizing to a smaller home – all of these will affect how much money you will need to fund your ideal lifestyle.  Later life care is also something we cannot lose sight of in the event of you needing long term care.  How this is financed could impact your overall estate and how much you can leave to family by way of inheritance, so it’s important to get independent advice so your loved ones also know your wishes ahead of time.  You could also be in line for an inheritance payout yourself, which will all go towards your overall projected retirement fund.

Measuring your monthly needs in retirement against your current monthly expenditure will enable you to identify any gaps. Doing this as early as possible during your working life, will give you more time to plan ahead and grow your savings fund to enable you to have a comfortable retirement rather than a lifestyle in distinct contrast to the one you have now.  The state retirement age may be sliding further back, but one thing we can always guarantee is that time flies by and what seems way ahead now, will one day be reality.



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