4 important things to consider when planning your retirement budget

Whether you’re planning ahead in anticipation of a comfortable retirement or are already enjoying retired life, it’s important to have a good understanding of your finances.When you’re no longer working for your income, having a budget is sensible planning. This is especially true as some expenses, such as medical and health insurance, are likely to increase.Knowing what you have coming in and going out each month can also bring peace of mind, allowing you to relax and enjoy your retirement without worrying about money.

You’re likely to find a significant difference in your budget when you retire compared with when you’re working. So, here are four things you should consider when planning your retirement expenditure.

1. Your regular weekly spending habits

Calculating your essential household expenditure should come at the top of your list when planning for your retirement.

You might find that your regular outgoings begin to change in the years leading up to your retirement. If, for example, you finish paying off your mortgage or your children leave home, you may suddenly find yourself paying out less than you have in years.

Meanwhile, one of the outcomes of the pandemic is that many of us have saved money by working from home. The most significant saving for many of us is not having to commute. No longer paying for our habitual morning coffee or lunchtime sandwiches has also left us with extra money in our pockets.

To put this into perspective, according to ThinkMoney, the average cost of a regular latte in 2020 was £2.63. If you enjoyed a morning latte every weekday morning, you would spend just over £600 a year on your caffeine fix, taking into account your annual leave.

This is just one example of how small purchases can add up to large amounts over time.

As you’ve seen above, one of the useful things about working out your budget is to find out how much you’re spending on potentially unnecessary treats and whether you might be able to save that money or put it towards something else instead.

If you have been used to travelling to work in your car or have been commuting by train, you may also save on daily travel costs. Of course, this will depend on how you intend to spend your retirement, as you may end up taking longer trips more frequently. These may end up costing more than your previous daily commute.

Finally, consider how your household bills might alter when you retire. You’ll perhaps spend more time at home. This could mean running the heating more often and for longer periods and you’ll probably boil the kettle more or use the oven more frequently.

If you’re going to be at home more of the time this increase in electricity and gas will cause your monthly bills to rise and you’ll need to account for this.

2. Will you lose any high-value perks when you retire?

If you currently drive a company car or have private medical cover or life insurance through your employer, it’s important to factor in the cost of replacing these perks before you retire.

Depending on where you live and what your local transport links are like, you may decide you’re happy to do without a car, especially if your work involved a lot of time behind the wheel.

If you’re content to rely solely on the NHS, you may not be too worried about losing medical insurance, but make sure you know what you’re giving up and that you are satisfied to let go of your employee protection benefits.

Life insurance is one area you should probably make sure you have covered. Since this is one cost that increases with your age, the sooner you set up protection, the better.

3. How will your lifestyle choices change what and how you spend?

As you do your calculations, you may find you actually save money by not going to work. However, this won’t necessarily equate to having more disposable income if your retirement income is less than the salary you were earning.

Once you know how much you’ll need to cover your monthly essentials, how much will you need to live the life you want and have fun when you retire?

Whether you have grand plans to go on an adventure and see the world or want to move house and relocate to live closer to family, it’s important to work out how much you’ll need to meet your retirement dreams.

If you’re not sure how you intend to spend your time in retirement, now’s the time to start dreaming and planning.

Don’t be afraid to dream big. Once you have a plan in mind, calculate whether your retirement lifestyle will be more expensive than your working life. Make sure you’ll have enough to pay the bills with enough left over to live your dreams .

When it comes to planning for bigger expenses, such as luxury travel, you may find it useful to set out a timeline of what you want to do and when, so you can plan ahead for the increased expenditure you expect to incur.

In doing this, don’t forget to include the small lower cost treats and activities you expect to enjoy too. Things like more meals out, day trips, gym or club memberships all add up, so make sure they feature in your budget.

4. Important factors to remember when you’ve drawn up your retirement budget

When you’re budgeting for your retirement, you’ll also need to think about:

  • Your options for where and when to draw your retirement income
  • Optimising your tax allowances
  • How you’ll cover the costs of care later in life
  • Making plans to pass your wealth on to your family and loved ones.

With so much to take into account, it’s a good idea to talk things through with a financial planner a few years before you retire.

Speaking with someone who understands all elements of retirement planning can help you set out a sound strategy to fulfil all your objectives. Where necessary, a conversation early enough may allow crucial time to adapt your plans so you can enjoy the retirement you hope for.

Get in touch

If you’re approaching your retirement and would like help to organise your finances, please get in touch. Email enquiries@bowmorefp.com or call us on 01275 462 469.


Bowmore Financial Planning Ltd is authorised and regulated by the FCA.

Bowmore Financial Planning Ltd is not regulated to provide tax advice.

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