Planning for a more relaxing retirement
Time to get back to dreaming about stopping work, not dreading it.
Life changes when you retire – and so does how you spend your money. Whatever your plans, it’s essential to keep on top of things and think about the lifestyle you want. It’s also worth noting that the average life expectancy at age 65 is 18.6 years for men and 21.0 years for women.
So, it’s vital if you are planning to retire soon that you make sure you have enough money to last throughout your retirement. Whether you’re aiming to retire early or have worked way longer than you imagined, retirement should be what you want it to be.
Exciting chapter in your life
A new and exciting chapter in your life, and for many of us, retirement will be the first time we can do what we want when we want. With no job to tie us down, retirement is meant to be a relaxing time. However, your newfound freedom and leisure time could quickly become stress-inducing if you spend too much time fretting about your finances.
When planning for retirement, the most critical question for many is, ‘How much money will I need to save to ensure I retire successfully?’ To answer this question, you need to know how you want to spend your time understanding how much retirement will cost you.
Type of lifestyle you want to enjoy
The amount of money you’ll need to enjoy a comfortable retirement is subjective and very much related to the type of lifestyle you want to enjoy during your retirement, the age you want to retire and whether you’ll receive the full State Pension amount.
An active retirement involving many travel and hobbies will cost more than a quiet retirement spent mainly at home. You also have to think about any big-ticket purchases or other plans you’ll need to make.
Estimated retirement expenses
Make a list of all your estimated retirement expenses, and then try to approximate how much each will cost you. Remember, some of your expenses may decrease between now and retirement, while others could increase.
Your housing costs may go down if you pay off your mortgage, but your travel costs could go up if you take many trips and holidays. So, you can use your current spending as a baseline, but you’ll have to adjust each figure up or down accordingly.
Five key considerations
Everybody’s circumstances are different, but the critical considerations for most people when they think about retiring will come down to factors such as:
- How much money do I think I will need in retirement?
- Am I planning to phase my retirement by working part-time?
- Do I have any debt to pay off?
- What are my health and potential life expectancy going to be?
- How much money have I saved in pensions and other investments?
Annual figure for inflation
Knowing how much you need to cover your retirement isn’t always the most precise number to calculate, but you can adjust your strategy depending on your pot’s size.
Once you know how much you’ll spend annually in retirement, you can estimate your retirement’s total cost by multiplying this figure by the number of years you expect your retirement to last and adding an annual figure for inflation. We can run the numbers for you and present this in a lifetime cashflow plan.
Unexpected expenses come up
At the point you’re in retirement, it’s essential to keep to the budget you laid out as best as you can. If you have unexpected expenses come up, try to trim back some of your other expenditures to make up for them, so you don’t run short.
In recent years, the Government has made great strides in getting people to save for retirement. With retirement often lasting two decades or more, it is vital to be prepared and build up a retirement income that provides the standard of living you require in the long term.
In the run up to retirement, try and use as much of your ISA allowance as possible. If affordable, maximise your pension contributions; remember the Government tops this up by an additional 20% for free.
Have your review each year with your adviser as; small changes each year can make a big difference in retirement.