What to consider when planning your retirement household budget


Supplementing your essential household expenses should always be at the top of your list when it comes to planning for your retirement.

But you may find that your regular expenses change in the years leading up to your retirement and when you finally finish working.

A good place to start is our family budget calculator. It won’t show you how your spending might change over time, but it will give you a calculation based on a time of your choosing (whether now or in the future).

Here are some additional things to consider when planning your retirement expenses.

Remember that everyone’s income and expenses will be different, so don’t take this as personal advice. If you are not at all sure, seek financial advice.

Your spending habits from Monday to Friday

The pandemic has taught us that working from home can save us money. That morning coffee or buying a sandwich for lunch might seem like small expenses, but they can all add up.

In 2020, the average cost of a regular latte was, for example, £ 2.63. Let’s say you have one every working day. Even halving the amount you have available will save you £ 341.90 per year. That’s a big part of the change.

What’s important with this example and others like it is that small purchases can add up to large amounts over time.

Of course, it’s nice to treat yourself to the things you love. But it’s always worth asking yourself what you’re happy to spend and see if you can save some savings that you can better use.

There are also travel costs. Whether you put £ 50 worth of fuel in the car every week or buy a travel card, the cost of the trip is a cost you will likely recoup some of when you retire. But how much you get back will of course depend on where you travel to when you retire. Maybe you’ll do more day trips that take you further than if you went to work.

Also consider how your household bills might change when you retire. If you worked from home during the pandemic, you probably turned on the heat more often and boiled the kettle more than usual during the work week. If you are more at home in retirement, this increase in counters may become more permanent.

Higher costs can be covered when you are working

Do you drive a company car? Perhaps you have private medical coverage, dental coverage, or life insurance covered by your workplace?

If you have benefits like these included in a workplace package, you will need to think about how you will cover them when you stop working.

In particular, we usually say that life insurance is a must-have. It only gets more expensive with age. So be sure to factor this into your budget when you retire.

Unexpected costs

When a big expense pops up unexpectedly while you are working, it will likely be less of a problem. It’s because you know you have another paycheck coming up next month.

When you retire, your income will most likely decline. It is therefore important to budget for emergencies. When you’re working, we think it’s a good idea to have three to six months of essential spending aside with easy-to-access cash. When you retire, it should instead be one to three years.

You can also choose to use some or all of your annuity to purchase an annuity in order to have more regular income to help pay for these unforeseen costs. But this should not be a substitute for an emergency cash reserve.

The government’s free and impartial Pension Wise service is a good starting point to help you understand your retirement options.

Lifestyle changes

You might find that you save money by not going to work. But that doesn’t mean you’ll have more disposable income if your retirement income is less than your working salary.

So, once you’ve covered all the essentials, how much money will you need to have fun?

This is the exciting part of planning for retirement. Whether you dream of traveling more, making one big purchase, or a series of small purchases, knowing how much you’ll need to achieve those goals and when is crucial.

Be sure to calculate if your retirement lifestyle will be more expensive than your work lifestyle. And most importantly, if you’ll have enough in your pocket to live it off after you’ve paid all of your bills.

For larger expenses like luxury travel, it can be helpful to make a schedule of what you want to do and when. But don’t forget the lower-cost activities like eating out more regularly, day trips, subscriptions to leisure activities, etc.

Will it be a net gain or a net loss?

This is the big question. And a question that is not easy to answer because there is a lot to consider.

Budgeting is the perfect place to start planning for your retirement, but it’s only the tip of the iceberg. You will also need to think about:

  • Your retirement income options in retirement
  • Effectively use your tax breaks
  • How you will pay for care later in life
  • What to do to pass on your heritage

Financial advice can help you budget, plan your expenses, and help you understand all of your options.

It can be a good idea to take advice a few years before you retire. This can give you time to adjust your strategy if you need to and retire on your terms.

Learn more about retirement planning advice

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