How much money do I need in retirement?

Budgeting for retirement can be more difficult than budgeting whilst you’re still working. Some costs may increase, such as heating your home, and you’ll have to work out exactly how much income you will be receiving from your pension. The average British wage is about £34,900 – to replicate that as a healthy 60 year old in retirement you’d need a pension pot of more than £870,000. However, according to ‘Which?’ it’s unlikely that you’ll need as much money in retirement as you did while you were working, although the amount clearly depends upon your own hopes and expectations of how you will enjoy your retirement!

When sitting down to plan your retirement budget, it’s a good idea to first get some idea of your current spending. A report by ‘Which’ suggests keeping three months’ worth of bank and credit card statements, payslips going back three months and three months of shopping receipts – remembering to factor in one-off spends like birthdays, Christmas, holidays and car repairs. Then work out where you think you’ll spend more once you’ve retired – because your situation is changing so will your spending habits. You’ll need to compare this with how much income you’ll be getting in retirement (from pensions, benefits or savings), to find out if there are any shortfalls.

The above simple plan is a long way off proper financial planning, but it should provide a handy starting point for indicating the income you might need in your retirement. Once you know that, we can set about working out exactly what you do need to make sure you can do everything you want in your later life.

It is also worth bearing in mind that the sums of money you spend on certain things can change for the better in retirement. The following are again good suggestions to start considering.

  • Have you paid off your mortgage? If so, that will significantly reduce your monthly spend. However, if you’re still renting in retirement, you’ll have to factor that cost into your outgoings when budgeting.
  • Have your children moved out? Raising a child until they’re 18 costs almost £220,000 in total – so your costs should come down significantly once they’ve flown the nest.
  • You’ll save on commuting. The average annual rail cost of commuting into London is £3,800, and that’s without factoring in parking at train stations.
  • Public transport. Over-60s get free off-peak travel on buses. And if you live in London, you can claim a Freedom Pass, which means you can use London’s public transport for free.

Some spending in retirement can typically go up, however:

  • Leisure spending – you’ll probably be spending more money on hobbies and holidays. Think about how many holidays you’ll want to take per year and remember to take advantage of senior discounts on dining out and theatre tickets.
  • Travel insurance – Which? research has found that people over 65 tend to pay more because statistically, they’re more likely to fall ill whilst on holiday. Shopping around will help secure you the best deal.
  • Heating. As you’ll be spending more time at home, the chances are bills will be higher. The Winter Fuel Payment, currently available to people born on or before 5 July 1952, could get you between £100 and £300 tax-free towards your fuel bills.

Planning for Retirement needs to go beyond this sort of initial informal research to fully include careful attention to Lifestyle Planning, but the above initial considerations should help you to start thinking about whether your current savings are going to be enough to do everything you want to do with your retirement.