Financial security in retirement can never be taken for granted
Life changes when you retire – and so does how you spend your money. Whatever your plans, it’s important to keep on top of things and think about the lifestyle you want. It’s also worth noting the average life expectancy at age 65 years 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
This is a new and exciting chapter in your life. And for a lot of us, retirement will be the first time that 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 important 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 in order to know 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 at which you want to retire and whether you’ll receive the full State Pension amount.
An active retirement involving a lot of travel and hobbies will cost more than a quiet retirement spent largely 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 a lot of 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.
5 key considerations
Everybody’s circumstances are different, but the key considerations for most people when they think about retiring will come down to factors such as:
1. How much money do I think I will need in retirement? 2. Am I planning to phase my retirement by working part-time? 3. Do I have any debt to pay off? 4. What is the outlook for my health and potential life expectancy? 5. How much money have I saved in pensions andother investments?
Annual figure for inflation
Knowing how much you need to cover your retirement isn’t always the easiest number to calculate, but you can adjust your strategy depending on the size of your pot.
Once you know approximately how much you’ll spend annually in retirement, you can estimate the total cost of your retirement by multiplying this figure by the number of years you expect your retirement to last, and adding an annual figure for inflation.
Unexpected expenses come up
At the point you’re in retirement, it’s important 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.