The good news is that, due to the increase in life expectancy in the UK, the average time spent in retirement is currently 22 to 25 years. This means we all have more time to enjoy life, but equally means that we need to think quite carefully how we plan our finances, and budget accordingly.
To enjoy a comfortable old age means doing some in-depth thinking about how much you’ll need to spend under a variety of headings such as basic living costs, spending on your family and most importantly, enjoying life to the full.
Consumer magazine Which? recently surveyed thousands of its retired members to see where their money is being spent. They found that households spent on average a little under £2,200 a month or around £26,000 a year1. This expenditure covered all the usual basics and provided for a few luxuries such as European holidays, hobbies and meals out. They estimated that if long-haul trips and the purchase of a new car every five years were to be included, the figure would increase to around £39,000.
Everyone has different retirement goals, but here are some commonly-used headings that can be helpful when working out your likely annual expenditure.
This heading covers all your likely regular expenditure and running costs. If you’ve paid off your mortgage, then your living costs will obviously be lower. However, you should still think about how much you’ll need to spend on maintenance costs, repairs and refurbishments. If you’re renting, and more and more retirees are, you’ll clearly need to factor in your rent.
Your utility bills are likely to rise, as you’ll probably spend more time at home and need to heat your house for longer. Your travel costs may go down dramatically if you no longer need to factor in the expense of travel to work. However, commuting could give way to more days out and the opportunity to travel further afield.
Under this heading goes all the likely costs of doing and enjoying all those things that you never had time to do before you retired. So, if you’re planning a trip, a major purchase or want to indulge yourself in other ways, this is the amount you feel you’ll need.
Typically, expenditure under this heading would include health and later-life care costs, loss of income and any emergency financial help you might want to give your family.
This is the amount of money you may want to pass onto your children and grandchildren during your lifetime. This could include help with education costs or a deposit on a property.
1 Which?, April 2017
The information within the article is purely for information purposes only and does not constitute individual advice.