Help! What kind of lifestyle can I afford in retirement?

  • 01 June 2020
  • 10 mins
  • How much do you think you need to retire on?

  • The internet throws up all manner of answers

  • But it isn’t a simple question to answer

If you ask the internet ‘How much money do I need to retire?’, you’ll get a huge variety of answers ranging from those that warn £1 million isn’t enough, all the way down to the UK Basic State Pension, which is designed to pay for the basics at up to £134 per week [1]. The New State Pension, for men born after 6 April 1951 and women born after 6 April 1953 pays slightly more – up to £168 a week [1]. But the amount you receive will depend on the level of National Insurance contributions you have made.

The good news: experience shows most people are very good at adjusting to their retirement income and exercise a great deal of caution when they’re spending it. They know that their money has to last them for the rest of their life, and they tend to be very conservative about withdrawals. [2]

Will retirement cost less?

In many ways, yes, it should cost a lot less to be retired than to be at work. By the time retirement comes round, most people have paid off the major cost in their lives – their mortgage.

No more regular commuting to your workplace every day will cut down travel expenses, or petrol bills, plus wear and tear on your car. Not having to buy work clothes will leave more money in your pocket, and so too will not buying lunches and coffees through your working day.

If your children have also left home by the time you retire, you’ll find that your food, utility, holiday and entertainment bills will all lower substantially. So your everyday costs should all be much less than they are now.

Hopefully, this should mean that there is room in your budget for some of the luxuries you promised yourself when you were saving up for retirement.

What will it cost?

Thinking about what you need to afford when you retire and what you would love to be able to afford – and everything in between – could be helpful when planning your retirement income.

The first cost to examine is your housing. Staying in a spacious family home will cost more in heating, lighting and repairs than downsizing to a smaller property. It’s worth looking at how much you pay for these costs now and budgeting for them to rise in the future.

Moving to a smaller property could bring costs down, but it’s worth noting that well maintained or serviced apartments do come with service charges that can vary [3]. And if you move to a sheltered housing or assisted living complex, the service charges are higher to pay for the increased support offered.

Day-to-day costs

Most retirees will want to make sure there’s plenty of room in their budget not just for basic groceries, but for the treats too. The average spend on groceries in the UK is £25 per person per week with an additional £12.80 a week on restaurants and takeaways [4].

The luxuries

To ensure later life is interesting, you may find that there are some areas you’d like to spend more on. You might want to join a gym or a golf club, or take up yoga, now that you have the time to enjoy them. This could range from £20 per month to hundreds of pounds per month. It’s worth taking a look at all the options so you can find the one that’s right for you.

You might also like to make sure there’s room for spending money on new hobbies: learning to sail, learning to paint or to write, becoming a dedicated gardener or a road-race cyclist – these will all have price tags attached, from thousands of pounds in new equipment, to a modest monthly contribution for local club memberships.

Are you an adventurous traveller?

A holiday to Europe every year will cost in the region of £1,500 per person. For long-haul holidays to dream destinations, expect to pay up to £5,000 [5] per person. Adventurous travellers might want to explore options that could stretch their travel budget further: driving a motorhome around New Zealand, for example, could cost a UK couple around £3,000 [6], with flights.

The extras

When creating a retirement income budget, people often forget they’ll need money set aside for those one-off bigger costs that come round every five years or so. For example, the average cost of a new car in the UK is £28,000 [7]. For householders, roof repairs are a regular expense that could range in price from several hundred pounds to several thousand [8]. A new boiler might set you back several thousand also.

What about your health? Do you want to have private insurance? And one expense that’s often overlooked is teeth, which can require expensive attention as the years go on.

The retirement smile

It’s worth remembering that retirement spending tends to follow a smile-shaped curve [9]. It’s natural when you’re done with work for good to splash the cash for a few years. But in later years, people tend slow down and seek simpler pleasures, so spending usually drops. Later in life, care home costs can push the spending curve up again. Retirees often spend carefully early in retirement to make sure there’s money left for the care they want.

Make a plan

The essential thing is to be able to enjoy your retirement within your means. If you’re still some years away from leaving work, or if you’re already in your retirement years, there’s always room for a well-thought-out retirement budget.

Consider discussing this with a financial adviser, who can help you plot your potential spending needs over time, and suggest ways in which your savings and investments could best be employed to help you meet them.

Important information

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