This guide is intended for educational purposes only and does not constitute financial advice. Everyone’s situation is unique, and you should seek advice from a professional financial advisor.
Budgeting for a happy and comfortable retirement
Financial planning is key to a comfortable retirement. But getting around to the actual planning can be daunting, and many people don’t know where to start – often leaving financial planning too late.
In the Department for Work and Pensions (DWP) report on Planning and Preparing for Later Life in 2024, which focused on people aged 40-75, there were several worrying statistics:
- 41% have no idea how much income they’d need in later life.
- 25% don’t have a private pension, including workplace pensions and self-managed personal pensions.
- 38% had no savings at all.
This financial black hole means thousands of people could be entirely dependent on the state pension in later life, which is very unlikely to provide a comfortable lifestyle. This is even more concerning when you factor in the impact of the rising cost of living.
Understanding what you need to budget for helps you understand what your retirement income will need to support. This could include:
- Monthly spending: Consider outgoings such as TV and magazine subscriptions, utilities, and mobile phone bills.
- Food: Keep an eye on your receipts after doing the food. Perhaps you can immediately notice simple switches to supermarket own brands to save money.
- Other essentials: You should also account for things like household maintenance, new furnishings, car expenses, pet care, and clothing.
- Luxuries: Think about how much you can afford to spend on extras, like holidays, hobbies, eating out, and gifts for your family.
- Savings: Lastly, you should be able to set aside savings for short- and long-term purposes, such as emergencies, rainy days, and most importantly, your future.
Having a budget will make you feel in control of your finances and ensure you’re better able to cope with a change in circumstances, as you’ll know where you can cut back.
Planning your income for retirement
Assuming you give up paid work entirely during retirement, your income is likely to be primarily made up of your pension, other savings, and any benefits you might be entitled to.
Pension and savings
According to the DWP, the average weekly pension is £455, which amounts to £23,660 per year. Just over 80% of a single retiree’s income comes from pensions, including the State Pension, personal pensions, and any workplace pensions you might have.
Retirement Living Standards suggests a single retiree who wants to enjoy a moderate lifestyle might spend £32,700 a year, so you would need an additional source of income to meet this threshold. A moderate lifestyle includes a stable level of financial security with some flexibility. For a more comfortable lifestyle with more financial freedom and some luxuries, you might need an annual income of £45,400, which is a much further gap to close.
Although these figures are intended to be a general guide, they illustrate just how much you’ll need to rely on your pension income. The exact amount you need to retire comfortably will depend on your individual circumstances and aspirations – not to mention inflation.
Speak to your pension provider about your projected retirement income, and they’ll be able to offer advice on how to boost your savings to create a better future for yourself.
Benefits and entitlements
Older people are missing out on pots of money they’re entitled to, many of which you would have directly contributed towards through tax, and rightfully deserve to claim. According to Age UK, up to £3 billion in state benefits goes unclaimed by older people every year, with many people not knowing they’re eligible or finding the claims process off-putting.
Your exact entitlement will vary based on personal circumstances, but you might be eligible for:
- State Pension: You do actually need to claim this as it doesn’t come to you automatically!
- Pension Credit
- Housing Benefit or Support for Mortgage Interest
- Attendance Allowance
- Council Tax Reduction
- Help with heating costs
- Help with health costs
Our free entitlements service helps ensure our customers get all the money they’re owed. Get in touch with our team to see if you are eligible for extra income.
Find out what you’re entitled to
Get started with these 5 financial planning tips for retirement
The best thing you can do to prepare your income for retirement is not to panic, but start planning! Take control of your later-life financial planning by creating a simple list of smaller, easily achievable tasks that add up. Here are our top five things you can do to put your retirement planning back on track.
1. Review what you have now
Get as complete a picture as possible of your current finances and expected future income.
- Go through all your pensions, insurance policies, mortgage statements, credit card debts, legal documents, and savings accounts.
- Make a checklist of areas that need attention. For example, are your insurance policies still relevant? Do you have holes in your pension provision or long-term savings needs that need addressing now?
Set yourself a timeframe and start to address any issues one by one.
2. Get advice on your pension options
You have several options when it comes to taking an income from your pension.
Should you choose an annuity or drawdown pension – or a mixture of both? Or should you take lump sums when you want to, with the first 25% taken tax-free? The best route for you will depend entirely on your personal circumstances.
For free impartial advice, talk to Pension Wise. You should also consider talking to a regulated independent financial advisor.
3. Factor in the cost of living
Many people are concerned about the rising cost of living, which is to be expected. You can plan your income perfectly for the current economic climate, but that could change in 10, 15, 20 years.
But you shouldn’t have to compromise. There are many ways to cut your costs while still enjoying the fulfilling lifestyle you deserve, such as choosing the right housing.
Find out how to cut your costs
4. Is your home benefiting your finances?
Your home is an important financial asset, but it can also be a financial drain. Ask yourself:
- Have you paid off your mortgage? Can you do it sooner?
- Is your house too big or too expensive to maintain, or should you consider downsizing?
- Is it energy-efficient, or do you find yourself with high utility bills?
If you’re a homeowner aged 55 or over, you can use your home to boost your income in retirement by releasing the equity as a lump sum, but you should always seek independent advice first.
5. Talk to your family
Involve your family in discussions about later-life financial planning. Over half of people over 50 have never spoken to their families about their financial wishes. It can be a difficult topic to cover, but you’ll all feel better for it in the long run. Discuss:
- Where you all live: Your children might hope you’ll move closer to them, or be planning a move of their own that impacts where you want to live.
- Making a will: It’s not a cheery topic, but it’s necessary. Over half of UK adults don’t have a will, and while you might assume your assets will simply go to your nearest and dearest, there’s no guarantee if there’s no will.
- Setting up lasting power of attorney: This legal document details how and when you want to pass on responsibility for your financial affairs and personal wellbeing should you become incapacitated. It’s something you hope you’ll never need, but it will immediately alleviate stress if you do.
- Planning your funeral: An unfortunate reality is that dying is expensive. The average funeral cost is £3,828. Just like making a will, pre-paying funeral costs, and sharing your wishes with your family, are practical ways to help them cope in the event of your death.
Smart apps to help you save money, budget, and plan
Technology has paved the way for many clever money-saving tools. We’ve rounded up some of the smartest apps to help you to take care of your daily finances and save money on bills and essentials too.
- Plum
Plum gives you an overview of your finances and analyses your spending, and it calculates how much you can afford to set aside and automatically saves or invests it for you, too. - Too Good To Go
Save money and help reduce food waste with Too Good To Go, which lets you buy bags of food from local businesses and chains at a huge discount. This can be anything from hot, fresh food from local restaurants to bread, cakes, fruit, and vegetables from nearby grocery stores. - Hotukdeals
Save on your shopping with Hotukdeals, which helps you find bargains and discounts on everything from groceries and clothing to holidays and hobbies. - Sprive
Overpay on your mortgage for free with Sprive, simply by using the app when you do everyday shopping with over 1,000 brands online and in person.
Choosing where to live in retirement
For many, the transition to retirement necessitates a move to a new home that supports your lifestyle, not hinders it.
Perhaps you want a smaller home now your children have flown the nest and would like to spend less time on maintenance and cleaning. Or maybe you’re still very independent, but your mobility isn’t what it used to be, and you could benefit from a helping hand with chores.
Moving into a brand-new McCarthy & Stone retirement home offers a range of benefits, one of the biggest being significant savings.
As well as a beautiful, easier-to-manage, modern property and a friendly community on the doorstep, life in a McCarthy & Stone Retirement Living or Retirement Living Plus development can reduce your cost of living. Warm, energy-efficient, and easy to maintain, these homes offer savings, including lower energy and utility bills and often cheaper maintenance and running costs.
