Budget for your retirement

Assessing your living costs when you retire is crucial to planning your retirement income.

Changes to your spending

Your cost of living will change when you retire, with some expenses increasing while others decrease. For instance your mortgage may be paid off, but you may need to pay more for health care.

Your health and lifestyle plus what you want from your retirement will affect what you spend money on. You might eat out more, take holidays or spend more on energy bills as you will be at home more often.

What will you spend your money on?

To get an idea of where your money needs to go, try categorising your expenses into four types: 

ESSENTIAL This includes those items of expenditure that you have to make sure you have sufficient income to cover such as:
  • Food
  • Housing
  • Gas, electricity, water
  • Debt
IMPORTANT This will cover expenditure which, though not essential, most of us would consider critical such as:
  • Insurance
  • Clothing
  • Healthcare
  • Car maintenance
DISCRETIONARY  Discretionary expense might include:
  • Holidays
  • Entertainment
  • Club membership
  • Hobbies and interests
OCCASIONAL MAJOR Cover for unforeseen or major items of expenditure. For example:
  • Long term care
  • Help children with housing deposit
  • Major repairs to the home
  • New car or new home appliances

Then match your expenses to the following income sources:

GUARANTEED It’s critical that your essential expenditure is covered so make sure you have enough guaranteed income:
  • State Pensions
  • Personal or stakeholder pensions
  • Company or occupational pensions
  • Annuities
RELIABLE Reliable sources of income should be used to cover important expenses:
  • Cash
  • National Savings
  • Insurance bonds
  • Income from any on-going employment
VARIABLE Examples of variable income could include:
  • Unit trusts/investment bonds
  • Equities
  • ISAs
  • Property
OTHER ONE-OFF SOURCES  These could include:

If you’d like to look more closely at your budgeting then the Money Advice Service has a helpful budget planner which allows you to work through your expenses and income in more detail.

Your next steps

Or move on to the next section

Retirement Options which looks at the different ways you can access your pension pot.