This doesn’t have to be a major exercise. A quick look at your bank statements can act as a start point:
- Think about what will increase or reduce in retirement? Will you still have a mortgage or need to commute? In contrast, energy bills could increase if you’re at home more.
- Consider how you plan to spend your retirement? Will this involve extra expense? For example, more holidays or indulging in new hobbies and interests?
- Split expenditure between essential expenses, important expenses and optional expenses. If you need to make cuts, start with optional expenses first.
Add up all your expected income and calculate any tax payable. Income tax is payable on your State Pension, company and private pensions and any other income. You can calculate the tax you might pay in retirement here. It’s a simple calculator that’s free to use.
Don’t forget…
Some of your expenditure will be irregular:
- Occasional expenses. Not all your expenses occur annually. For example, replacing a computer or buying a new car.
- Unexpected expenses. There will be unexpected expenses from time to time. Repairs to the house, for example.
What if you haven’t got enough money?
Don’t panic. You have options:
- Review your optional expenses. See where you could make savings. For example, eating out less, fewer holidays.
- Reduce your outgoings. Shop around for cheaper insurance, lower energy bills, better deals for your mobile etc.
- Increase your income. Could you work part time to raise a little more money?
- Could you consider downsizing or equity release to boost your income?
- Are you likely to inherit money (you might take more from your pension pot if you’re confident of a future inheritance)?
- Delay your retirement. If all else fails, consider delaying your retirement? This’ll give you a chance to increase your pension savings.