Over the coming weeks I’ll be releasing a series of 3 articles on retirement planning, split into 3 bitesize steps:
1. How much will you spend in retirement – what sort of lifestyle do you want?
2. How much income can you expect to receive, based upon your existing plans?
3. How can you bridge any shortfall identified?
Approaching the issue in a methodical way is worthwhile whatever your situation; if you’re on track to meet your target income this should give you some peace of mind, whereas if you have a shortfall to make up, you can consider how best to achieve this.
So, to kick this off, the first question you’ll need ask yourself when making a plan is:
How much will you spend in retirement?
Such a seemingly simple question can be difficult to answer – whilst you could base it on your existing spend this could change in retirement; hopefully mortgages will be paid off but you’ll have more free time, so you may spend more on other things.
A different approach could prove useful, and help you put more thought into the kind of retirement you actually want to plan for.
With this in mind the Pensions and Lifetime Savings Association & Loughborough University have created the Retirement Living Standards, which aims to cut through the ambiguity that can surround retirement planning.
The Retirement Living Standards provide single people and couples with an estimated retirement spend, based upon the kind of lifestyle they want to lead in retirement – Minimum, Moderate & Comfortable. For more information, click here.
The table below shows the annual spend figures for single people and couples (with a higher figure for those living in London).
To give you some idea of what these numbers actually mean in terms of lifestyle, the Retirement Living Standards cover typical spending for each of the three groups in key areas; house, food & drink, transport, holidays and leisure, clothing/personal and helping others.
Having real examples of what a given level of expenditure means in practice will allow you to make an informed choice. I find people often say they’ll cut down spending in retirement, but can struggle when challenged about what area of their life they’ll actually spend less on. If you enjoy nothing more than pottering around in the garden and rarely go out for dinner, perhaps you can live the life you want on a low retirement income, whereas if you want to travel a lot, you’ll need to plan more. The most important thing is to be realistic and don’t procrastinate, this your retirement plan!