While you are unlikely to need as much money as you did when you were working, you will want to ensure you have enough to maintain a decent standard of living.
Here we take a closer look at some of the things you need to consider.
Look carefully at your spending
As a starting point you should try to get a clear picture of your current outgoings.
A simple way to do this is by sitting down with three months’ worth of bank statements.
Go through these carefully, and note how much you spend each month on utilities, food shopping and other bills and expenses. Also remember to factor in one-off spending on things, such as holidays, birthdays and car repairs.
Think about how this will change in retirement
Once you’ve got a good idea of how much you are spending each month, think about how this will change once you stop working.
If, for example, you have paid off your mortgage, this will significantly reduce your monthly outgoings. But if you will still have to find money to pay this – or rent – you will need to factor this in.
At the same time, if your children have left home, this is an area where you can make some big savings.
That said, if you still have grown-up children living at home – or if you are still helping them out financially – you will need to include this in your budgeting.
Another area where you can reduce expenditure in retirement is on commuting, as you will no longer have to travel to and from work each day. In addition, if you are over 60, you can take advantage of reduced rates on trains, and free off-peak travel on buses.
Where might costs go up?
While there are plenty of areas where you can save money, don’t forget that some costs will go up. Heating bills, for example, could get more costly as you spend more time at home.
You are also likely to spend more on hobbies and interests, such as sports or social clubs, and may want to go on lots more holidays now you have the time to do so.
Also, if you had a company car or company health insurance, these might be additional costs which now need to be met.
Work out your income
Once you’ve worked out all your planned expenditure for your later years, you need to balance this against the amount of income you will be getting from your pension.
Having done the sums, you may discover you have nowhere near enough to replicate the wage you had been getting while you were working.
The cold hard truth is that for many people, despite having saved hard throughout their years in employment, the average pension pot is unlikely to be sufficient to fund a comfortable lifestyle.
Equity release could help you fill the gap
If there is a gap between the income you will get from your pension, and the amount you need to cover your outgoings, and you don’t have savings to bridge this gap you may want to think about equity release.
Equity release allows you to take out some of the cash that has built up in your property as a tax-free sum. This could be a viable option if you have a lot of wealth tied up in your home – and could help you make the most of your retirement.
And finally, don’t forget to take advantage of all the help and benefits you are entitled to in your later years, such as the Pension Credit, Winter Fuel Payment and Cold Weather Payments. Visit Turn2us.org.uk if you need help accessing welfare benefits.