Budgeting in Retirement


None of us know what’s around the corner but your retirement could last 20 or even 30 years so it’s important to plan your finances carefully.

You should consider how your outgoings might alter when you retire. You may end up spending less on some items like travelling to work but more on others such as heating so you should try to establish an idea of how much you might need and what you’re most likely to spend money on for, what might turn out to be, a considerable number of years.

Consider Your Present Situation

Before you can make any decisions about how you are going to budget, you should look at your current circumstances and prepare a personal budget. When you have completed this, you can use it to plan things like savings or investments or, if you have debt problems, you can use the budget to negotiate a suitable repayment strategy.

How do I Prepare a Budget?

Household Income

Firstly, make a list of all sources of household income and how much you get from each. Possible sources of income can include wages, state retirement pension, occupational or personal pension, council tax benefit, attendance allowance or disability living allowance, housing benefit and income from any savings and investments.

Decide whether your personal budget is going to be drawn up on a weekly or monthly basis and convert each item accordingly. If your income and/or expenditure should rise, then you need to update your budget figures. You should do that at least once a year anyway and April is usually a good time as this is when pension and benefit rates are increased.

Household Expenditure

Draw up a list of everything you spend money on. Include as many things as you can think of with a weekly or monthly figure (depending on how you’ve drawn up your plan) and make as close an estimate as possible for variable or irregular payments, e.g. holidays, home repairs and entertainment. If you own a car, include things like road tax, petrol and essential maintenance.

Your Assets

This should include details of any savings accounts, stocks and shares, your car, premium bonds, house, valuable jewellery and the value of any life insurance policies. If any of the items are not fully paid for, make a note of what you still owe against that item and also include deductions from any loans, credit cards, debts or any other arrears you might have.

Balancing the Budget

Now that you have the 2 lists, you need to balance your budget and ensure that your expenditure does not exceed your income. If your income exceeds your expenditure (taking into account any unexpected bills and any other unforeseen expenses that might occur), then your budget balances and you can safely spend any excess money you’ve set aside for things like holidays, entertainment etc. However, if your expenditure is higher than your income, you need to reduce the amount of your spending or look for ways of increasing your income.

There Are Numerous Ways You Can Try to do This

Are you entitled to tax allowances? Many people over 65 are entitled to higher tax allowances so make sure that you’re not paying too much tax.

Are you entitled to any welfare benefits? If your weekly income is low, you may be entitled to Pension Credit. You also might be entitled to claim Council Tax Benefit or Disability Allowance. If in doubt, contact your local Department for Work and Pensions who can tell you exactly what you can claim for.

If you have grown up children living with you, try to ensure that they make a fair financial contribution to your living costs. It can be useful to show them your expenses list just so they can see for themselves the amounts of the bills you have to pay.

Don’t forget the winter fuel payments you are entitled to. These payments can greatly reduce the cost of your fuel bills and grants are also available to help you with things like home insulation and draught-proofing and for central heating, in some cases which could help you further reduce your utility spend.

Spread Your Bills Evenly

It is easier to budget if you can spread the cost of your bills evenly over the course of the year. Most companies let you pay by monthly direct debit these days which can even bills out throughout the year.. A lot of them will even offer you a discount on the normal cost for paying by direct debit.

Rainy Day Money

Even if it’s just a few pounds here and there, try to build up some savings for a ‘rainy day’. This will give you an additional source of savings which you can tap into to pay for any unexpected bills that may arise.

Equity Release Schemes

If you’re a homeowner, these schemes allow you to release some of the capital tied up in your home and convert it into a cash lump sum or into an additional monthly source of income. It can be a useful and cost effective way to have an additional income when you retire but you should speak to an Independent Financial Advisor before going ahead with such a scheme as your home could be at risk if you fail to keep up with the repayments.

What if I Still Don’t Have Enough Money to Meet my Expenditure?

The first thing to do is not to panic. If you find that you still don’t have enough money, try to meet your priority bills first. These include things like mortgage, rent, council tax, gas, electric, water. Credit cards and other unsecured loans are not priority bills and even if you start receiving threatening letters and phone calls if you cannot pay, don’t get flustered. Companies can often offer reduced payment schemes even as low as £1 a week and they would often rather get a little money regularly than lose out altogether. If you are struggling with these kinds of debts, the National Debt Helpline or Citizen’s Advice Bureau are a good place to seek help.

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