“Many of our clients have been with us for decades. We have helped them through the evolution of their pension schemes, from inception to maturity. We understand each stage and the associated responsibilities.”
Philip Harper Financial Planner

If you’re prepared financially and physically healthy, retirement can last decades.  Retirement is both an event and a process. In one plausible scenario, your benefits and savings must cover your expenses for three decades or more. The expenses at each stage of retirement are associated with how you choose to spend your time, where you decide to live, and how your health holds up. If you take these factors into account and evaluate how they will change throughout retirement, you can budget accordingly.

To help with this process, we have identified four stages of retirement, each stage has different expenses and requires distinct approaches to budgeting. Here’s what those stages look like and how to handle your finances accordingly.

Pre-retirement Stage
Pre-retirement is the stage just before retirement.  You are still working, but retirement is approaching and you’re finally getting a clear picture of what your income, and expenses will look like. You’re also getting closer to figuring out what you’ll do with your days once you’re free to fill them as you please. What seemed merely theoretical earlier in your working life now starts to seem real.

At this stage, assess your likely income and expenses after you exit the workforce?  Will you have paid off your mortgage, and if not, how much do you still owe and for how long?  You may be in a strong enough position financially to seriously evaluate whether you can afford to retire early.  If you run a family business, this is a good time to create a succession plan.

Pre-retirement is also a good time to re-evaluate your monthly and annual expenses and cut back on costs that have crept up over the years.  Eliminate any wasteful spending and give your retirement budget some breathing room. Also, at this stage (as well as, possibly, the early stages of your retirement), you may still have major expenses like putting your children through further education, helping them with a deposit for a property, or paying for a wedding.  Finally, you might want to replace your usual vacations with trips to places you’ve envisioned yourself moving to during retirement.

Early Retirement
Some of the biggest changes in your budget will occur when you first retire. You’ll no longer receive a regular salary and you’ll need a plan for managing your income during retirement. You might also lose employer-sponsored health insurance.

You may be tempted to go on a spending spree at this early stage of retirement. You’ll have a lot of free time, while still healthy and energetic. In this phase, you might want to buy that sports car you’ve always dreamed of, take an extended European vacation, go to culinary school, or take up sailing. With more freedom to travel, you may want to buy a holiday home to escape the British winters. you can however quickly deplete your savings if you treat retirement like winning the lottery.

One way to manage new expenses in early retirement is to consider a part-time or seasonal job, start a business that gives you flexible hours. Earning £20,000 a year when you need £40,000 is a serious problem, but once you’ve retired, it looks better than earning nothing, and at this point, it’s more about personal satisfaction, anyway. You can also balance the expensive activities you want to spend time on with inexpensive or free ones: volunteer to train service dogs, teach a photography class at your local community centre, or lead biking excursions.

Middle Retirement
By middle retirement, you’ll likely be receiving State Pension.  In addition to receiving more income in this stage, you might be tired of some of the travel and new activities you pursued during early retirement, so your expenses might decrease. You might want to travel less and stay home more, or your travel might be centred around less expensive trips to visit your grandchildren and other friends or family. With luck, your children are established enough in their careers that they no longer turn to you for money.

Late Retirement
You might have new expenses in late retirement if you move to an independent or assisted living facility or if your health means you need to move to a nursing home or hire a home health aide.

You’ll want to reassess your savings and decide whether you should be withdrawing money at a faster or slower rate. If you’re running low on cash and you still live in your home, you might consider Equity Release as a source of funds. Looking at what you have left, you’ll need to think about what you want to spend during your lifetime and what you want to leave to others.

Complete our Budget Calculator and we will send you a report.  This will help you see your current expenditure.

By Philip Harper  |  July 2020