When you retire, your income could be significantly lower than when you were working so it is essential to know not only the amount of your retirement income but also your anticipated expenditure. This should not be the subject of guesswork but of a careful and detailed calculation. I am now going to suggest a process that you may find helpful.
Income
Identify your sources of income and note the amount which is due from each. These might include some of the following:
- An occupational pension.
- Any pension from previous employment.
- A personal pension.
- The State Pension.
- Investment income.
- State benefits.
Expenditure
1. Make a list from your bank and credit card statements of all items of expenditure over the past 12 months and put these into categories such as the following:
- Mortgage (or rent & service charge)
- Council Tax
- Electricity
- Gas
- Water
- Household shopping
- Property repairs & decoration
- Telephone, mobile & Internet
- TV licence & Sky
- Buildings & contents insurance
- Motor insurance
- Life insurance
- Medical insurance
- Miscellaneous insurance
- Motoring expenses (other than insurance)
- Healthcare, including dentist & optician
- Clothes
- Garden
- Holidays
- Leisure & entertainment
- Wine, beer & spirits
- Newspapers & magazines
- Charitable donations
- Gifts
- Cash & sundries
2. Remove any items which will not be incurred after retirement such as fares in travelling to and from work and premiums on life assurance policies which may be about to mature.
3. Adjust any items which are about to increase or decrease after retirement. It may be, for example, that your last holiday was less expensive than usual or that you envisage spending less on clothes when you no longer have to go to work.
4. Allow for repairs and decoration of your home.
5. Provide a sensible sum for cash and sundries.
6. You may consider it prudent to establish a sinking fund for the replacement of your car.
7. Remember to allow for inflation and to bear in mind that your pension will be subject to income tax.
8. Finally, if necessary, adjust your budgeted expenditure to keep it within the bounds of your projected income.
Leave a Reply