Retirement Budgeting

Having retired many people over the years, in the strictly “non-mafia” sense of course, I typically find it takes clients 24 months to adjust to a regular pattern of spending as they acclimatize to this next, hopefully long and fulfilling phase of their lives. Determining how much people should realistically expect their spending to be in retirement has always been a challenge.

Like the doctor who smokes or the lawyer without a Will, I too am guilty of underestimating how much I spend, especially around holidays. As if cash spent abroad somehow doesn’t count, when in fact it can run into the thousands – especially if, like me, you have a habit of smashing up hire cars! Such is the weird world of my mental accounting.

Similarly, many clients who regularly withdraw cash weekly to cover their day-to-day spending frequently disregard this in their own budgeting, thus ignoring £12 - £15,000 of annual spend. In other cases, clients are nervous about how much they truly spend and are hesitant to discuss the subject, despite it being such a critical area in planning generally, not least for retirement goal setting.

In this blog, I’ll explore the three different methods I use depending on the clients' attitudes and circumstances:

Banking or Personal Finance Apps

These apps can provide a detailed overview of spending habits by categorising expenses automatically. They offer insights into where money is being spent and can help identify areas for potential savings. By regularly reviewing these reports, clients can gain a clearer understanding of their spending patterns and make informed decisions about their retirement budget.

3- or 6-Months’ Worth of Bank Statements

Reviewing several months' worth of bank statements can offer a comprehensive view of spending habits. This method allows clients to see actual transactions and identify any recurring expenses or one-off costs that may have been overlooked. It's a straightforward approach that can highlight areas where spending can be adjusted to better align with retirement goals. This approach is a little more time consuming and you need to be careful that the period in question isnt artificially light in expenditure (a common problem experienced with those retiring during COVID-19 lockdown).

Categorisation by Household, Personal, Discretionary + Holidays

Breaking down expenses into specific categories such as household, personal, discretionary, and holidays can provide a more structured approach to budgeting. This method helps clients understand the proportion of their income being spent in each area and allows for more targeted adjustments. For example, discretionary spending can be reviewed to identify non-essential expenses that can be reduced or eliminated.

Conclusion

Retirement budgeting is a crucial aspect of financial planning that requires careful consideration and regular review. By using these methods, clients can gain a clearer understanding of their spending habits and make informed decisions to ensure a comfortable and fulfilling retirement. Remember, the key to successful retirement budgeting is not just about cutting costs but about understanding and managing spending in a way that aligns with your financial goals.

Do you need help establishing your own budget? Feel free to get in touch via the link below.