When it comes to your retirement or pension savings, let's face it, you need help. Planning your retirement life is all about the budget and expenses. It would be best if you had an idea of what your monthly expenses could be. How you live and where your money comes from will depend on the kind of lifestyle that you want to lead when you retire. 

 

How to determine retirement income.

Predict your retirement lifestyle and expenses when you retire, and plan your retirement savings accordingly. This is ideal if you are still young and have many years before you go on pension. 

You can use a predictive tool like an online retirement calculator to estimate potential income. Remember that these are just estimates based on market performance history. Anything can happen in the markets, and this should only be used as a guideline. It makes more sense to base your income on less favourable returns and get more than the other way around and have to downscale your lifestyle.

Another scenario is for the older generation with a few years till retirement. Your advisor will project what your income could be, based on your current retirement savings and pensions and then plan a budget accordingly.

 

What should your monthly retirement budget consist of?

These are the regular monthly expenses you would have to maintain your lifestyle.

• Basic needs – these are your groceries, personal products and luxuries you need every month.
• Utilities – even if your home is paid for, you will have monthly upkeep expenses like water and electricity, taxes, HOA fees, garden services etc.
• Mortgage – ideally, your mortgage should be paid in full to reduce your monthly expenses in retirement, but in reality, you might have a few more years of mortgage payments left. Remember to calculate this into your monthly budget.
• Rent – you might have sold your properties and would want to rent a home, especially if you retire abroad in another country. 
• Healthcare – you might be fortunate enough to have free state healthcare in your retirement country, but you would need private medical insurance to help pay medical expenses for those who don't. 
• Hobbies – you will need something to do when you retire, and spending more time with your hobbies seems like a win-win situation. It is essential to budget for this. Some hobbies can become expensive, like country club memberships, golf equipment, kayaking, painting etc. Perhaps you prefer gardening or reading, which could be a cheaper pastime.
• Social – are you a social butterfly that loves going out and eating out? This will up your budget.
• Income tax -even in retirement, you will be expected to pay taxes. Remember that your retirement income is taxable. Speaking to a financial advisor can help structure your retirement savings to mitigate taxation.
• Vehicle – a vehicle loan instalment or monthly maintenance like fuel.
• Savings – It is always prudent to have some savings set aside, even in retirement. You never know what may happen. 

An eye-opening reality is that you might have to care for older family members even though you are retired, e.g. a parent or aunt in their 90s. This will cost extra money.

 

Extras to include that you would never think about

• Special needs – your medical needs increase as you age. You may need to pay for home care, wheelchairs, bathroom retrofits or chair lifts.
• Vacations – you may be fortunate enough not to have to budget for things like vacations and travels, but it is the prudent thing to do. If you are not reliant on your state pension, it can be used for vacations or luxuries.
• Once-off expenses – these are significant expenses that you might not think to budget for. Retirement budgeting is not just about a monthly income but also about once-off costs. For example, a major renovation to your home like a roof replacement, adding rooms to rent out, buying a new car, or purchasing a vacation home etc. If you do not have savings other than your retirement savings for this, then it must be deducted from your total retirement savings pot.
• Rainy day fund – A rainy day fund is essential to cover unforeseen emergencies.

An essential factor to consider in your retirement planning budget is whether you want to work through retirement, albeit part-time or full-time. This will affect your retirement income projections.

 

Your deVere financial advisor can advise on a comprehensive retirement budget on which to base your retirement savings plan.

 

Please note, the above is for educational purposes only and does not constitute advice. You should always contact your deVere advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.