How to Manage Your Finances Now You Are Retired

September 19, 2012

Retiring is not just a complete change of lifestyle. Your routine will change: travelling to and from work is a dubious pleasure you will no longer have, but your monthly salary will also disappear. You may have paid off your mortgage, and possibly be debt free, but other expenses will keep rolling in. And the extra time on your hands, perhaps new hobbies, or the desire to travel, will incur expense that wasn’t there before.

It’s just as important to manage your finances in retirement as it was before you left your workplace for the last time. In fact, it could be argued even more so, as you won’t have the possibility of falling back on extra overtime to make up any short term shortfall.

Prepare your retirement budget before you retire

You should start considering your retirement finances a two or three years before the actual date. This way you still have time to make those last minute emergency adjustments to your pension planning. Any lump sum savings that you have may be able to be paid into your pension scheme, benefitting from the tax relief available and boosting income in retirement. And don’t forget that you can take up to 25% of your pension fund as a tax free cash lump sum when you do retire.

Your outgoings

Monthly outgoings such as electricity and gas may well increase after retirement. You’ll be spending more time at home and in the house. Other outgoings such as car tax and insurance might remain fairly stable. And expenses such as satellite television, internet, and telephone charges might rise in line with inflation. You’ll be able to get a free television licence, but not until you are 75.

You might wish to travel more, but we all know how the cost of petrol seems to move in only one direction. The cost of eating out, and at home, is unlikely to fall.

If you have life insurance, then the monthly premiums may start rising now you are getting older. And your house will still need to be insured against fire, flooding, and damage, as well as theft of its contents. And, of course, the Council tax will still have to be paid.

Your income

If you are fortunate, you may have a company pension to give you income. And if you have been paying into a personal pension, then you’ll have the opportunity to take a lump sum (tax free) and then create annuity income for life. Finally you’ll have a state pension payable to you, though the amount you receive will depend upon the number of qualifying years of national insurance you have built up over your working lifetime.

You should request a pension prediction from the Department of Works and Pensions (DWP), as well as from your pension providers and company. Though these will not be 100% accurate (investments may go up or down before you retire and these could affect pension benefits), they will give you a very good idea of what your income will look like when you finally retire.

Even so close to your retirement, there will still be options available to you to increase potential income. Talking to your financial advisor at this time is very important. He’ll be able to explore all the options and help plan your financial security. Two or three years out from your retirement date, it may be worth considering moving any invested pension funds into cautious assets to protect their value from a fall in the stock market.

Prepare to cut your spending

Having considered your outgoings, you should consider how to cut them, even if you believe your income will be more than sufficient. Any money saved now will be available in later life, when your needs may be greater.

You can use price comparison websites to search for the best prices on your basket of foodstuffs each week. Many shops and restaurants have special pensioner rates. There are also plenty of sites that offer price reduction vouchers on all sorts of goods and services, and last minute holiday deals mean that you can jet off somewhere exotic at a snip of the regular price.

Don’t be too proud to seek financial help

When you retire, there will be a lot of financial help available to you should you be on a lower income. There are plenty of state benefits, and local authorities will offer help with housing and care costs, as well as council tax.

It is estimated that over 1.5 million pensioners pass up over £5 billion of potential state and local authority benefits each year. That’s an average of over £3,000 each. You have paid into the system by way of tax and national insurance the whole of your working life: now is not the time to be shy about receiving your full entitlement.

And don’t forget that you will be eligible for a free bus pass which will help cut the costs of travel by car and parking. Take the bus, eat out at a discounted rate, and treat yourself to a little tipple (if you so wish) with the money you have saved.

In conclusion

There is no time that is too early to begin saving for retirement, but you should consider the impact of retirement on your income and outgoings more fully the nearer the big day comes. Taking the following actions will help make your retirement more comfortable and more fulfilling:

  • · Start budget planning three years before you retire;
  • · Speak to a financial advisor to assess your retirement options;
  • · Consider boosting your pension pot using any cash savings you have;
  • · Request pension projections from providers, your company, and the DWP;
  • · When preparing your budget, overestimate outgoings and be conservative with income;
  • · You don’t have to go without, but shop wisely and make use of special offers and pensioner prices;
  • · Explore and accept state and local authority financial help.