Plan the shape of your retirement

Over the years I have had many client meetings where we have discussed retirement – what does it look like, what will you do with your time, what income do you need to support that lifestyle and so on. What it has taught me is that each person’s retirement is as unique as the individuals themselves.

However, as an overview I have found that, for many, their retirement falls into one of the following categories.

This would be typical for someone working long hours, with an intense career or business interest. Put simply, if you are working 50 or 60 hours a week, your ability to spend is severely curtailed.

As such, rather than reducing, your expenditure goes up in retirement, sometimes substantially. The sudden ability to holiday more, or simply occupying the 10-12 hours a day that was previously taken up with work, can see your outgoings ramp up. This sometimes catches people out – at a time when they see a reduction in household income they also suddenly spend more, which exacerbates a tightening of cashflow.

Although more rare, sometimes costs can go down in retirement. This is often because mortgages are then paid off, and costs associated with protecting your standard of living – such as insurances – are no longer needed. Another common example can be reducing from two to one vehicle if both sides of a couple are no longer working.

In these circumstances costs can go down as any increased discretionary spending is dwarfed by the savings on these ‘bigger ticket’ items.

Similar to the above, but where matters settle down. As we grow older the desire to charge around the world or to travel long haul usually diminishes, or you simply ‘tick off’ the destinations that you want to visit. Often people settle into a simpler lifestyle; while their expenditure may spike in early retirement, it drops thereafter.

Increasingly people have less of a cliff edge retirement – for example, they reduce hours or they choose less demanding roles rather than go straight to full retirement. A phasing into retirement can often be a good trial run where pension income (alone) is unlikely to replicate full earning capacity. Continuing to work may also mean delaying drawing pensions, giving additional sums at a later date. As such this can see a rather flat shape to retirement.

Perhaps the one retirement that none of us want, where late-in-life costs increase significantly. As health deteriorates costs can go up in old age, with more help needed in and around the home. While some modest help is available from the state, most or all of this is often self-funded, and as such costs can ramp up substantially in old age.

Whichever shape your retirement may take, planning early can help to ensure you have the funds available to enjoy the lifestyle you aspire to.

If you are thinking about retiring and would like to discuss your plans, please contact me.